OPINION OF THE COURT
This is an action on an agreed statement of facts submitted
The dispute centers upon three nonprobate assets of the decedent which passed to her son, Richard A. King, and on each of which he was the designated beneficiary. The three assets are: (1) AARP five-year term life insurance policy with a death benefit of $10,000 of which Mrs. King was the insured and owner; (2) New York State Teachers’ Retirement System retirement pension from which Richard received a death benefit payment of $461,510.83; and (3) an Internal Revenue Code (26 USC) § 403 (b) account sponsored by decedent’s employer, the Susquehanna Valley School District, which was invested in various Oppenheimer mutual funds with a value on September 30, 2001 of $89,730.95. BCT maintains the balance due on its claims should be paid out of these nonprobate assets.
It is certainly true as recently stated by Surrogate Preminger of New York County that: “The proliferation of testamentary substitutes, however, has left the law in a state of confusion over the rights of creditors to оther assets that do not pass under the will or as part of intestate administration.” (Matter of Gallet,
BCT argues that section 273 of the Debtor and Creditor Law applies to the estate. It provides: “Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is frаudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.” It should be noted that section 273 does not require actual intent to defraud, nor does petitioner make any claim of actual fraud. (Letter mem оf Apr. 17, 2003.) Petitioner also does not claim that decedent was insolvent at any time during her lifetime, only that the estate became insolvent after her death.
The estate’s attorneys respond that the insurance is exempt from creditor claims because of section 3212 of the Insurancе Law. Further, that the other nonprobate assets are exempted by EPTL 13-3.2 (a), which provides that the rights of a person to receive a pension, retirement, death benefit or annuity “shall not be impaired or defeated by any statute or rule of law governing the transfer of property, by will, gift or intеstacy.”
The problem with the application of section 273 is that the statutes governing pensions and insurance have so-called anti-alienation provisions. The federal law covering pensions, the Employee Retirement Income and Security Act of 1974 (ERISA), has such an anti-alienation provision. (29 USC § 1056 [d]; Internal Revenue Code [26 USC] § 401 [a] [13].) However, ERISA does not apply to plans sponsored by state or local government. (29 USC § 1003 [b] [1].) Thus, a New York State Teachers’ Retirement pension is not covered by ERISA. (Patterson v Shumate,
Both the New York Insurance Law applicable to the insurance death benefit and the New York Education Law applicablе to the Teachers’ Retirement System death benefit contain anti-alienation provisions. Section 3212 (b) (1) of the Insurance Law provides:
“If a policy of insurance has been or shall be effected by any person on his own life in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person effecting the insurance.”
Clearly this law provides that the rights of a beneficiary of insurance prevail over claims of decedent’s creditors. Certainly this is consonant with the primary purpose of life insurance which is to protect the dependent beneficiaries of the insured by providing them with funds to live on after thе death of the insured. Thus, BCT is not entitled to be paid on its claims out of the insurance proceeds in the hands of the beneficiary. (Males v New York Life Ins. Co.,
The anti-alienation provision in section 524 of the Education Law provides:
“The right of a teacher to a pension, an annuity, or a retirement allowance, to the return of contributions, any benefit or right accrued or accruing to any person under the provisions of this article, and the moneys in the various funds created hereunder, are hereby exempt from any state or municipal*253 tax, and shall not be subject to execution, garnishment, attaсhment or any other process whatsoever, and shall be unassignable except as in this article specifically provided.”
The purpose of a pension is quite different from life insurance. The purpose is to insure that the employee has income to live on during retirement and lаter years. Only secondarily is the death benefit under a pension plan intended to provide funds to the participant’s heirs and beneficiaries.
Nonetheless, the courts have held that the death benefit payable to a beneficiary under a teacher’s pension is exempt from thе claims of creditors of the decedent. (Matter of Distefano,
“The underlying purpose of the statute is, first, the public good in stabilizing the status of persons in the educational system, second, the good of the member himself in guarding him against the results of his own improvidence and corollary to this the protection of the dependents of a member whose anxieties for their well-being are not a negligible factor in his public service even in the case of an improvident or unfortunate member. The court holds that this statute immunizes the funds from the claims of creditors even after they reach the hands of the representative of the estate of the deceased member.” (167 Misc at 680 [emphasis added].)
