Are Annuities Protected From Creditors In New York?

On October 22, 2002, the New York State Insurance Department’s Office of General Counsel issued the following informal opinion.


There were no specifics given. This particular annuity was labeled as a “non-qualified commercial individual annuity” by the inquirer, who expressed concern about the protection of creditors in the event of a divorce or bankruptcy.


Insurance and annuity contracts are excluded from creditors’ claims under New York Insurance Law 3212 (McKinney 2000). In the statute, Section (a) provides definitions of terminology that are relevant to the statute. The following is what paragraphs 2, 3, and 4 provide:

What states protect annuities from creditors?

Depending on the state, annuities may be completely protected from creditors and bankruptcy courts. It is illegal for creditors to seize money held in an annuity or cash value life insurance policy in states such as Florida and Texas.

In order to protect the vast number of seniors who live in these two states and rely on annuity income to meet their living expenses, these two states maintain these statutes.

Exemption from seizure varies from case to case, depending on the circumstances, in the other states of the union. Annuity contracts in several states have no or limited creditor protection.

A single term could be the difference between a state-approved annuity and one that isn’t. These terms include whether the annuity has an event that qualifies for eligibility or if the series of payments from the annuity surpass a certain amount by the state’s regulations.

Florida and Texas Have Strong Annuity Creditor Protections

In this section, we’ll focus on Florida and Texas, states with annuity laws that make it nearly impossible for creditors to seize annuities.

Exemption from judicial proceedings of the cash surrender value of life insurance plans and annuities. A person’s annuity contract or life insurance policy cash surrender value will not be subject to any attachment, garnishment, or other legal process by a creditor of the person whose life is insured or of the person who is the beneficiary unless the insurance policy or annuity contract explicitly states otherwise, and if it does, it will be void.

Regardless of the kind of annuity contract (fixed, fixed indexed, or variable), all money included inside it is protected against creditors’ claims under this law.

For this reason, many doctors and other high-income workers prefer to put all of their non-qualified investments and cash (aside from IRAs and employer-sponsored retirement plans) in annuities. They may have a small amount of cash on hand, but for the most part, that’s all they have.

The exemption from creditors for annuities in Texas is nearly as robust as the one in Florida. To put things in perspective, prior to his most recent sentence, O.J. Simpson was surviving off of annuity payments he had made to himself.

His annuity contracts were not targeted by the plaintiffs in the civil complaint that was filed against him.

Federal Bankruptcy Exemptions for Annuities

There may be federal bankruptcy exemptions for annuities. However, it all depends on the situation. Your CPA or attorney should be consulted for advice on these concerns and your own particular circumstances.

A qualified retirement account (QRA) can be exempted from taxation regardless of whether you choose state or federal exemptions for annuities, according to legal information source Nolo writer Carron Nicks.

According to Nicks, you may be eligible for a federal exemption if you began your annuity using funds from an IRA or other non-qualified retirement plans. The only catch is that this exemption has a limit. Check with your accountant or lawyer for further information about this.

For an annuity that “pays on account of disease, disability, death, age, or duration of service,” the federal bankruptcy statute provides an additional exemption. Section 522(d)(10)(E) of the federal bankruptcy code contains this clause.

These include particular awards for bodily harm, wrongful death or loss of future wages. Similar exemptions can be discovered in other states as well, according to Nolo.

An annuity financed by such an award may likewise benefit from one of these exemptions, according to Nolo’s research. These exclusions, however, are subject to a number of restrictions.

Proactive Planning Makes a Difference

For the correct circumstances, these laws to protect your money are excellent.

However, timing is of the key when it comes to implementing asset protection techniques in accordance with these rules. If you’ve previously been sued or if a lawsuit is imminent, you can’t set up this plan.

In other words, you must have a plan in place to secure your assets before these incidents occur. Consequently, a proactive approach is essential.

Make an appointment with your CPA or attorney as soon as possible if you are concerned about protecting your possessions. They can talk about the benefits and drawbacks of such a strategy for your particular scenario.

Annuities and creditor protection can be explained to you by your financial advisor. However, you should be aware that they are unable to provide you with particular advice in these cases.

Once you have a clear understanding of the strategy you want to pursue, their financial knowledge and skills can make all the difference in locating the proper annuity for you.

Exploring Options for Asset Protection

An annuity is a good way to protect your money from creditors, but only if it makes financial sense for you. Annuities are classified as retirement savings vehicles by the Internal Revenue Service (IRS). An annuity can be compared to a pension in this way.

Remember that these instruments were created with the primary objective of saving for retirement, so keep that in mind if you have money or assets lying around that you don’t want creditors to seize. The ins and outs of asset protection can be explained to you by your financial advisor as you examine your options.

There’s no problem if you’re seeking for a mentor to help you achieve your long-term goals. At, you have access to a wide range of financial experts who are happy to help. They’ll be able to answer your questions and help you think through any “what-ifs” you may have.

Are annuities safe from creditors?

Annuities are exempt under bankruptcy law in many cases, but not all of them are in all cases. This area of law is tricky since the ability to claim the exemption depends on the specific characteristics of the annuity. An annuity is a valuable asset, and it’s crucial to get professional guidance before filing for bankruptcy if you have one.

