Silliman v. Cassell

• Decision Date: 18 February 2013
• Docket Number: No. S12Q1936.,S12Q1936.
• Citation: 292 Ga. 464,738 S.E.2d 606
• Parties: SILLIMAN v. CASSELL.
• Court: Georgia Supreme Court

292 Ga. 464

738 S.E.2d 606

SILLIMAN

v.CASSELL.

No. S12Q1936.

Supreme Court of Georgia.

Feb. 18, 2013.

Martha A. Miller, Schulten Ward & Turner, Atlanta, for appellant.

Eric Edward Thorstenberg, Atlanta, for appellee.

THOMPSON, Presiding Justice.

In this case involving the interpretation of OCGA § 44–13–100(a)(2)(E)¹ and the exemption of an annuity from a debtor's bankruptcy estate, the United States Court of Appeals for the Eleventh Circuit certified the following questions to this Court: (1) is a single-premium fixed annuity purchased with inherited funds an “annuity” for purposes of OCGA § 44–13–100(a)(2)(E); and (2) is a debtor's right to receive a payment from an annuity “on account of ... age” for the purposes of OCGA § 44–13–100(a)(2)(E) if the annuity payments are subject to age-based federal tax treatment, if the annuitant purchased the annuity because of age, or if the annuity payments are calculated based on the age of the annuitant at the time the annuity was purchased.

For the reasons that follow, we find that a single-premium fixed annuity purchased with inherited funds may qualify as an exempt annuity under OCGA § 44–13–100(a)(2)(E) and that the determination of whether a right to receive payment from an annuity is “on account of” age for purposes of OCGA § 44–13–100(a)(2)(E) is not necessarily based on the existence of a single factor but requires consideration of a variety of factors pointing to the existence of a causal connection between the payee's age and the right to payment.

Facts

1. As set forth in the opinion of the Eleventh Circuit Court of Appeals and revealed in the record, in 2008 Lou Ann Cassell inherited $220,000 from a relative. After consulting with advisors, she used the inherited funds in May 2009 to purchase a single-premium fixed annuity from National Life Insurance Company. Cassell was 65 years old at the time she purchased the annuity. The annuity agreement provides that beginning in June 2009 and until the time of her death, Cassell shall receive monthly annuity payments of $1,389.14. The agreement guarantees payments for 10 years regardless of when Cassell dies and names her children as beneficiaries should she die within the guaranteed payment period. Cassell is not authorized to withdraw any funds from the annuity, cancel the annuity, or change the payment terms of the agreement. She is authorized to assign the right to the annuity payments and to change the name of her beneficiaries during the guaranteed period.

On May 11, 2010, Cassell filed a Chapter 7 bankruptcy petition in the Bankruptcy Court for the Northern District of Georgia and she included the annuity as an asset. However, she also listed the annuity as exempt property under OCGA § 44–13–100(a)(2)(E). The trustee objected, arguing the annuity paymentsdid not meet two of the requirements necessary to qualify for the statutory exemption, specifically that the annuity was not funded by employment related wages or benefits and the payments due under the annuity were not “on account of age.” The bankruptcy court disagreed and entered an order concluding that the two challenged requirements were met. It did not make a ruling with regard to the third requirement, that the payments be reasonably necessary for the support of the debtor or her dependents, because it concluded the parties had provided insufficient evidence pertaining to that issue. The United States District Court affirmed on appeal and remanded to the bankruptcy court for it to rule on the issue not addressed in its original order. Rather than litigate that issue in the bankruptcy court, the trustee conceded the National Life annuity was reasonably necessary for the support of Cassell and appealed to the Eleventh Circuit Court of Appeals. After briefing and oral argument by the parties, the Eleventh Circuit recognized the absence of precedent on the dispositive issues of state law and certified its questions to this Court.

Legal Analysis

2. Upon the filing of a petition for bankruptcy, “all legal or equitable interests of the debtor in property” become part of the bankruptcy estate. 11 U.S.C. § 541(a)(1). Bankruptcy debtors may exempt certain property from their bankruptcy estate consistent with bankruptcy's goal of insuring that a debtor retains sufficient property to obtain a fresh start. 11 U.S.C. § 522(b). See Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007) (principal purpose of Bankruptcy Code is to grant a fresh start to the debtor). Although federal bankruptcy laws provide for such exemptions, a state may opt out of the federal exemption scheme and provide its own exemptions for debtors domiciled within that state. See 11 U.S.C. § 522(b)(2)(d). Because Georgia has opted out of the federal exemption scheme, Georgia bankruptcy debtors are entitled to claim only those statutory exemptions allowed under Georgia law. In Re Bramlette, 333 B.R. 911, 915 (Bankr.N.D.Ga.2005).

