403 Annuities not property of estate?
Posted: Sat Apr 26, 2008 6:54 am
X-eGroups-Edited-By: easky1
Thank you so much Pat and David. Yes, I meant 541...!
Susana B. Tolchard
Patrick Green wrote:
I assume you are referring to 541(b)(7)s reference to 403(b). These have to do with contributions to the plan that are either employer contributions {541(b)(7)(A) or employee contributions {541(b)(7)(B)} that are withheld from the paycheck. They may in fact make the account itself not be property of the estate, but if your need is to exempt the account itself you look to 522(b)(3) which is unambiguous and exempts the 403b entirely. (The existence of both these sections is an example of how poorly written BAPCPA is written. Why would the account not be property of the estate under 541 and also have an exemption under 522? )
Prior to BAPCPA, there was some cases that allowed 403bs to be outside the estate under 541(c)(2). (These were even unnecessary as 403bs are ERISA plans and as such are exempt under the anti-alienation provisions of ERISA.) However, BAPCPA makes that stretched analysis unnecessary. If the 403(b) annuity is part of the estate, it is completely exempt under 522(b)(3). This is one of the few parts of BAPCPA that actually protects consumers. It is exempt for the same reason that an IRA is exempt. I am reprinting below a previous post on IRAs, but it is similarly applicable to 403bs except for the IRA limit in 522n.
The analysis is as follows: for states that dont opt out under 522(b)(2), 522(d)(12) exempts IRAs without reference to necessity. CA opts out, so (d)(12) does not apply. 522(b)(1) allows the debtor to choose between (b)(2) or (b)(3) an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. 522(b)(3)(C) says (3) Property listed in this paragraph is-- (C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. Thus IRAs (408 and 408A) are listed in 522(b)(3)(C).
Therefore the correct exemption to be placed on Schedule C is 522(b)(3)(C). 522(d)(12) is incorrect because CA has opted out and CCP703(b)(10)(E) is incorrect because it subjects the proceeds to a balancing test, which raises the specter of the Big M. 522(n)is incorrect because it is not the exemption itself. 522(n) can be listed, but only as a modifier of 522(b)(3)(C). To be perfectly correct the exemption should be listed as 522(b)(3), 522(n). I think the language in 522(b)(3)(C) probably brings in the ERISA exemption language, but I have not done the research to see if that is correct.
If one wants to be abundantly cautious, one should state that the 403b is not part of the estate under 541 and even if it is, it is exempt under 522.
I would be interested to hear whether there might be some scenarios where it would be better to have the 403b excluded from the estate rather than have it a fully exempted asset of the estate.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
Sent: Friday, April 25, 2008 3:39 PM
To: cdcbaa@yahoogroups.com
Subject: RE: [cdcbaa] 403 Annuities not property of estate?
They should be listed, but you are correct in that they are not property of the estate. The schedules are not listed to property of the estate, i.e. your debtor is a custodian on their child's bank account - the account should be listed even though the estate has no equity in the funds.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal Specialization.
Business bankruptcy specialist cert. by Amer. Bd. of Certification
The post was migrated from Yahoo.
Thank you so much Pat and David. Yes, I meant 541...!
Susana B. Tolchard
Patrick Green wrote:
I assume you are referring to 541(b)(7)s reference to 403(b). These have to do with contributions to the plan that are either employer contributions {541(b)(7)(A) or employee contributions {541(b)(7)(B)} that are withheld from the paycheck. They may in fact make the account itself not be property of the estate, but if your need is to exempt the account itself you look to 522(b)(3) which is unambiguous and exempts the 403b entirely. (The existence of both these sections is an example of how poorly written BAPCPA is written. Why would the account not be property of the estate under 541 and also have an exemption under 522? )
Prior to BAPCPA, there was some cases that allowed 403bs to be outside the estate under 541(c)(2). (These were even unnecessary as 403bs are ERISA plans and as such are exempt under the anti-alienation provisions of ERISA.) However, BAPCPA makes that stretched analysis unnecessary. If the 403(b) annuity is part of the estate, it is completely exempt under 522(b)(3). This is one of the few parts of BAPCPA that actually protects consumers. It is exempt for the same reason that an IRA is exempt. I am reprinting below a previous post on IRAs, but it is similarly applicable to 403bs except for the IRA limit in 522n.
The analysis is as follows: for states that dont opt out under 522(b)(2), 522(d)(12) exempts IRAs without reference to necessity. CA opts out, so (d)(12) does not apply. 522(b)(1) allows the debtor to choose between (b)(2) or (b)(3) an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. 522(b)(3)(C) says (3) Property listed in this paragraph is-- (C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. Thus IRAs (408 and 408A) are listed in 522(b)(3)(C).
Therefore the correct exemption to be placed on Schedule C is 522(b)(3)(C). 522(d)(12) is incorrect because CA has opted out and CCP703(b)(10)(E) is incorrect because it subjects the proceeds to a balancing test, which raises the specter of the Big M. 522(n)is incorrect because it is not the exemption itself. 522(n) can be listed, but only as a modifier of 522(b)(3)(C). To be perfectly correct the exemption should be listed as 522(b)(3), 522(n). I think the language in 522(b)(3)(C) probably brings in the ERISA exemption language, but I have not done the research to see if that is correct.
If one wants to be abundantly cautious, one should state that the 403b is not part of the estate under 541 and even if it is, it is exempt under 522.
I would be interested to hear whether there might be some scenarios where it would be better to have the 403b excluded from the estate rather than have it a fully exempted asset of the estate.
Pat
Patrick T. Green, Esq.
Fitzgerald & Green
Attorneys at Law
1010 E. Union Street
Suite 206
Pasadena, CA 91106
Tel: 626-449-8433
Fax: 626-449-0565
pat@fitzgreenlaw.com
Sent: Friday, April 25, 2008 3:39 PM
To: cdcbaa@yahoogroups.com
Subject: RE: [cdcbaa] 403 Annuities not property of estate?
They should be listed, but you are correct in that they are not property of the estate. The schedules are not listed to property of the estate, i.e. your debtor is a custodian on their child's bank account - the account should be listed even though the estate has no equity in the funds.
David A. Tilem
Certified Bankruptcy Specialist*
Law Offices of David A. Tilem (a debt relief agency)
206 N. Jackson Street, #201, Glendale, CA 91206
Tel: 818-507-6000 Fax: 818-507-6800
* Bankruptcy specialist cert. by State Bar of CA Bd of Legal Specialization.
Business bankruptcy specialist cert. by Amer. Bd. of Certification
The post was migrated from Yahoo.