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IV. Annuities

24.A51. An annuity involves a right to payments of money during the life of the annuitant or for a term of years. Where the annuity is charged on the income to be derived from assets, it may be indistinguishable from a life estate or an estate for a term of years. Clearly it should not be possible to escape the operation of the limited interest provisions by describing rights as an annuity, and the provisions defining


  ― 466 ―
interests should be wide enough to cover any situation in which a person has a right to income from property.

24.A52. Where the limited interest provisions are not applicable, an annuity will be treated like any other valuable rights. Where a person purchases an annuity, a question arises as to the adequacy of the consideration he has paid. This should be determined and any gift taxed at that point. Particular attention should be paid to the situation where the annuity is purchased from a relative or from an entity in which a relative is interested. Tables of life expectancy give only an average figure for the whole population. They may present a distorted picture in a particular case and should not necessarily determine the value of the annuity.

24.A53. A person may be entitled to an annuity under a will or settlement. Estate duty or gift duty on the property of the deceased or the property settled will of course have been paid. Where the bequest or gift of the annuity takes the form of a direction to the trustee to purchase an annuity for the taxpayer, the annuity will clearly not involve a limited interest. If the direction takes any other form, the annuity may involve such an interest. Thus a direction to pay an annuity from income of the trust, but to have recourse to capital if necessary, should be treated as giving rise to a limited interest.

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