Opinion ID: 2810604
Heading Depth: 1
Heading Rank: 4

Heading: annuity exemption

Text: McFarland contends there is no valid statutory basis for ruling that Georgia intended to limit the relevant exemption statutes in ways unfavorable to him. Our analysis of his arguments begins with the Hartford Annuity. To review, Georgia Code § 44-13-100(a)(2)(E) allows a debtor to exempt, from the bankruptcy estate, a payment under an “annuity” or a “similar plan or contract.” McFarland argues his Annuity qualifies under this statute. The bankruptcy and district courts disagreed. Thus, we must first determine whether McFarland’s Annuity falls within the statutory definition of the term “annuity.” In our view, it does not. Helpfully, the Supreme Court of Georgia recently defined “annuity” as the word is used in § 44-13-100(a)(2)(E). See Silliman, 738 S.E.2d at 606–10; Silliman v. Cassell (In re Cassell), 688 F.3d 1291 (11th Cir. 2012) (certifying this issue to the Georgia Supreme Court). The court concluded that an “annuity” under § 44-13-100(a)(2)(E) “is an obligation to pay an amount at regular intervals for a certain or uncertain period of time.” Silliman, 738 S.E.2d at 610 (emphasis added); see also Rousey, 544 U.S. at 330, 125 S.Ct. at 1569 (“[A]n annuity is ‘an amount payable yearly or at other regular intervals . . . .’” (citation omitted)). Moreover, the court explained, “in deciding whether a particular annuity is of the type 6 Case: 14-14514 Date Filed: 06/22/2015 Page: 7 of 25 intended to come within the . . . § 44-13-100(a)(2)(E) exemption, the pertinent question is whether it provides income as a substitute for wages.” Silliman, 738 S.E.2d at 610 (emphasis added). A trustee must therefore show “that the payments were not intended to substitute for wages.” Id. at 612. Wallace has easily done so. The bankruptcy court found (and the district court affirmed) that McFarland’s Annuity did not qualify under § 44-13-100(a)(2)(E) because it was structured more like a future investment than a substitute for wages. See In re McFarland, 500 B.R. at 285. The bankruptcy court emphasized that McFarland had never—not once—drawn money from the Annuity, and that he did not intend to withdraw any funds during his lifetime. See id. at 282, 285–86. This reasoning is sound, and the bankruptcy court’s findings of fact are not clearly erroneous. Indeed, McFarland concedes on appeal that he has never drawn money from the Annuity and says he was not planning on doing so until 2032 at the earliest—when he would be 90 years old. At a hearing before the bankruptcy court in September 2011, McFarland made similar admissions: [Wallace:] Have you taken any payments out from the annuity? [McFarland:] No, sir. I got that annuity mainly for my wife when I passed. [Wallace:] In fact, you don’t intend to take any payments out of that annuity, do you? [McFarland:] I hope not. I’m trying to save it for my wife. I’m seven years older than she is and according to the Vietnam mortality tables, my [life] expectancy is only 2017. 7 Case: 14-14514 Date Filed: 06/22/2015 Page: 8 of 25 Aplt’s App., Exhibit 7, at 15. As if that was not enough, earlier in 2011 McFarland made similar statements at three separate examinations. See Aple’s App., Exhibit 1-32, at 45–46 (June 2011 bankruptcy examination) (“[Wallace:] Do you intend to withdraw any money from this [Annuity] in your lifetime? [McFarland:] No, sir.”); id., Exhibit 1-33, at 26 (August 2011 deposition) (“[McFarland:] “I considered the annuity to be critical to [my wife’s] future.”); id., Exhibit 1-34, at 25–26 (March/April 2011 creditor meeting) (“[Bell:] But [the Annuity is] just the way you chose to invest your money for retirement? [McFarland:] Yes. [Wallace:] Have you started drawing funds down from the annuity? [McFarland:] No.”). 2 These multiple, explicit concessions plainly preclude McFarland from this exemption, as they make it impossible for him to claim with any believability that his Annuity was operating as, or truly intended to be, a wage substitute distributed at “regular intervals” to him and his wife during his retirement. 3 Other courts have adhered to this logic when dealing with Georgia law. For example, a different bankruptcy court in the Southern District of Georgia recently 2 Interestingly, at this creditor meeting, McFarland claimed he had planned on drawing money from the Annuity when he turned 70 the next year. Aple’s App., Exhibit 1-34, at 26. McFarland contradicted this assertion at subsequent hearings, however, and he has not raised the assertion on appeal or provided any evidence to support such a claim. 3 Courts typically review a variety of factors in deciding whether an annuity qualifies for exemption. See Silliman, 738 S.E.2d at 611 (referencing factors listed in Andersen v. Ries (In re Andersen), 259 B.R. 687, 691–92 (8th Cir. BAP 2001)). We will not sift through these factors point-by-point here, as the above concessions clearly answer Silliman’s “pertinent question.” The bankruptcy court, however, did an admirable job of applying these factors to McFarland’s Annuity. See In re McFarland, 500 B.R. at 284–87. 