Definition of "Private Annuity"

A type of annuity contract between the annuitant and someone other than an entity that is regularly engaged in the business of issuing annuities (e.g., insurance companies). The primary purpose of a private annuity is to reduce estate taxes by eliminating assets from the estate of an individual during his or her lifetime. This is usually accomplished when an elderly family member transfers assets to a younger family member who makes an unsecured promise to pay a lifetime annuity to the transferor.