Creditor Protection: The Annuity Option

By |2020-04-13T19:52:34+00:00June 7th, 2015|Annuities, Annuities 101|

Some asset protection might be included with an annuity


With current bankruptcy laws making it more difficult to qualify for debt relief on still available avenue could be the use of an annuity. In some states, the income from an annuity payment is protected from creditors. Each state is different, and many states have had these laws come under fire because of lawsuits. It is essential to always ask for legal and tax advice when considering using an annuity as a protected asset.

Some state statutes and court decisions also protect some or all of the payments from those annuities. While other states name a specific amount of an annuity that can be exempted. Texas and Florida as an example exempts all income from an annuity while Washington State only exempts $250 a month. Some states such as Massachusetts will exempt any amount that is expressly declared in the contract. Federal law does not specifically exempt annuity payments or values and has chosen to allow each state to make its rules regarding exemptions.

Many individuals purchase insurance company annuities as potential retirement supplements to income. The annuity exemption is primarily intended to cover this type of annuity. The purchase of an annuity also serves as an asset protection device in the event of bankruptcy.

Funds held in an annuity but within a qualified retirement plan such as an IRA or 401 (k) could be exempted under Federal Rules. Each case can be different and is based on the Employee Retirement Income Security Act of 1974 (ERISA). Funds held in qualifying pension plans can be creditor proof and fall under the Federal Laws who overshadow state laws.

Many schemes are available to protect assets from creditors, and if you are considering their use, it is important to know exactly how you could be affected. Always obtain legal and tax advice specific to your situation before taking steps to protect your assets. Never enter any agreement until you fully understand all aspects of the deal.

Disclaimer: It is imperative to fully understand all your legal rights prior to completing any asset protection using annuities. Be informed. As with all important decisions make sure you fully understand all aspects of your decision, and it is always suggested you seek competent legal and tax advice before making any important decision.







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About the Author:

Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet.

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