600 B.R. 153
Bankr. D.R.I.2019Background
- Debtor Marcus Soori-Arachi (Soori) filed chapter 7 on April 10, 2017; schedules later revealed a Fidelity UGMA/UTMA account holding a nonqualified, tax-deferred variable annuity with a current surrender value of $105,000.
- The annuity was purchased in 1998 by Soori’s father as custodian under Nebraska UTMA; the annuity named Soori as owner/annuitant and his probate estate as beneficiary. No withdrawals have been made.
- Upon notice of the bankruptcy, Fidelity reissued the annuity registration to reflect Soori’s status as adult (effective Oct. 30, 2017).
- Soori claimed Rhode Island statutory exemptions for the annuity (R.I. Gen. Laws §§ 27-4-11, 27-18-24, 27-4-12, and the catch-all § 9-26-4(16)); the Chapter 7 Trustee objected.
- The core factual points are undisputed: the annuity contract’s definitions name Soori as owner/annuitant and his probate estate as beneficiary; the UTMA custodianship terminated when Soori reached majority.
Issues
| Issue | Plaintiff's Argument (Soori) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether R.I. Gen. Laws § 27-4-11 (rights of beneficiaries to proceeds of a policy) exempts the annuity from the bankruptcy estate | §27-4-11 covers any insurance product or, at minimum, annuities with death benefits so the annuity is exempt | §27-4-11 applies only to life insurance policies and not to annuity contracts like the deferred variable annuity | Denied — §27-4-11 applies to life insurance; the annuity is distinct and not covered |
| Whether R.I. Gen. Laws § 27-18-24 (accident and sickness proceeds) applies | §27-18-24 is broadly protective of insurance products | The annuity is not an accident-and-sickness policy and so the statute does not apply | Denied — statute inapposite because annuity is not accident/sickness insurance |
| Whether R.I. Gen. Laws § 27-4-12 (anti-alienation for life insurance and annuity contracts) shields the annuity from creditors because Soori was a UTMA beneficiary | Soori remained a UTMA beneficiary; trustee’s post-petition actions improperly altered beneficiary/ownership status; statute protects the account | The UTMA custodianship terminated at majority; on filing Soori was the annuity owner/annuitant with contractual control, and §27-4-12 protects only non-owner beneficiaries | Denied — §27-4-12 protects named beneficiaries (non-owners); Soori, as owner/annuitant, cannot exempt the annuity |
| Whether any state exemption applies and, if so, in what amount (catch-all exemption §9-26-4(16)) | Soori claimed the full amount under state exemptions | Trustee limited challenge to amount under catch-all exemption | Granted in part — trustee’s objections sustained except Soori may exempt $6,400 under §9-26-4(16) |
Key Cases Cited
- Western Reserve Life Assur. Co. of Ohio v. ADM Associates, LLC, 116 A.3d 794 (R.I. 2015) (Rhode Island treats annuities as distinct from life insurance for statute interpretation)
- Murino v. Reynolds, 550 A.2d 1058 (R.I. 1988) (statute construed to pay proceeds to lawful beneficiary)
- In re May, 478 B.R. 431 (Bankr. D. Colo. 2012) (anti-alienation annuity statute protects non-owner beneficiaries, not annuity owner)
- In re Olson, 424 B.R. 770 (Bankr. E.D. Mich. 2010) (Michigan anti-alienation statute does not shield annuity owner’s interest; protects beneficiaries other than the insured)
- Pepmeyer v. Youngblut (In re Pepmeyer), 275 B.R. 539 (Bankr. N.D. Iowa 2002) (UTMA transfers create custodial property; custodial interests vest in minor until majority)