The transfer of the asset is not a taxable transaction. It is important to understand that a private annuity trust is not issued by a commercial insurance company nor should a PAT investment portfolio is made up of include any commercial annuities or life insurance.

Anytime after the asset is placed into the private annuity trust the asset can be sold without taxation to the trust. There is no tax on the sale to the PAT because the PAT has actually purchased the asset from the owner for the fair market value of the asset. The PAT pays the owner for the asset with a lifetime income stream. The PAT has a basis equal to the fair market value so the PAT can sell the asset for fair market value and not be subject to taxation. The original owner of the asset pays taxes only on the PAT payments received, not on the transfer of the asset to the private annuity trust.

Private annuity trust payment amounts

are based on IRS Life expectancy tables for a single individual or for the joint lives of the asset owner and his or her spouse. The lifetime annuity payments are then made from the PAT assets and/or investment earnings from asset or, alternately, the asset is sold and the proceeds are reinvested by the trustee to fund the payments. PAT payments are calculated using an IRS formula based on the age of the asset owner(s), the value of the asset, and the current IRS interest rate called the Applicable Federal Rate -AFR. PAT payments can be made monthly, quarterly, or annually.