Here, Cassell contends the National Life annuity payments are exempt from inclusion in her bankruptcy estate pursuant to OCGA § 44–13–100(a) (2)(E). That subsection provides, in pertinent part, that any debtor who is a natural person may exempt, for purposes of bankruptcy, the debtor's right to receive:

[a] payment under a pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

To be exempt under this provision, the National Life annuity must meet three requirements: (1) it must be an annuity; (2) the right to receive the annuity payments must be “on account of illness, disability, death, age, or length of service”; and (3) the payments must be reasonably necessary to support Cassell or her dependents.²

Is the National Life Annuity an Annuity For Purposes of OCGA § 44–13–100(a)(2)(E)?

As recognized by the Eleventh Circuit, there is no Georgia authority interpreting OCGA § 44–13–100(a)(2)(E) or more specifically, what constitutes an annuity for purposes of that subsection. Construed according to its plain and ordinary meaning, an “annuity” is “[a]n obligation to pay a stated sum, usually monthly or annually to a stated recipient.” Black's Law Dictionary 88 (7th ed. 1999). See Slakman v. Cont'l Cas. Co., 277 Ga. 189, 191, 587 S.E.2d 24 (2003) (attributing plain and ordinary meanings to words of a statute). This dictionary definition is consistent with the manner in which our legislature has defined “annuity” in other statutes. See OCGA § 33–28–1(1) (defining “annuity” as “a contract by which one party in return for a stipulated payment or payments promises to pay periodic installments for a stated certain period of time or for the life or lives of the person or persons specified in the contract”); OCGA § 47–2–1(3) (defining “annuity” as “annual payments for life derived from the accumulated contributions of a member”); OCGA § 47–3–1(3) (same).

Additional guidance as to the meaning of the term “annuity” is provided by cases interpreting 11 U.S.C. § 522(d)(10)(E), the federal exemption statute upon which OCGA § 44–13–100(a)(2)(E) was modeled. ³ For purposes of § 522(d)(10)(E), the United States Supreme Court has defined an annuity as “an amount payable yearly or at other regular intervals for a certain or uncertain period.” (Punctuation omitted.) Rousey v. Jacoway, 544 U.S. 320, 330, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005). Based on this authority and construing the language of OCGA § 44–13–100(a)(2)(E) according to its plain and ordinary meaning, we conclude that for purposes of OCGA § 44–13–100(a)(2)(E) an annuity is an obligation to pay an amount at regular intervals for a certain or uncertain period of time.

If we were to apply only this definition of annuity for purposes of OCGA § 44–13–100(a)(2)(E), every annuity regardless of its origin or purpose would be exempt from a debtor's bankruptcy estate and protected from creditors. We do not believe this is the result intended by our legislature when it adopted OCGA § 44–13–100(a)(2)(E). OCGA section 44–13–100(a)(2)(E), like its federal counterpart, exempts from a debtor's bankruptcy estate only those payments due under a “pension, annuity, or similar plan or contract.” Courts have limited the similar language in both the federal and state exemption schemes to mean that a debtor's interest in an annuity, contract or similar plan may qualify for the exemption if it is intended to “provide income that substitutes for wages.” Rousey, supra, 544 U.S. at 331, 125 S.Ct. 1561;Bramlette, supra, 333 B.R. at 920–921;In re Andersen, 259 B.R. 687, 690–691 (8th Cir. BAP 2001). See also In re Jadud, 2012 WL 4757870, Bankr.LEXIS 4723 (Bankr.N.D.Ohio 2012) (not every contract labeled as an annuity qualifies for exemption); In re Michael, 339 B.R. 798, 803 (Bankr.N.D.Ga.2005) (not every annuity qualifies for OCGA § 44–13–100(a)(2)(E) exemption). In Rousey, the Court determined that an individual retirement account (IRA) which provided income to the debtors after a certain age qualified as an exempt plan under § 522(d)(10)(E) of the Bankruptcy Code. Rousey, supra, 544 U.S. at 334–335, 125 S.Ct. 1561. The Court reached this conclusion by examining common features of the enumerated exempt plans, explaining that

[t]he common feature of all of these plans is that they provide income that substitutes for wages earned as salary or hourly compensation.

Id. at 331, 125 S.Ct. 1561. The Court found this understanding of the plans' similarities consistent with other payments exempt under § 522(d)(10), i.e., social security benefits, unemployment compensation, public assistance, veteran's benefits, alimony, support or separate maintenance, all of which relate to income that substitutes for wages. Id. See also H.R.Rep. No. 95–595, at 362 (1977), as reprinted in 1978 U.S.C.C.A.N. 5787, 6318 (purpose of 11 U.S.C. § 522(d)(10)(E) is to “exempt[ ]...