Creditor Protection: The Annuity Option

Some asset protection might be included with an annuity.

With current bankruptcy laws making it more challenging to qualify for debt relief, one available avenue could be using 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. At the same time, other states name a specific amount of an annuity that can be exempted. Texas and Florida exempt all income from an annuity, while Washington State only exempts $250 monthly. Some states, such as Massachusetts, will exempt any amount 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 in qualifying pension plans can be creditor-proof and fall under Federal laws that overshadow state laws. Many schemes are available to protect assets from creditors, and if you are considering their use, it is essential to know precisely how you could be affected. You can always obtain legal and tax advice specific to your situation before taking steps to protect your assets. Only enter an agreement once you fully understand all aspects of the deal. I'd like to let you know that it is imperative to fully understand all your legal rights before completing any asset protection using annuities. Be informed. As with all important decisions, make sure you fully understand all aspects of your decision. It is always suggested you seek competent legal and tax advice before making any critical decision.   Many people have learned about the power of using the Safe Money approach to reduce volatility. Our Safe Money Guide is in its 20th edition and is available for free.   It is an Instant Download.  Here is a link to download our guide:  Safe Money Guide - Annuity.com