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Judge Winmill went on to explain that § 41-1836(1)(b) & (c) provide limits to the exemption, “if the benefits are ‘presently due and payable’” limiting the exemption at $1,250.00 a month, with the excess over $1,250.00 a month subject to garnishment limitations and the “reasonable requirements of the judgment debtor and his family” as the court deems “just and proper.” Id.; I.C. § 41-1836(1)(b) & (c). However, “the $1250 monthly limitation comes into play only if the annuitant is ‘presently’ receiving benefits. If benefits are only ‘prospectively’ due, the $1250 limitation is not yet relevant, and creditors have no right to reach into the future and claw back payments to satisfy the annuitant’s debts.” Id.
In response to that decision, the Idaho Legislature enacted the following statute:
. . . .
§ 41-1836. EXEMPTION OF PROCEEDS—ANNUITY CONTRACTS—ASSIGNABILITY OF RIGHTS. (1) The benefits, rights and privileges and options which under any annuity contract heretofore or hereafter issued are due or prospectively due the annuitant, shall not be subject to execution nor shall the annuitant be compelled to exercise any such rights, powers, or options, nor shall creditors be allowed to interfere with or terminate the contract, except:
(d) As to any deferred annuity contract having a cash surrender provision and from which no periodic payments are being made, the cash surrender value of the deferred annuity contract, not to exceed premiums paid into the deferred annuity contract within six (6) months prior to the filing of a bankruptcy petition, as defined in 11 U.S.C. section 101, or the date of attachment or levy on execution, as defined in section 11-201, Idaho Code, whichever is applicable.
Essentially, subparagraph (d) provides exemption limitations on a “deferred annuity contract.” The effective date of this exemption limitation is July 1, 2013.
There appear to be two classifications of annuities under § 41-1836: (i) the current presently due and owing annuity under subparagraphs (b) and (c); and (ii) the newly created deferred annuity under subparagraph (d).
With respect to presently due and owing annuities the statutory limits appear to remain unchanged by the district court’s decision and the recent statutory amendment. It appears that juxtaposing the district court’s decision against S1099aa reinforces the distinction between a presently due and owing annuity and a deferred annuity.
With respect to the exemption in a deferred annuity, in order for the exemption limit in subparagraph (d) to apply, the deferred annuity (i) must have a cash surrender provision, and (ii) the annuitant is not presently receiving payments.
If these two conditions are met, then debtor is granted a limited exemption. This newly created exemption does not include the cash surrender value of the value of premiums paid within six (6) months prior to the bankruptcy or date of attachment or levy, whichever applies. In other words, I.C. § 41-1836(d) limits the deferred annuity exemption to premiums paid six months or more prior to bankruptcy or execution.
A recent decision by Judge Meyers of the Bankruptcy Court of the District of Idaho also indicates that some annuities may be recoverable as a fraudulent transfer. In re Preuit, Case No. 12-02296-TLM (Issued 6/7/2013).
If you want to use an annuity as a tool for exemption planning or have an annuity at issue before you file, you should carefully consult with a bankruptcy attorney to see what your risks and/or opportunities might be.
NOTE: Much of the substance of the above comes from a Bankruptcy Practice Note prepared by Robert J. Maynes, Esq. for the Idaho Bankruptcy Section.
If you file a Chapter 7 bankruptcy, any assets you have -- as of the date of filing -- are part of the bankruptcy estate. That means the trustee is entitled to such property to liquidate for creditors.