Annuity - Definition - Law Dictionary Home Dictionary Definition annuity

Definition :

Annuity, in order to constitute an annuity, the payment to be made periodically should be a fixed or predetermined one, and it should not be liable to any variation depending upon or on any ground relating to the general income of the fund or estate which is charged for such payment, CWT v. P. K. Banerjee, (1981) 1 SCC 63 (75): AIR 1981 SC 401. [Wealth-Tax Act, 1957, s. 2(e)(1)(iv)]

It is a right to receive a specified sum and not an aliquot share in the income arising from any fund or property. Ordinarily an annuity is a money payment of a fixed sum annually made and is a charge personally on the grantor, CWT v. Arundhati Balkrishna, (1970) 1 SCC 561 (565): AIR 1971 SC 915. [Wealth Tax Act, 1957, s. 2(e)(iv)]

An annuity is a fixed sum payable annually either in perpetuity or for any less period. When charged upon land either freehold or leasehold both, exclusively of purely personal estate, it is strictly a rent charge; see (English) Real Property Limitation Act, 1833 (3 & 4 Will. 4, c. 27), s. 21, and RENT CHARGE. But if the annual sum is payable either under a personal obligation only or out of funds which consists of personal estate exclusively, it is an annuity. If the source of payment is mixed and consists of real and personal estate, its nature will depend upon the construction which the Court will give to the grant. In a will an annuity of this kind in prima facie personalty, but the word annuity may also be construed as a charge upon lands out of which the payment is to be made exclusively of the personal estate, see Turner v. Turner, 1783 Amb 776; re Trenchard, 1905 (1) Ch 82. Annuities as a rule are held to be comprised in the word 'legacies,' see Hawkins on Wills, 3rd ed., p. 346. But although annuities which are not charged on real estate are personal estate if bequeathed or granted before 1926 to A. and his heirs, they were for the purposes of intestate succession but not for any purpose other than descent, considered to be heritable and descended to the heir. On the other hand, a limitation of a personal annuity to A. and the heirs of his body was ineffectual to create and estate tail, and passed an absolute interest conditional only upon an heir of the body being born. But now under s. 130 of the (English) L. P. Act, 1925, an equitable estate tail may be created after 1925 in respect of an annuity or any other personal estate if the technical words 'heirs of the body' or 'in tail' are used. Testamentary annuities are prima facie considered to be payable out of income and for the life of the annuitant only, but the source and order and duration of payment depend upon the meaning and intention of the will. In general it may be said that an annuitant is entitled to payment in cash of the capital sum where there is a direction to purchase or to invest a definite amount in the purchase of an annuity. If there is only a power as distinguished from a trust to purchase an annuity, the annuitant's right to the capital value only arises upon or after the trustees have actually provided money for the purpose of the purchase. Until then, as well as in the cases where there is a simple bequest of an annuity, or even where trustees are directed or authorized to set apart a fund for an annuity, the annuitant cannot claim the capital value of the annuity from the personal representatives. As to the power of the personal representative to set aside a fund to answer an annuity, see s. 41 f the (English) A. E. Act, 1925.

A perpetual annuity, if charged upon land, is redeemable under the provisions of s. 45 of the (English) Conveyancing Act, 1881, reproduced by the (English) Law of Property Act, 1925, s. 191.

An annuity for life or years is not redeemable in the same manner; but it may be agreed by the parties to the contract that it shall be redeemable on certain terms.

An annuity may be bequeathed. It may be either created, or, if already existing, may be transmitted, by will. A created annuity is a general legacy, and will abate with the other legacies upon a deficiency of assets. It commences, as a rule, from the death of the testator [Re Robbins, (1907) 2 Ch 13], but arrears of it do not carry interest (Re Hiscoe, (1902) 71 LJ Ch 347). A personal annuity of inheritance will pass under a general bequest, Aubin v. Daly, (1820) 4 B&A 59; In re Trenchard, 1905 (1) Ch 82.

An annuity is frequently resorted to as a means of borrowing money, where the borrower has not any available security, the borrower undertaking to pay an annuity during his own life, instead of interest and the return of the loan. The borrower is the grantor, and the lender is the grantee, of such annuity.

Government annuities may be purchased by persons wishing to exhaust all or part of their capital in exchange for an annual provision for life. See (English) Government Annuities Act of 1929 (19 & 20 Geo. 5, c. 29), and, see other statutes under title 'Saving-Banks' in Chitty's Statutes as to the purchase of annuities through savings banks. Before 1926 an annuity not created by marriage settlement or will did not affect lands or hereditaments as against purchasers, mortgagees or creditors without notice unless it was registered, 18 & 19 Vict. c. 15, ss. 12, 13; Greaves v. Tofield, (1880) 14 Ch D 563. This register has now been closed, see (English) Land Charges Act, 1925; LAND CHARGES; SETTLED LAND.

For the recovery of arrears of annuities charged on land, i.e., rent charges, see RENT CHARGE, and for apportionment of annuities generally see the (English) Apportionment Acts, 1834 and 1870 (4 & 5 Wm. 4, c. 22 and 33 & 34 Vict. c. 35); also Michael Bowles on Testamentary Annuities.