A more thorough explanation:

A private annuity is an agreement between two individuals where one person (the "annuitant") transfers assets to another person (the "obligor") in exchange for regular payments for the rest of the annuitant's life. This type of annuity is different from a regular annuity because the obligor is not in the business of selling annuities. Private annuities are often created between family members, such as a parent transferring assets to a child.

• The property is removed from the seller's taxable estate.
• If the promised annuity payments equal the value of the property, the seller avoids gift tax.
• If the annuitant dies before the annuity payments equal the value of the property, any remaining untaxed gain will escape tax.
• The annuity property remains within the family, which can be important for items with significant family value, such as heirlooms.

• The obligor's promise to pay the annuity is unsecured.
• If the parent outlives the child, the child's estate must continue to make the annuity payments out of the estate assets.
• If the annuitant lives longer than expected, the obligor's payments to the annuitant may be more than anticipated.

For example, a father may transfer ownership of a family vacation home to his daughter in exchange for her promise to make regular payments to him for the rest of his life. This allows the father to remove the vacation home from his taxable estate and avoid gift tax. However, if the father lives longer than expected, the daughter may end up paying more than the value of the vacation home.