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Private Annuity
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Definition
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An arrangement between two people - the first receives an annuity income,
usually for life; the second receives property and promises to pay the income.
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When Does It Apply?
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When a person wishes to transfer ownership of a property to another yet receive
an annuity income.
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How Does It Operate?
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Mother transfers an apartment building to son or daughter. The child gives an
unsecured promise to make annuity income payments to the mother.
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Advantages/Disadvantages
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Advantages - property and any future appreciation is removed from
annuitant's taxable estate, and a lifetime income is received.
Disadvantages - arrangement cannot be secured by the property; annuitant
may live "too long" and too much may be paid for the asset.
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Estate/Gift Tax Implications
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Property exchanged for the annuity may not be included in annuitant's estate
for estate tax purposes.
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Income Tax Implications
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Income tax will be owed on a portion of the payment received by the annuitant
who transferred the property.
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Other Considerations
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Gift is made by annuitant to the payor if the present value of annuity payments
is not equal to the value of the property transferred.
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