With the promulgation of Rev. Rul. 69-74, many of the advantages of a private annuity were curtailed because of the holdings that (1) capital gain was recognized on the transaction before the recoupment of basis, and (2) the investment in the contract was limited to the adjusted basis of the appreciated property contributed, thus reducing the lifetime exclusion ratio. Because of these disadvantages and the fact that the three and one-half percent annuity tables were so outdated, many estate planners have felt that the private annuity lost some of its lustre. However, in the Federal Register for July 3, 1970, the Internal Revenue Service published proposed regulations amending Treas. Reg. § 20.20317 (1958) to provide new tables to be used in the valuation of annuities, life estates, terms of years, remainders, and reversions. These proposed regulations were adopted by T.R. 7077, thus incorporating the new tables for transfers occurring after December 31, 1971. According to Rev. Rul. 69-74, the estate-gift tax tables are the tables to be used to value private annuities. The tables may be found in Treas. Reg. § 20.2031-10 (1970) and Treas. Reg. § 25.2512-9 (1970). Consequently, it is now necessary for taxpayers and their counsel to reexamine the economic and tax advantages and disadvantages of a private annuity. The purpose of this article is to show how, in light of the new tables, one can gain maximum tax and economic advantage from private annuities. The approach is a historical one. This enables one to see the gradual changes in the law and also to see the income, gift, and estate tax consequences starting from the simplest transaction and ending with one of the more complex estate planning usages of a private annuity. Following the discussion on the two major approaches to private annuities, there is a summary of the economic and tax consequences. The final section of the paper is devoted to a hypothetical plan which will maximize the advantages and minimize the disadvantages.
M. H. Weinberg,
The New Case for Private Annuities,
51 Neb. L. Rev. 9
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