Turning to the 403 (b) annuity, we have a different situation. It is a program made available to its employees by the Susquehanna Valley School District and is not part of the New York State Teachers’ Retirement System. Nor is the 403 (b) plan сovered by ERISA since the plan is a local government sponsored plan. (29 USC § 1003 [b] [1].) Thus, neither the anti-alienation provisions of ERISA nor those of Education Law § 524 apply to the 403 (b) plan.
The plan is established pursuant to a salary reduction agreement between the School District and decеdent. Internal Reve
As previously stated, EPTL 13-3.2 (a) provides that the rights of beneficiaries in retirement plans and annuities “shall not be impaired or defeated by any statute or rule of law governing the transfer of property by will, gift or intestacy.” The Third Department has recently held in reliance on this section that an annuity is not subject to the claims of creditors. (Matter of Clotworthy,
In an even more recent case, Surrogate Preminger has also interpreted section 13-3.2 as prohibiting creditors from reaching the proceeds of several types of retirement plans payable to a revocable trust as bеneficiary. The plans included a state employee’s retirement plan death benefit, an IRA and a Federal Thrift Savings Plan death benefit. The Surrogate said:
“The court infers that the Legislature intends that the assets enumerated in EPTL 13-3.2 are exempt from creditors’ claims after death, as they arе in life.
“This interpretation of the statute is supported by the inclusion of subdivision (b) which provides that ‘[t]his section does not limit article 10 of the debtor and creditor law * * *,’ a reference to the Fraudulent Conveyances Act. Inclusion of subdivision (b) would be meaningless if the statute did not operate to extеnd asset protection where fraudulent conveyance is not a factor.” (Matter of Gallet,196 Misc 2d at 309 [Sur Ct, NY County].)
Section 3212 (d) (1) of the Insurance Law provides that the lifetime rights and benefits of an annuitant “shall not be subject to execution” and EPTL 13-3.2 specifically includes under its provisions retirement plans and annuities. It follows, therеfore, that annuities are “exempt from creditor’s claims after death, as they are in life,” where, as here, there is no actual
Either by statute or case law, virtually every type of retirement plan is exempt from the claims of the decedent’s creditors. Anti-alienation applies to ERISA plans (29 USC § 1056 [b]), New York State employees’ retirement plans (Retirement and Social Security Law § 110), New York State teachers’ retirement plans (Education Law § 524), Individual Retirement Accounts (CPLR 5205 [c]), Federal Thrift Savings Plans (Matter of Gallet), and life insurance and annuities (Matter of Clotworthy, Insurance Law § 3212). This court perceives of no logical reason why a 403 (b) retirement annuity should not similarly be exempt from the claims of decedent’s creditors after death.
The cases cited by petitioner in support of its position that the payment of the retirement benefits is a fraudulent conveyance under section 273 of the Debtor and Creditor Law are not аpplicable. Lade v Parker (
Petitioner also cites Matter of Granwell (
BCT also argues that section 273 applies because the estate was “rendered insolvent” by the conveyance of the insurance and retirement proceeds to Richard King pursuant to the beneficiary designations. A technical answer to this proposition, as admitted by petitioner at page three of its reply brief, is that the defendant was not rendered insolvent by the mere act of designating a beneficiary. Likewise, the estate was not rendered insolvent by payment to the beneficiary because these nonprobate assets never belonged to the estate or its fiduciary in his fiduciary capacity and thus the estate could not and did not make a conveyance of them. The broader answer as set forth earlier is that the Legislature has exempted insurance and retirement plan proceeds from the claims of a decedent’s creditors.
Accordingly, it is held that petitioner is not entitled to be paid on its claims from the insurance proceeds, the Teachers’
The court has considered the other arguments of petitioner and finds them to be without merit.