Private Annuity

  

Categories: Insurance

In an annuity contract, you pay a large lump sum now for regular payments at some point down the line. Usually, the product provides income during retirement. You write a check for $100,000 now. Twenty years from now, you start receiving $1,500 a month, with the payments lasting either for a set period of time or until you kick the bucket, depending on the structure of the annuity.

Most annuities are sold by insurance companies. A private annuity uses the same general framework, but it's an individual deal between two parties.

You own an old age home catering to retired circus clowns. You're getting to the point where you might become a resident in the near future (you've got some clowning days in your past, so you're eligible). You want to hand the business over to your daughter. However, you don't actually want to end up living at Bozo Estates. You'd like to keep receiving income checks so you can afford to live in your own house.

So you and your daughter set up a private annuity. You give her the retirement home. She agrees to keep sending you an income check every month from now until you go to the big clown car in the sky.

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