What is Annuity? Annuities Disadvantages

Annuity can refer to a series of fixed-amount payments paid at regular intervals over the period of the annuity. The determining characteristic of an annuity is that the annuitant has an interest only in the payments themselves and not in any principal fund or source from which they are to be derived. As the word implies, annuities once meant receipt of annual payments, but annuities may now be paid in quarterly or monthly installments and the term distinguishes the payment of a guaranteed, fixed sum from somewhat similar gifts of income from a trust where the amount of the payment varies according to the nature and management of the trust corpus.

An annuity may be created by contract or by will. To enforce the payment of an annuity, the common law provides for a writ of annuity which may be brought by the grantee or his heirs, or their grantees, against the grantor and his heirs. The action of debt cannot be maintained at the common law for the arrears of an annuity devised to A, payable out of lands during the life of B, to whom the lands are devised for life, B paying the annuity out of it, so long as the freehold estates continues.

The first payment of an annuity is to be made at the time appointed in the instrument creating it. In cases where testator directs the annuity to be paid at the end of the first quarter, or other period before the expiration of the first year after his death, it is then due; but in fact it is not payable by the executor till the end of the year. When the time is not appointed, as frequently happens in will, the following distinction is presumed to exist. If the bequest be merely in the form of an annuity as a gift to a man of "an annuity of one hundred dollars for life" the first payment will be due at the end of the year after the testator's death. But if the disposition is of a sum of money, and the interest to be given as an annuity to the same man for life, the first payment will not accrue before the expiration of the second year after he testator's death. This distinction, though stated from the bench, does not appear to have been sanctioned by express decision.