- A private annuity exchanges property for a private party's unsecured promise of lifetime payments — typically parent to child, no insurer involved.
- Treasury's 2006 proposed regulations ended the classic benefit: gain on appreciated property is now generally recognized at the exchange, not spread over the payments.
- The structure's surviving powers are estate-side: the asset and its growth leave the estate, and payments stop at death with nothing left to tax.
- The obligor's promise must be genuinely unsecured — securing it risks collapsing the deal's estate benefits.
- Installment sales to grantor trusts and SCINs now do most of the work private annuities once did; the choice is a mortality-and-interest-rate bet requiring professional pricing.
Everything else on this site involves an insurance company. A private annuity does not: it is a deal between private parties — classically an aging parent and an adult child — in which the parent transfers property (a business, a farm, appreciated real estate) and the child promises lifetime payments in return. The payment amount isn't negotiated freely; it's computed from IRS actuarial tables and the §7520 interest rate so that the promise equals the property's value. Done correctly, the parent has sold the asset for exactly what it's worth — to the one buyer who was inheriting it anyway.
The golden age, and why it ended
For decades the structure carried a spectacular income-tax feature: because the child's unsecured promise had no ascertainable market value, the parent's capital gain wasn't taxed at the exchange but ratably as payments arrived — transfer a zero-basis business, spread the gain over a lifetime, and if you died early, unrecognized gain simply evaporated. In October 2006, Treasury issued proposed regulations targeting exactly this, treating the exchange of appreciated property for a private annuity as a taxable event at the exchange: gain recognized immediately, as if the property were sold for the annuity's present value. Though issued in proposed form, the regulations were drafted to apply to transactions after their announcement, and practitioners have planned around them ever since. The deferral era ended that month; any adviser pitching a private annuity for income-tax deferral in 2026 is reading a very old article.
What the structure still does — and it's not nothing
The surviving benefits are on the estate side. First: the asset, and every dollar of its future appreciation, leaves the parent's estate at the exchange — for a family business about to grow fivefold, freezing today's value out of the estate matters enormously. Second, the signature feature: payments stop at death and the obligation vanishes. Nothing remains in the estate — no note balance, no remaining term, nothing to tax or probate. A parent in demonstrably poor-but-not-terminal health (the actuarial tables can't be used if death within a year is expected at better-than-even odds, so real mortality risk must remain) can transfer substantial value cheaply if the actuarial bet lands. Third, the payments themselves arrive under the annuity taxation rules — an exclusion-ratio recovery of basis with the (now pre-taxed) gain and interest components — mechanically similar to non-qualified annuity taxation, without the deferral that once made it famous.
The risks are exactly the powers, inverted
The promise must be unsecured. Collateral, escrow, or retained interests in the transferred property invite the IRS to pull the asset back into the estate under retained-interest rules — the deal's estate magic depends on the parent genuinely holding nothing but the child's word. Which means: obligor default is a real risk, borne entirely by the parent. The child's divorce, bankruptcy, or plain refusal leaves the parent an unsecured creditor of their own kid, holding litigation instead of a farm. And the actuarial bet cuts both ways: a parent who outlives the tables collects payments that can far exceed the property's value, transforming the estate freeze into an expensive annuity purchased from an amateur insurer. The obligor's side carries the mirror risks — payments that never end, funded from an asset that may not yield enough, with no deduction for the payments made.
Against the modern rivals
Estate planners now mostly reach for two cousins. An installment sale to an intentionally defective grantor trust (IDGT) sells the asset for a note — fixed term, secured or not, interest at the applicable federal rate — with the grantor-trust status neutralizing income tax between parent and trust; the unpaid balance, however, sits in the estate at death. A self-canceling installment note (SCIN) splits the difference: a note that cancels at death, purchased with a risk premium in the price or rate. The private annuity remains the purest mortality bet — nothing survives death, no premium is 'paid' beyond the actuarial pricing itself — which is why it resurfaces for parents with genuinely impaired (but not one-year) life expectancy, illiquid single assets, and children stable enough to trust unsecured. That is a narrow lane, and it is precisely the lane the structure still owns.
If this is on your table
Three non-negotiables. Price it professionally — the annuity amount comes from the current §7520 rate and IRS mortality tables, and errors reprice the whole transfer as a part-gift. Paper it like strangers — a written agreement, actual payments on schedule, no side understandings; family deals fail audits on informality more than design. Model the parent living to 100 — if that outcome breaks the child or the asset, the structure is wrong regardless of its elegance. This is estate-attorney-and-CPA territory in a way nothing else on this site is: an insurance annuity is a product you buy; a private annuity is a legal position you defend.
Frequently asked
Weighing a family transfer against the alternatives?
Private annuities, SCINs, and installment sales price differently at every age and §7520 rate. Tell us the asset, its basis, and the ages involved — we will frame the comparison you should take to your estate attorney, including the questions that expose which structure actually fits.
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