478 B.R. 431
Bankr. D. Colo.2012Background
- Trustee objects to Debtors’ exemption of an annuity in Mrs. May’s name with Mr. May as beneficiary.
- Debtors list the Sun Life Annuity on their schedule and claim it exempt under Colo. Rev. Stat. § 10-7-106.
- Section 10-7-106 is argued by Trustee to be an exemption statute protecting proceeds from a beneficiary’s creditors.
- Annuity is a fixed index policy with owner Mrs. May, annuitant Mrs. May, and beneficiary Mr. May, with a Protection of Proceeds clause.
- Contract allows lump-sum or annuity payments; proceeds may be withheld from creditors under certain conditions if retention by insurer occurs.
- Court must determine if § 10-7-106 applies to a non-life-insurance-related annuity and if Mrs. May qualifies as the “insured.”
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 10-7-106 shield annuity proceeds from a beneficiary’s debts? | Trustee: statute protects proceeds if retained by insurer and restricted from alienation. | May: protections apply to insured/owner to preserve beneficiary’s support. | Yes, but only for non-owner beneficiaries; requires retention and restrictions and excludes the insured. |
| Must the insurer retain proceeds for § 10-7-106 to apply? | Retention by insurer is essential and lump-sum options do not defeat retention if proceeds are not currently payable. | Lump-sum option undermines retention and defeats protection. | Retention is satisfied if proceeds are retained by insurer; lump-sum option does not automatically remove protection. |
| Who is the 'insured' for § 10-7-106 in an annuity? | Trustee: could include owner as insured, but may align with ownership to limit protection. | Debtors: owner/insured interpretation limits protections to non-owners. | The statute protects only non-owner beneficiaries; as owner, May is not protected. |
| Does the Protection of Proceeds clause render the proceeds exempt? | Protection of Proceeds supports alienation restrictions and creditor shielding. | Protection speaks to payees/beneficiaries, not owners; may not extend to exempt property. | Protection language satisfies § 10-7-106 requirements but does not shield Mrs. May as owner. |
| Can Mr. May’s non-owner beneficiary status provide any exemption relief? | Mr. May may rely on § 10-7-106 protections for his interest. | Debtors: since debts are joint, his exemption has no practical effect. | Mr. May can avail protection to his interest, but joint debts render it impractical. |
Key Cases Cited
- In re Brown, 387 B.R. 611 (D. Colo. 2008) (interprets § 10-7-106 with three-retention/alienation elements)
- In re Besser, 356 B.R. 531 (Bankr. Colo. 2006) (analyzes insured vs non-insured interpretation of § 10-7-106)
- In re Raymond, 132 B.R. 53 (Bankr. Colo. 1991) (early interpretation of § 10-7-106 mechanics)
- Resolute Ins. Co., Inc. v. Pennington, 224 A.2d 757 (Pa. 1966) (protects life-insurance proceeds for beneficiaries)
- Adams v. Strong, 158 So. 204 (Miss. 1934) (historical purpose to shield proceeds for dependents)
- NationsBank of North Carolina v. Variable Annuity Life Ins. Co., 513 U.S. 251 (U.S. 1995) (annuity as investment product; investment risk borne by annuitant)