What risks or other negative factors are there?

The only risk to your money is from the stability of the investment.

But you have that same concern even if you make a cash, taxed sale because you still need to invest the money.

Prudent investment strategies make that risk negligible, though.

There is an unrelated negative factor: the annuity face amount should be something less than the fair market value of your property, by 5% to 10%. This provides the trust with some backup or reserve capital.

Without a reserve in the trust the value of the property that went into it and the obligation to make the annuity payments are theoretically equal.

The net worth of the trust would be zero, its assets and liabilities would be equal. That could lead to a disallowance of the transaction by the IRS on the grounds that the trust lacks economic substance.

Reserve capital needs may be handled by a gift of some additional property to the trust (from either the annuitant or beneficiaries).

But the most common way to provide the reserve is by decreasing the face value of the annuity by some amount. NAFEP recommends writing the private annuity for 93% of the fair market value of the property.