How does the private annuity trust compare to an installment sale?

An installment sale will spread the capital gains tax over the life of the note.

But, there are three problems with this approach:

First, an installment sale won't defer depreciation recapture.

Second, when you make the sale to an outsider there is always a chance the deal will go bad, that the payments won't be made, or that the property will be allowed to degrade in value.

Third, with an installment sale the unpaid balance of the note will be included in your estate when you die, which makes that balance subject to estate taxes.

With a private annuity trust, you can get tax deferral without the trust being forced to make an installment sale. The trust can sell for cash if it chooses.

With a private annuity trust, when the annuitant dies there is nothing left in his taxable estate from the entire annuity transaction. The beneficiaries own whatever is left.