Creditor Protection: The Annuity Option

Annuity Option Creditor ProtectionBy Rob Wiegland, Staff Writer


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 their rules in regard to 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 personally could be affected. Always obtain legal and tax advice specific to your situation before taking steps to protect your assets. Never enter to any agreement until you fully understand all aspects of the deal.

It is extremely important to fully understand all your legal rights prior to completing any asset protection using annuities. Be informed.

As with all important decisions make certain 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.