Questions to ask about Private Annuities

Private annuity is a type of annuity agreement between an annuitant and a person designated as the transferor. This type of annuity agreement requires that the person transfer his or her properties, be they in the form of cash, securities, and non-liquid properties, to the other party. In exchange, the other party will give the person certain amounts of money in a regular payment schedule. The payments will last throughout the person's life. Private annuity is called such because it is merely an annuity contract between two parties, and it does not involve insurance companies. More often than not, the transaction is made between two family members.

If you are planning to invest in a private annuity, make sure that you know all about it and how it differs from different investment forms. As a classic example, a lot of people wonder about how exactly a private annuity differs from an immediate annuity. Both offers lifetime payments made in recurring payouts throughout the investor's life. The main difference, although it is quite minor, is that a private annuity is a private contract or agreement between two individuals, while an immediate annuity can only be contracted with an insurance company. Another more significant difference is that in an immediate annuity, the insurance company gets to keep the remaining amount in the principal investment in case the annuitant dies earlier than expected. On the other hand, a private annuity also gets to keep the principal, but this will be beneficial to the family either way, as compared to an immediate annuity, where the money will just be lost to a third party company.

Another question to ask is how the annuity payments are calculated. In this aspect, a private annuity is just like an immediate annuity wherein the payments are calculated based on the life expectancy of the annuitant. In a family setup, the children or the receiver of the investments, should ensure that annuity payments are made to the owners, in most cases, their own parents. These payments will not be tax-deductible.

Moving on, yet another question you should not forget to ask is regarding the distribution of the control over the assets invested into a private annuity. In contracts made between two family members, the control of the assets will be given to the person who receives it, and the person who transfers it will no longer be in control. However, since the contract is between two family members, there will be no transfer of assets to anybody outside the family. However, there is another form of private annuity, called the Family Limited Partnership. In this kind of agreement, the real owner of the properties, despite the transfer of assets into the care of another person, still retains the ownership and control of the investments.

A private annuity is a completely different form of annuity. It has its own offer, its own niche. Thus, it is all too likely that some people are looking for exactly what it offers. This is what makes a private annuity stand out, but since this concerns family members, it is better to ask every question that is important to the agreement to make sure that all lines are clear.