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2640.10.25.10 TRANSFERS INVOLVING ANNUITIES An annuity is an investment product, policy, certificate, contract, or other arrangement between two or more parties. One party pays a sum of money or other valuable consideration to the94 other party in return for the right to receive future payments. The term “annuity” includes any financial instrument that claims to be an annuity, as well as any instrument that meets the definition of an annuity. Annuities are generally purchased by individuals from financial institutions, insurance companies, or non-profit organizations. However, “private annuities" exist that are arrangements between non-commercial, non-organizational entities such as family members, friends, or other individuals. Different companies may use slightly varied terminology for their products. However, there are basic and common definitions that apply to annuities in general: • A deferred annuity allows interest to accumulate until the purchaser elects monthly payments to begin • Income payments often start many years after purchase • With an immediate annuity, payments start no later than one year after the premium is paid • The annuitant is the person on whose life expectancy the annuity payments will be calculated • Annuitize is when the accumulated value of the annuity is converted into a guaranteed stream of income. At this point, the annuitant decides how the payments will be received. The individual could choose monthly fixed or variable payments, or a balloon payment at the end of the term, for example. The purchase of an annuity is a transfer of property and, therefore, it is necessary to determine whether adequate consideration was (will be) received. For annuities purchased on or after June 1, 2002, or annuitized on or after June 1, 2002, regardless of the purchase date, adequate consideration (will be) received if all the following criteria are met: • The annuity is purchased from an insurance company or other commercial company that sells annuities as part of the normal course of business, or from a tax-exempt non-profit organization • The annuity provides monthly payments of interest and principal so that, for a specific year, the total payments for the year do not differ by more than five percent from the total paid in the previous year, and • The annuity must return the full purchase price to the purchaser or the purchaser’s spouse within the annuitant’s life expectancy using the Life Expectancy Tables that appear later in this section. If the individual does not (will not) receive compensation in the amount of the full purchase price within their lifetime (or within the contract’s specified time period if shorter than the life expectancy), the uncompensated amount is the difference between the purchase price and the amount that the annuity will pay out to the individual within the individual’s life expectancy, or term of the contract if shorter than life expectancy.