An annuity is an amount of money payable each year for a specified period. A life annuity usually refers to a sum of money to be paid yearly for the rest of the person’s life. Annuities, which can be used in a farm transfer plan, can be purchased from life insurance companies. The person buying the farm would pay the cost of the annuity to the insurance company; the company would then make payments to the seller of the farm. The person receiving the payments is called an annuitant. There are many variations of annuities, such as straight life, cash refund, joint, and deferred. Annuities can be purchased in a lump sum or in units over a period of time. An insurance company is in a much better position to assume the obligation of paying a lifetime annuity than is an individual.
A partnership may be used to enable the transfer of farm property from one generation to the next. Usually the child obtains an interest in the farm operation by gift or purchase, or by an operating agreement under which he invests part of his income share in either real or personal property, or by both gift and purchase. Later, arrangements can be made to buy a larger part of the parent’s interest. Provision is then made for the child to purchase the remainder of the parent’s interest at the parent’s death when the partnership is dissolved and liquidated. Often this provision is made by a “buy and sell agreement” whereby the partners agree that the parent’s remaining share shall be sold to one child at the parent’s death. An agreed payment by the purchaser to other potential heirs is made a part of the arrangement. The payments could be made on an installment basis or by using proceeds from life insurance policies.