Exploring the Tax Advantages of a Private Annuity

A private annuity can be a great way to transfer assets to another individual. This strategy can provide you with certain tax benefits in your retirement or estate planning. Here are the basics of a private annuity and what some of the tax advantages are.

What Is a Private Annuity?

A private annuity is an agreement between two individuals. This agreement allows one individual to convey an asset to the other. In return for this asset, the second individual will make a regular annuity payment to the other person. With this type of annuity, the transaction has to be between two individuals, and they cannot be regular sellers of annuities. Most of the time, these payments will last for the rest of the individual's life.

Defer Taxes

By combining a private annuity with a trust, you can essentially defer your taxes for many years. This provides you with a great estate planning tool if you want to avoid paying taxes all at once.

Avoid Estate Taxes

This is also a popular strategy to avoid paying gift or estate taxes on a large transfer of wealth from one individual to another. With this strategy, you can convey large amounts of money over a long period of time with this treated as a sale instead of a gift or inheritance. 

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