A lifetime gift annuity allows a grandparent to leave a long-term reminder of themselves to their grandchild while the grandparent is alive and after the grandparent has passed away. The reminder comes in the form of lifetime income, payable every year on the grandchild's birthday. The income comes from a joint life annuity purchased by the grandparent, set up so the grandparent and grandchild are the annuitants and income is paid to the grandchild for the grandchild's lifetime.
The grandparent, as owner of the annuity, is responsible for paying tax on the income but directs the income to be paid to their grandchild. As the owner, the grandparent also makes the grandchild the contingent owner so when the grandparent passes on, the grandchild becomes owner of the policy.
The lifetime gift annuity is not restricted to grandparents; a parent may also purchase a lifetime gift annuity for a child. To simplify the explanation that follows, we only refer to a grandparent and grandchild.