Financial Planner

Answer: A - A private annuity is an exchange of an asset for an unsecured promise by the buyer to pay an annuity for the life of the transferor. Private annuities commonly provide life payments to the annuitant. Taking the payments in this way allows the annuitant to spread the capital gains from the sale, rather than accepting them in one lump sum. The contract must be unsecured, so the annuitant-to-be should make sure the entity making the annuity payments is sound financially. The annuity allows a person with a large estate to remove possible future appreciation from the estate and spread out capital gains, both actions reducing current income tax.