Advanced Estate Planning

What is a Private Annuity?

We have worked hard to save money, pay off the mortgage, and put extra away for a rainy day.  We care very deeply about making sure that our children have as much help as you can provide, as they look to the future.

Advanced Estate Planning Is a Plan for the Future Success of Your Family

Indeed, we live in a world where everything from higher education, to medical care, to real estate is becoming more and more expensive.  Accordingly, we want to make sure that we have done everything possible to ensure that our children can obtain the education and live the life of their dreams, whether that is building their own home and family, or pursuing a career in the arts, or both.

Therefore, you very much want to have your assets, investments, property, and financial instruments set aside to help your children as you look towards, and begin to enjoy, your retirement.  Yet, even if you do that, you may not be able to pass on as much as you want to your children because of estate and gift taxes, probate court fees, and administrative costs upon your death.  How can you minimize those added taxes, fees, and costs?

The answer is by engaging in some advanced estate planning.  By taking the “bull by the horns” now so you have more assets set aside for your children later, you are making the financially smart choice.  In that vein, one of the more interesting and helpful advanced estate planning tools is the private annuity trust, or simply, the private annuity.

Thus, this blog will take you through the basics of the ‘who, what, when, and where’ of a private annuity.  Of course, if you need more detailed information with regard to your personal situation you should give us a call at Doane & Doane.

We at Doane & Doane are advanced estate planning attorneys serving West Palm Beach and the surrounding area.  We understand the private annuity inside and out, and we are happy to help you make some sound advanced estate planning choices.  Call us today for a free consultation at 561-656-0200.

What is a Private Annuity?

A private annuity is one type of advanced estate planning strategy in which you are able to transfer property to your children (or others) while you are still alive.  It is a way for you to pass on assets and, at the same time, avoid estate and gift taxes.  There is even an added benefit to you because it ensures that you get paid a set income during the rest of your life based on the transferred property.

Although the term “private annuity” sounds fancy, it is really just a glorified sale of property to your children, with a couple of extra terms added to the sale.  Simply put, you basically create an agreement whereby you sell a piece of property (or other asset) to your children (or other beneficiary).  In response, your children “buy” that piece of property by paying you an annual payment for the rest of your life.

This type of advanced estate planning tool is called an “annuity” because it resembles the kind of annuity insurance companies provide.  An insurance-provided annuity is an insurance product that pays you a certain amount of money every year until you pass away.  In the same way, a private annuity pays you a set amount of money every year until you pass.  The only difference is that the private annuity is a payment from your children to you based on a piece of property, rather than an insurance company paying you based on an insurance product.

What are the Benefits of a Private Annuity?

There are a number of benefits to setting up a private annuity.

  • First, you are able to pass on a piece of property to your children for their benefit. And, you are around to be able to see your children enjoy that property during your lifetime.
  • Second, because the private annuity is essentially you “selling” your property to your children, it is not a gift. Thus, you avoid having to pay any gift tax for transferring the property to your children.
  • Third, again because it is a sale of property, the property is no longer part of your estate. Rather, it is owned by your children.  You, therefore, do not need to pay estate taxes (if any) on that piece of property.
  • Fourth, you are able to gain a regular income stream from the property during your lifetime. Because the structure of a private annuity is that, in exchange for “selling” the property to your children, your children promise to pay you a fixed amount every year, kind of like a mortgage payment.  Yet, your children no longer need to make that annual payment upon your death.
  • Fifth, there is a more intangible benefit to you of being able to have complete control over a transfer of property to your children while you are still alive. People worry that an estate will not be properly administered after their death.  Thus, the control that comes with a private annuity is an added benefit.

The Downside to a Private Annuity.

The one main downside to a private annuity is in the event that you live a lot longer than you expect.  That is called “mortality risk.”  Of course, we normally would all like to live as long as possible, but with private annuities, living a lot longer than expected could be expensive for your children.

That is because the annual payment that your children make to you based on the property “sale” could eventually exceed the fair market value of the property you transferred if you live for a long time.

Doane & Doane:  Advanced Estate Planning Attorneys Who Are Ready to Help You

The lawyers at Doane & Doane assist individuals, families, and businesses with unique estate planning needs, such as business succession, tax planning, high net worth, and charitable giving planning by our West Palm Beach advanced estate planning attorneys.

We also help our clients plan for the future by creating trusts, managing Medicaid goals and planning for the care of children and other loved ones. Whatever your goals, we can help you achieve them.

We also help with private annuities, which is the transfer of a substantially appreciated asset in return for periodic payments back to the trustor.  Call Doane & Doane today for more information at 561-656-0200.