State law exempts certain assets from seizure by creditors or bankruptcy trustees. The intent is to ensure that borrowers retain basic items necessary to live — example, furnishings, clothes, tools necessary for work, etc. Some states also use exemptions to encourage entrepreneurs to invest and start businesses in their state. For example, the states of Florida and Texas exempt the full value of residences. Ohio recently increased its homestead exemption from approximately $21,000 to $125,000.00 in an effort to grow jobs and businesses by encouraging investment in the state.
Currently the homestead exemption in Louisiana is limited to only $35,000, which provides little incentive to entrepreneurs looking to protect assets in the event their business venture fails. The State, however, offers other asset protection options. Contributions to and distributions from annuity contracts are fully exempt from seizure by creditors. Contributions within 1 year prior to seizure are not exempt. Entrepreneurs looking to open shop in the New Orleans area or elsewhere in Louisiana should not find this claw-back period problematic, so long as they plan in advance.
The use of a variable annuity also provides flexible generally not available with other exempt investment tools. Funds from variable annuities may be withdrawn if necessary. A tax penalty may apply, but this flexibility provides piece of mind that the contributions can be accessed in the event of emergency (unlike a fixed annuity or trust vehicle). Further, unlike IRAs and other tax-preferred investment vehicles, there is no limit on the amount that may be contributed to a variable annuity. Generally, the following factors are used to determine whether variable annuities qualify as exempt: 1) issued by a licensed life insurance company; 2) states it’s an annuity; 3) defers taxes or interest in some manner; 4) transfers some risk of loss to the insurance company; and 5) approved by Department of Insurance.
Should you have any questions regarding bankruptcy, business litigation, asset protection or otherwise, the New Orleans based Congeni Law Firm would be pleased to discuss your specific issues.