8 Case: 14-14514 Date Filed: 06/22/2015 Page: 9 of 25 ruled that a debtor could not exempt her annuity under § 44-13-100(a)(2)(E). See Boudreaux v. Sheffield (In re Sheffield), 507 B.R. 400 (Bankr. S.D. Ga. 2014). Sheffield’s “choice to defer any and all payments under the Annuity until she is ninety years old,” the court wrote, “shows that the Annuity was intended to be more like an investment and less like an exemptible contract to provide retirement funds.” Id. at 408. A Northern District of Georgia bankruptcy court spoke similarly in 2005. See In re Michael, 339 B.R. 798 (Bankr. N.D. Ga. 2005). There, the annuity in question deferred payments until 2050—when the debtor would turn 85—and the debtor had yet to receive any payments whatsoever. Id. at 800. For reasons that included the following logic, the Michael court declined to exempt the annuity: Allowing an annuity contract established by a debtor to be exempt without some requirements that it be similar to other qualified retirement plans would provide debtors with a means of shielding assets from creditors prebankruptcy by purchasing annuities under the facade of retirement planning. The Annuity Contract in this case is no different than a savings account created on the premise that the funds placed in the account are to provide Debtor with future income .... Id. at 806 (emphases added). McFarland attempts to avoid this obvious conclusion by arguing the Annuity was actually structured and intended to supplement his income. For starters, he contends we should not go beyond the plain language of his Annuity contract, which (he says) clearly meets Silliman’s definition of an annuity. This argument 9 Case: 14-14514 Date Filed: 06/22/2015 Page: 10 of 25 misses the mark. Unquestionably, Silliman held that a debtor’s annuity qualified for exemption, and the court indicated we should look at the “nature of the contract” for guidance. Silliman, 738 S.E.2d at 610–11. That said, McFarland’s contract here clearly states he will not begin to receive payments until 2032, when McFarland would turn 90 years old. This confirms, rather than undermines, our belief that McFarland’s Annuity was obviously not intended to be, or operating as, a wage replacement. See In re Sheffield, 507 B.R. at 408. It also greatly distinguishes Silliman, where the qualifying annuity contract stated payments would begin within one month of the contract’s creation. See 738 S.E.2d at 608. In any event, rather than strictly limiting us to the contract’s text, Silliman says we must also look to the “facts and circumstances surrounding the purchase of the annuity.” Id. at 610–11. And the facts here doom McFarland’s claim. As discussed, McFarland has never withdrawn any money from his Annuity and had no real plans to do so. The Silliman debtor, in contrast, “purchased the annuity to replace her income . . . at the time of purchase,” and she had already begun receiving payments when she filed for bankruptcy. Id. at 611. 4 4 The facts here also distinguish Rousey, which is the Supreme Court decision most on point. Rousey held that two debtors’ IRA accounts qualified as “similar plan[s] or contract[s]” under 11 U.S.C. § 522(d)(10)(E), which parallels Georgia Code § 44-13-100(a)(2)(E). See 544 U.S. at 322–24, 125 S.Ct. at 1564–65. To be precise, the Court determined that “the income the Rouseys will derive from their IRAs is . . . income that substitutes for wages.” Id. at 331, 125 S.Ct. at 1569 (emphasis added). In reaching this conclusion, the Court found that distribution from the IRAs was scheduled “to begin at the latest in the calendar year after the year in which the accountholder turns 70 ½” and that tax penalties were in place “to ensure that the beneficiary 10 Case: 14-14514 Date Filed: 06/22/2015 Page: 11 of 25 In an alternative vein, McFarland insists we should rely on additional testimony from all the hearings cited above to exempt his Annuity. For example, McFarland’s son, who was also his financial advisor, testified that the Annuity was originally intended to “provide a lifetime income stream.” See Aplt’s App., Exhibit 7, at 53–54. And McFarland testified the Annuity was intended both for his wife after he died and as a backup source of funds while he lived “if we needed it.” Id. at 72. McFarland’s testimony is easily dismissed, as the copious concessions above demonstrate that McFarland never “needed” to use the Annuity, nor did he ever plan on “need[ing]” to use the Annuity. Moreover, his son’s testimony is taken out of context. Soon after making the above statement, his son clarified that the Annuity was mostly meant to provide for McFarland’s wife after he died. See id. at 57 (“[Wallace:] So did he purchase this annuity to cover his future income or to . . . leave an inheritance for your mother? [Son:] It was more for protecting my mother.”); id. at 59–60 (“[Bell:] And that [Annuity] was not for wage replacement. It was for other purposes? [Son:] Yeah. [Bell:] That’s correct, isn’t it? . . . [Son:] Yes. . . . [Bell:] And he has not withdrawn any funds from that to this point? [Son:] No, he has not.” ). McFarland is sunk—not rescued—by the use[d] the IRA in his retirement years” and did not allow funds to “improperly remain[] in the account.” Id. at 331–32, 125 S.Ct. at 1569 (emphases added). Thus, the Court noted, the Rousey debtors (unlike McFarland) “must begin to withdraw funds when they are likely to be retired and lack wage income.” Id. at 331, 125 S.Ct. at 1569 (emphasis added). 11 Case: 14-14514 Date Filed: 06/22/2015 Page: 12 of 25 full testimony in this case. At minimum, given the above, we could not possibly find that the district court’s factual findings were clearly erroneous here. Finally, McFarland argues that even if his Annuity does not qualify as an “annuity” under the statute, it should at least qualify as a “similar plan or contract.” McFarland did not raise this argument in the bankruptcy court, so we need not consider it here. See Irving v. Mazda Motor Corp., 136 F.3d 764, 769 (11th Cir. 1998). 5 Regardless, “the common factor among exempt plans is that they provide a substitute for wages.” Silliman, 738 S.E.2d at 611 (emphasis added); see also Rousey, 544 U.S. at 329, 125 S.Ct. at 1568 (“We agree with the Rouseys that IRAs are similar to the plans specified in [11 U.S.C. § 522(d)(10)(E)] . Those plans, like the Rouseys’ IRAs, provide a substitute for wages . . . and are not mere savings accounts.” (emphasis added)). Thus, McFarland would likely fare no better relying on the “similar plan or contract” language.