What Is An "Annuity?"
Florida statutes protect from creditors annuities and annuity proceeds. Courts have liberally applied the protection of annuity proceeds to any money in a debtor's financial accounts traceable to an annuity. The term "annuity" is not defined in Florida statutes. What is and what is not an annuity can be confusing. For example, this past week I evaluated a client's severance package from a national financial firm. The firm agreed in writing to pay the retired client $65,000 each year in monthly installments for the balance of his lifetime. The client asked me whether these payments could be protected under Florida's exemption statutes.
First, I concluded that the payments are not compensation for services which could fall withing the wage protections afforded to head of household. Although the payments are in consideration for prior employment the money is not payment for current work nor are they tied to the amount of his work. I don't think this payment falls withing the scope of protected earnings. Neither are the payments protected as pension or retirement money because the payments were not tax deferred during the client's employment under one of the IRS Code sections listed in the Florida statutes.
I think the retirement package is an annuity, even though his retirement agreement does not mention the term annuity. The characteristics of the retirement package and the proceeds should depend more on how they are structured compared to what they are called or labeled. The Florida courts have defined an annuity generally as a periodic right to payment pursuant to a contract. There are no additional requirements. Although typically sold by an insurance company, annuities may be issued by anyone. Florida courts have previously protected annuities issued one individual to another individual. In my opinion, the financial company intended to provide its former employee a fixed financial benefit for life by contract which is the essence of an annuity.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
Jonathan, Good job on your research. The word annuit is latin for "income." Could the statutes reference "guaranteed income" as an exemption from creditors? The 1934 widows and orphans act of congress my hold some influence on Fl. statutes. What do you think?