Guest Commentary

Medicare Beware: Tread Carefully Into The Unknown

, The Connecticut Law Tribune


Michael Raymond
Michael Raymond

When we speak of annuities in particular, Connecticut is one of only a handful of states (including Massachusetts, New Hampshire and Virginia) that offer no statutory protections for annuities, with the exception of ERISA plans, from creditors. However, in this case, we are speaking about assets that have been annuitized through a structured annuity. All the client owns thereafter is a "stream of income," which cannot be accelerated. Furthermore, clients could not be accused in court of annuitizing assets in order to hinder, delay, or defraud creditors. Without evidence to support a claim of fraudulent conveyance (nearly impossible considering the source of funds to buy the annuity came about through a settlement for injury), the creditor would have to attack the Medicare set-aside each year for its income stream—hardly a promising venture. There is case law from other states that support the annuity exemption, allowing settlement recipients to exempt challenged annuity payments from their Chapter 13 estate.

In re Baker, 604 F.3d 727 (Second Circuit, 2010), New York state law provided an exemption for a settlement annuity. The bankruptcy court ruled the debtor's interest in an annuity arising from a settlement of a wrongful death action was exempt even though the annuity is owned by an insurance company and the debtor merely has a right to its proceeds. In re Orso, 283 F.3d 686 (Fifth Circuit, 2000), the court ruled that holding structured settlement annuity contracts under which payments were owed came within scope of Louisiana statute exempting such contracts from the claims of creditors.

In re Belue, 238 B.R. 218 (S.D. Fla., 1999), the "debtor who was named, as payee and intended beneficiary, under an annuity purchased by insurance company to fund its obligations under a structured settlement agreement, was entitled to claim annuity payments as exempt under special Florida exemption for proceeds of any annuity contracts issued to citizens or residences of state." In In re Alexander, 227 B.R. 658 (N.D. Texas, 1998), the court ruled that holding structured settlement annuity paid to debtor following the death of their children in an automobile accident was entitled to exemptions as annuity under Texas law.

We cannot find any Connecticut case law on the subject; however, as we outlined above, other states have ruled the annuity payments are exempt. Therefore, it appears that settlement recipients have some things going for them. Since the owner of the annuity would be the assignment company affiliated with the life insurance company and since it is a workers compensation or liability case, the payment rights would not be able to be transferred. While not ironclad, plaintiff's counsel might explore as well C.G.S. 31-320 – Exemption and Preference of Compensation, which holds: "All sums due for compensation under the provisions of this chapter shall be exempt from attachment and execution and shall be nonassignable before and after award." Until a Connecticut case goes to court and/or grievance, however, we cannot be certain at this time. •

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