Some Annuities May Not Be Protected

Florida Statute 222.14 protects annuities owned by Florida residents from creditor claims and judgments. Some people have asked whether variable annuities are included under the same statutory protection. Variable annuities are similar to investment accounts which at the option of the annuitant convert to a fixed annuity some time in the future. The issue was whether the variable annuities prior to their “maturity date” when they start paying out an income stream liked a fixed annuity were intended to be included in the statutes’s definition of protected annuities. In 2001, the Florida Supreme Court considered this issue in the case of In Re Alan L. Goldenberg. Dr. Goldenberg was a physician who filed for bankruptcy to escape malpractice judgments and claimed exemption of several variable annuities. The Court concluded that Dr. Goldenberg’s variable annuities were protected under Florida Statute 222.14. The Court stated that, “the proceeds of an annuity contract where there is a surrender penalty are exempt from legal process….”

A “surrender penalty” is a fee the investor must pay if the annuity is cashed in within a certain amount of time after purchase. Some annuities, such as “no-load” annuities do not impose surrender penalties. The Court’s decision seemed to indicate that annuities that do not have surrender penalties may not be exempt. If you own annuities that never had a surrender penalty, and you anticipate creditor claims, it may make sense to covert these annuities to different type of annuities or to other protected assets.

About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.

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