What assets are protected in a lawsuit in New York?

There are a number of states where judgment creditors can get money from non-ERISA accounts. In New York, this is not the case. Individual retirement accounts, such as Roth IRAs, 403(b), and 401(k), are excluded from New York’s tax laws since they are “qualified as individual retirement accounts” by the Internal Revenue Service. This is a wide-ranging lexicon. Even though the account was not originally owned by the spouses of the original account owner, New York’s protection can be extended to accounts that were inherited by others.

Accounts that are not covered by ERISA are generally excluded from being reclaimed by New York judgment creditors, such as the following:

Exceptions: When a Judgment Creditor Might Get Your Non-ERISA Accounts

When a law promises complete protection, there are always some exceptions. Judgment creditors may be able to seize your IRA or other non-ERISA account in the following situations:

  • an interpositional contribution, which is one you made into your IRA within 90 days of the creditor filing their claim and ultimately leading to a judgment against you, or
  • Intentionally evading the reach of a judgment creditor, these gifts (called a fraudulent transfer or fraudulent conveyance).

A QDRO may not be exempt against claims for child or spousal support from your IRA, as it is with ERISA accounts.

Can my annuity be garnished?

Annuities are generally not subject to garnishment. Annuity income is one of the types of income that can’t be seized by creditors to pay a judgment owed, and it’s one of the few.

Depending on the state, an annuity may or may not be garnished to pay off a debt. If you find yourself in a bad financial circumstance, don’t be afraid to look into your alternatives for avoiding garnishments. However, if you can’t avoid it, you should at least be aware of the regulations. Despite the fact that some collectors have a good idea of what they can and can’t handle, others may just go for it. The next sections cover annuities and wage garnishment in greater detail.

Where can I hide money from creditors?

Offshore trusts in places like the Cook Islands and Nevis have long been utilized by affluent individuals as a means of asset protection from potential creditors. However, the creation and maintenance of these trusts can be costly. Asset protection trusts (APTs) are now legal in several states, including Alaska, Delaware, Rhode Island, Nevada, and South Dakota, and you don’t even have to be a resident of that state to invest in one.

Transferring some of your assets into a trust overseen by a third party, such as an independent trustee, is possible through the use of asset protection trusts. Most creditors won’t be able to seize the trust’s assets, but you can still receive distributions from time to time. You may even be able to protect your children’s possessions through the use of these trusts.

  • You can’t have someone who isn’t licensed to operate in the state as your trustee.

Choosing a lawyer with expertise in the subject of APTs is essential if you are considering one. Many people have gotten into trouble with the tax code because their trusts did not meet the criteria of the law.

Are annuities protected from Judgements?

Life insurance and annuities are insulated against most judgements and liens, which is an uncommon benefit. These insurance proceeds are frequently regarded as uncollectible assets, even if state laws vary. They also avoid probate as a matter of policy.

Are annuities protected?

Yes, that’s what I’m getting at. At the state level, annuities are regulated and safeguarded. In every state, insurance companies are required to join a non-profit guarantee organization. The other members of the guaranty association assist in the case that a member company fails.

All 50 state organizations safeguard at least $250,000 per client, per company, regardless of the state’s coverage limits. The maximum protection for annuities in Washington D.C. is $300,000, while the maximum protection for annuities in Puerto Rico is $100,000.

Another thing to keep in mind is that if an insurance company goes bankrupt, other companies may buy their contracts and take over responsibility for annuities that the failed company had previously sold. The guaranty association would not have to reimburse the damages in this circumstance. If a consumer had a retirement annuity with the now-defunct company, they would simply transfer their annuity to a new company.

Does a trust protect against creditors?

Revocable and irrevocable living trusts are the two most common types. Both allow you to designate a specific heir or organization to receive your possessions. As directed, after you pass away, the property will be passed on to them. Living trusts are comparable to wills in this respect. However, the trustee you appoint will simply transfer the assets in accordance with your desires without than going through probate court, which may be expensive and time consuming. It can be completed within a few weeks rather than months or even years, whereas a will can take months or even years to complete.

  • You can amend your revocable trust as many times as you choose before your death. You own everything in the trust while you’re still alive. You have designated a successor trustee to manage the distribution of your trust assets when you die. After all is handed up, there is no longer any trust. Since revocable living trusts do not cut estate taxes, its principal function is to avoid probate court.

Having a revocable trust does not protect your assets from creditors who might sue you. Because you’re still alive, you’re still in control of the trust. A decision in favor of a creditor could force you to close the trust and hand over the money.

  • Nothing can be modified once you’ve signed an irrevocable trust. At that moment, the trust owns everything specified. So, you won’t have to worry about estate taxes because the assets have been transferred. Creditors seeking repayment of debt cannot seize the assets placed in an irrevocable trust. It is possible to enforce legal ramifications if an irrevocable trust was signed with the goal to mislead the trust’s creditor. Many different forms of irrevocable trusts exist. Some are designed specifically to handle the payouts from life insurance policies or the expenditures of a funeral.

