Unraveling the Mysteries of the Florida Exemptions for Life Insurance and Annuity Contracts, Part Two

This is the second part of an article about exemptions for life insurance and annuity contracts in Florida. It discusses whether the exemption for annuity contracts applies to deferred annuities, traditional estate planning arrangements, and the application of the fraudulent conversion rule. The law says that the money from an annuity contract is protected from creditors in bankruptcy. In a case called Goldenberg v. Sawczak, Dr. Goldenberg had bought some annuities before he was sued for malpractice. When he filed for bankruptcy, he claimed that the money from the annuities was exempt from his debts. The court agreed and said that the money from the annuities couldn’t be taken by the creditor. The Florida Supreme Court was asked whether the cash value of annuity contracts is protected from creditors under Florida law. The Court said that it is, and that the law includes money received from surrendering an annuity contract before it matures. They based their decision on the specific wording of the law and a previous court case. The exemption for annuity contracts issued to people in Florida does not apply to protect their interest in certain self-settled trust arrangements. This means that the money from these trust arrangements could still be taken by creditors or other people they owe money to, despite the exemption for annuity contracts. This is because the self-settled trust arrangements are different from regular annuity contracts and are not protected by the exemption. The terms “issuer” and “issue” are not defined in the law, but “issuer” is generally considered to be anyone who proposes to issue or has issued any type of security. If you want to protect a retained interest in a trust, you might want to set it up in a state that provides creditor protection for self-settled trusts, like Alaska, Delaware, Rhode Island, or South Dakota.

The exemption for annuities should not apply to a nonsettlor donee’s interest in a charitable remainder trust or any other third-party trust that grants a beneficiary an annuity interest in the trust. Florida’s fraudulent conversion rule states that if a debtor converts nonexempt property to exempt property to avoid paying a creditor, it is considered fraudulent. However, the rule does not apply if a debtor converts nonexempt property to homestead property. It’s possible for a judgment debtor who relocates to Florida with life insurance and annuity contracts to have a more favorable result in protecting those assets from creditors. In the case of Marshall v. Bacon, a woman named Marshall got a judgment against her ex-husband Bacon for alimony and support payments. Bacon had three insurance policies on his life, but because he was living in California when Marshall tried to get money from the policies, he couldn’t claim an exemption. So, it’s important to understand the limits of insurance exemptions and plan carefully. If you create a trust for yourself and try to protect your assets from creditors, the law might not allow it. A court case in Florida showed that a person couldn’t use a charitable trust to protect their assets in bankruptcy. The law is pretty strict about this. If you set up a trust in Delaware, you don’t have to live there to take advantage of their trust laws. In Florida, there are laws that protect the money in a trust from being taken away, but it’s important to think about potential bankruptcy laws as well. Fla. Stat. §222.30 has specific rules about protecting assets in a trust from creditors. In Florida, you can turn non-exempt property into exempt homestead property to protect it from creditors. But there are some rules and restrictions, and it may not be as easy to do in Florida compared to other states when declaring bankruptcy. The Florida fraudulent conversion statute may not apply if someone moves to Florida to protect their assets from creditors. However, there are rules about when someone can claim exemptions in bankruptcy. Jonathan Gopman, Howard Hujsa, and Matthew Turko are lawyers who specialize in helping people protect their wealth. This information is from the Real Property, Probate, and Trust Law Section of The Florida Bar.

Source: https://www.floridabar.org/the-florida-bar-journal/unraveling-the-mysteries-of-the-florida-exemptions-for-life-insurance-and-annuity-contracts-part-two/