Annuity Creditor Protection

[Norwayguy]

Here is another chart (scroll to bottom) with a lot of information to read before you get there (the chart).

Creditor Protection for Life Insurance and Annuities

So here is the question...My client is a Maine Resident and I help him accumulated say hundreds of thousands in the annuity and for some reason he needs to file Bankruptcy. Would he benefit by moving to a state that has better state protections for bankruptcy or would he be screwed already because those annuities where sold in Maine...Maine only protects $450 of monthly income.

 

[budfox7]

Check out State Exemption Chart on Creditor-Debtor Issues. It dates back to 2007, but it's the best I've seen.

Good post, these are some of the few things that I shed light on presenting annuities to clients that are seeking a certain level of protection. When I mention lottery, OJ simpson, foreclosure, and to a certain extent divorce ( if annuity was established before marriage) that its all protected. This is a common subject in a state that is nasty on foreclosure's and people seeking bankruptcy ( did I spell that right ? lol)

 

[Charpress]

On the Maine question: the state of domicile controls. So, it wouldn't matter where you bought the annuity, just where you were domiciled when the problem comes up.

OJ moved from California to Florida because at the time his home in California was not creditor protected (since changed), but in Florida a home was totally exempt. He didn't make that move because he liked the golf courses better -he was exemption shopping. As a side note, I wonder if his house is still exempt if he is a prisoner in Nevada? Interesting question.

On annuitizing being required to avoid creditors: that could be possible in some state, but I'm not aware of any. In my state an annuity is exempt and so is the income from the annuity.

Another interesting wrinkle would be ERISA which can control 401(k) and company retirement plans. These would be exempt under federal laws regardless of what the state says.

 

[Larry Tew]

...Another interesting wrinkle would be ERISA which can control 401(k) and company retirement plans. These would be exempt under federal laws regardless of what the state says.

The rule on qualified plans being exempt trumps the state's rules concerning the funding vehicle (in this case, an annuity).

 

[Charpress]

The rule on qualified plans being exempt trumps the state's rules concerning the funding vehicle (in this case, an annuity).

Yes, all of this can be a mess to unravel. But I would say that an annuity in an ERISA controlled plan would be safe from creditors and only the degree of safety would be an issue. Let's say that the state says anything contributed to an annuity (regardless of whether it is qualified or not) within six months is exempt while the feds say anything contributed to an ERISA plan must be in the plan for 12 months before it is exempt. Would the better protection apply if you were sued 9 months out from an annuity transfer? I would sure make the argument.

Let's also not forget that IRAs are "qualified" but not controlled by ERISA. It is IRAs that are more frequently going to be the issue in creditor disputes -much more so than ERISA controlled plans.