603 / What is a private annuity?

A private annuity is an unsecured promise of one person (the obligor) to make fixed payments to another person (the annuitant) for life in return for the transfer of property from the annuitant to the obligor. According to a general counsel memorandum, an unsecured promise to make fixed payments until a stated monetary amount is reached or until the annuitant’s death, whichever occurs first, will be treated as a private annuity (instead of an installment sale with a contingent price) if the stated monetary amount would not be received by the annuitant before the expiration of his or her life expectancy (as determined under the appropriate annuity table and as determined at the time of the agreement).¹