Assets are better safeguarded from creditors with this type of trust. It is impossible for a judgment creditor, who no longer owns any assets in the trust, to have you shut it in order to pay an outstanding debt. There is an exemption if fraud was committed. Trusts may not be as secure as you think, if you exploited them to avoid paying your bills illegally.

Who Living Trusts Are For

Regardless of the form of living trust you choose, they aren’t just for wealthy people. In addition, they are suitable for those who are concerned about their health or safety. A replacement trustee will step in if you are unable to handle your financial affairs.

No, I’m not worried about my heirs fighting it out in court. Living trusts, in contrast to wills, are rarely contested. With a trust, you can distribute money to your children over time rather than all at once. By putting assets in a trust, you can ensure that your surviving spouse retains the money rather than passing it to his or her new spouse (remarriage protection). Even if you have a married child and they divorce, you can stipulate that the money will not go to their ex-spouses in the event of their split.

A will and a living trust may be necessary for you. Living trusts only include what you put in them, whereas a will might include anything else you want to leave behind. Also, you can name a legal guardian for your minor children under a will, but not under a living trust.

Steps to Setting Up a Living Trust

  • What kind of trust do you prefer? A revocable trust offers the most flexibility because it can be amended as much as you desire while you’re still alive. Immutable trusts are appropriate for persons with substantial holdings since they provide more tax advantages and asset protection.
  • The succeeding trustee must be identified. Because this individual will be in charge of the trust while you’re gone, you’ll need their approval.
  • What is the name of a financial advisor? It is important to appoint someone who you trust to manage your children’s inheritance if they are minors. Anyone you’ve designated as a guardian of your child or children can be taken into account in this regard.
  • The trust must be built. Work with a lawyer or do it yourself if you like.
  • Reassign the ownership of the property to a trust. Make sure to talk to your broker and the banks involved if you don’t have an attorney on your side.

Keep your trust document in a safe deposit box or fireproof safe, and notify the successor trustee where to find it once you’ve completed the trust process.

Are retirement annuities protected from creditors?

Is it possible for anyone to “touch” my pension annuity at any time? Is it impenetrable to any kind of creditor’s claims?


S37 of the Pension Funds Act governs this. You should read this section of the Act to obtain a better understanding of the underlying intricacy, as is the case with most legal matters.

Because your RA funds are intended to provide you with retirement income, you will have to wait until you are 55 years old or older to access them, unless there are exceptional circumstances (formal immigration, disability).

Annuities purchased by a pension fund on behalf of a member cannot be reduced, transferred, ceded, pledged or hypothecated, subjected to any form of execution under a judgment or order of court of law, or taken into account in the determination of a judgment debtor’s financial position in terms of section 65 of the Pension Funds Act (S37A).

To put it another way, only R3 000 of your retirement income can be used to settle debts. As far as debt judgments go, it’s that simple.

S37B does not include pension assets in an insolvent estate. In other words, if you go insolvent, your whole Fund is secured from creditors.

Your retirement annuity money is not “untouchable” because of these rules. As a result of S37A(3)(c) and S37A(3)(d), the Act permits deductions relating to S37D and arrear contributions that may be recovered by the fund.

Members’ guarantees provided by the fund on their behalf with respect to a loan granted by another person are all covered by S37D, which also allows for deductions for sums owed under the Income Tax Act, the Divorce Act, and the maintenance act as well as damage claims by employers.

A lawyer or financial advisor should be consulted in order to determine the specific legal position for your situation in this section of the Act.

What states protect home from creditors?

States have enacted homestead laws to protect homeowners from creditors. In some places, these rules provide practically infinite protection, whereas in others, they only provide a few thousand dollars of protection or no protection at all. A no monetary cap on the homestead exemption is found in six states (Florida, Iowa, Kansas, Oklahoma, South Dakota, and Texas), meaning that the value of your principal residence in these six states cannot be taken by a judgment creditor and is thus protected by state law. If the equity in your home exceeds the amount protected by homestead law in the other 44 states, you may want to form a separate legal corporation to shield your home from a lawsuit. Creditors may be able to take your home if you have $200,000 in equity and your state’s homestead rules only protect $5,000. Vacation and second homes are not protected by homestead rules because they are not your principal residence. Tax liens issued by the federal government are not exempt from the protection of homestead legislation.

How do I protect my assets from Judgements?

You should be aware of these eight ways to protect your assets in the event of a lawsuit.

  • Use Corporations. It’s critical to keep your corporate assets separate from your personal ones.

Can creditors seize retirement accounts?

In principle, creditors cannot seize funds in retirement accounts established under the 1974 Employee Retirement Income Security Act (ERISA). All 401(k), pension, and some 403(b) plans are covered by ERISA because it is a federal law. Your creditors cannot access your retirement account funds, not even if you have amassed millions of dollars in assets and owe money or have declared bankruptcy.

Protected funds have no limits under ERISA. Some money in an ERISA-qualified account, however, may not be safe from creditors. For example, if you are convicted of a crime and sentenced to jail, the state may be able to garnish those funds to pay for some of the expenditures of the prison. If the creditor is a former spouse or the IRS, your retirement assets may not be protected.