In most states, life insurance contracts where a spouse or child is the beneficiary are exempt from the claims of creditors without any dollar limit. In a few states, the same protection is given to annuity contracts. But, if the annuity contract is part of an ERISA qualified plan, it will be exempt in most states. A Swiss annuity contract will be protected from the claims of your creditors if your spouse or children are the beneficiaries or if there is an irrevocable beneficiary. 

Where an annuity is being paid to a named beneficiary over their life expectancy, the cash value now belongs to the insurance company and the insurance company has an obligation to pay the annuity income for the lifetime of the annuitant or for some term of years. The annuitant no longer has the power to cancel the contract and take out the cash value. If there are any contracts that do allow the annuitant to cancel the contract and take the remaining cash value, then that contract should be subject to the same rules as one that is not yet converted into a lifetime income.

The extent to which the cash value and/or the death benefits of a life insurance policy are protected varies greatly from state to state. As with the Swiss annuity, a life insuranace policy issued by a Swiss insurance company will be protected from the claims of creditors if your spouse or children are the beneficiaries or if you have named an irrevocable beneficiary.

Any discussion here about the transfer of the cash values of an annuity or life insurance contract to someone else (or even to some other entity) assumes that you are not making a fraudulent conveyance to hinder, delay or defraud your creditors.

Further details about protecting your pension assets from future lawsuits  are available in our subscriber's web site. 

NOTICE: This Information is intended only for educational purposes and may be regarded as controversial by some legal experts. Readers should consult with a qualified  professional who is familiar with their specific financial and tax circumstances before adopting any ideas that are discussed in this article.

About the author:

Vernon Jacobs is a CPA who works as a tax author and consultant.   He can be reached by phone at (913) 362-9667.