Are Annuities Protected from Creditors in Florida?

The cash value and proceeds from a Florida annuity are exempt under Florida law. Annuities have a history dating back to the Roman Empire. Put simply, an annuity is a sum of money payable yearly or at other regular intervals pursuant to the terms of an annuity contract. Most annuity contracts are issued by large life insurance companies. These contracts typically are purchased through a financial professional. Two people may enter a private annuity contract. Private annuities are used for estate tax planning.

In Florida, an annuity may serve several important functions:

• Asset Protection
• Guaranteed Income
• Tax-Deferred Growth

Florida law specifically exempts annuities from collection by judgment creditors. Section 222.14 of the Florida statutes states:

Exemption of cash surrender value of life insurance policies and annuity contracts from legal process.—The cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor.

Annuity Asset Protection

The annuity proceeds are protected from garnishment even after being deposited into a bank account so long as the funds can be traced to the annuity.

Annuity contracts also offer valuable protection against “Longevity Risk,” that is, the risk of outliving assets. Some annuities guarantee a lifetime income stream regardless of how long you live. With the number of pension plans on the decline, annuities have taken their place in a retirement strategy for a reliable source of income.

An important feature of many annuities is tax deferral. These annuities allow an owner to accumulate money within the annuity account in a compounding fashion. Some annuities accumulate value through investments in marketable securities, and other annuities accumulate a fixed rate of interest. The annuity beneficiary does not pay tax on the increase in annuity value during an accumulation period, and tax is imposed once the beneficiary elects to take withdrawals. For this reason, annuities are often used for tax-advantaged legacy planning.

In addition, annuities commonly have a “death benefit” which provides the original principal, minus withdrawals, to the beneficiaries after the owner’s death regardless of the underlying fund performance. The Florida Life & Health Insurance Guaranty Association protects an annuity owner in the unlikely event that the insurance company issuing an annuity contract becomes insolvent. Currently, the maximum amount of protection provided by FLAHIGA for any one person is:

• Annuity Cash Surrender: $250,000 for deferred annuity contracts per contract owner.
• Annuity in Benefit: $300,000 per contract owner.

Benefits

The benefits to purchasing an annuity in Florida include:

1. Guaranteed income. Annuities provide a guaranteed income stream for the duration of your life. This income stream is known as an annuity payout. The income helps retirees who want a steady source of income cover their living expenses.
2. Tax-deferred growth. Earnings on an annuity grow tax-deferred. This means that you don’t pay taxes on the interest or other earnings until you start withdrawing the money.
3. Protection from creditors. In Florida, annuities are exempt from creditors. A judgment holder cannot garnish or otherwise attach the annuity policy or its proceeds.