By: Jacqueline Fox, Esq.
In the Bankruptcy Court case of
In Re Rensin , a debtor filed for personal bankruptcy almost sixteen years after creating a Cook Islands Trust in which he was the settlor and beneficiary. At the time of creating the trust, the debtor had no creditor issues and funded the trust with monies he received from the sale of a business, totaling $9 million. A few years after creating the trust, the debtor was sued by the Federal Trade Commission (“FTC”), which claimed that the debtor’s wholly-owned company and its subsidiary defrauded customers by taking $14 million in payments but never delivering products. The FTC won a $13.4 million judgment against the debtor’s wholly-owned company, but initially, the debtor was not personally named in the judgment.
In the two-year time frame that occurred thereafter, the wholly-owned company declared bankruptcy and judgment was entered against it, but this time debtor was included personally for $609,000. Simultaneously, the Cook Islands trust that was previously created by the debtor was amended to give the debtor a power of appointment to direct the Cook Islands trustee to distribute assets to any member of an appointed class of beneficiaries. However, the Cook Islands trustee retained the power to remove beneficiaries from this appointed class.
Thereafter the case mentions various facts, but notably finds that within the two to three year period prior to the debtor filing for bankruptcy: (i) the debtor purchased a residence in Florida and claimed homestead (and such purchase was made a month after the judgment against him and his wholly-owned company were reversed thereby increasing the $609,000 judgment to $14 million, but ultimately entered at $13.4 million less than a year before the debtor filed bankruptcy); (ii) the trust changed trustees and moved its situs from the Cook Islands (with Southpac Trust International, Inc. as trustee) to Belize (with Orion Corporate and Trust Services as trustee); (iii) debtor received approximately 14 distributions totaling $8.68 million during the FTC litigation which were used to pay settlements with creditors, legal fees, and a new business venture that ultimately was unsuccessful; (iv) debtor transferred $350,000 to his counsel who then transferred the money to the trust so the trust could purchase a deferred variable annuity issued by a Cayman Islands company, and contemporaneously, the trust used the balance of the trust assets (approximating $1.7 million) to purchase a fixed annuity from the same company so that at the conclusion of both transactions the trust only held two annuity contracts for which the debtor himself was the annuitant, and the trust was the owner and beneficiary.
The first issue the Florida Bankruptcy Court in
Rensin had to consider was which law applied. The debtor claimed Belize law should apply since it was stated in the trust document and that was where the trust was located. The Court disagreed and held that Florida law should apply. In this regard, Florida law does not protect a debtor’s interest in a self-settled trust, and as a result, the protections afforded to the trust under Belize law would not apply and were ignored. Next, the Court had to address whether the trust assets were includible in the debtor’s bankruptcy estate thereby making the trust assets available to creditors and to administration in the bankruptcy proceeding. In this regard the Court found that the trust assets were generally not protected from creditors because the trustees had the discretion to distribute the entire trust corpus to the debtor (because it was a self-settled trust).
Next the Court turned to whether the annuity contracts (the trust’s sole assets) were includible in the debtor’s bankruptcy estate, and whether the annuity payments were exempted. The variable annuity that was
first purchased was a deferred annuity for which payments had not yet started and was found to be includible in the bankruptcy estate because the trust could cash it out and it was not subject to exemption. The Bankruptcy Trustee requested a declaratory judgment that would require the trust to turn over the deferred annuity, but the court deferred its ruling on this issue because the trust was not a party to the action thereby giving the Bankruptcy Trustee the opportunity to join the trust as a party.
With regard to the second annuity purchased, which was a fixed annuity that had annuitized and started making payments immediately, the Court found that the annuity payments were exempted under Florida law
and not subject to administration of the bankruptcy case. 
Lastly, it should also be noted that the Court denied the debtor’s claim for homestead exemption under Florida law because such law was superseded by federal bankruptcy law which provides in relevant part that home equity is includible in a debtor’s bankruptcy estate when the home is purchased within the 40-month period prior to the bankruptcy filing with the intent to defeat creditors, which the Court found to be the case here. Consequently, the Court ordered that the debtor’s homestead be sold.
This is an important case in that it demonstrates the continually-changing legal landscape involving self-settled trusts (where the settlor is also the beneficiary).
 600 B.R. 870 (May 3, 2019).
 It is worth noting that while Florida law exempts annuity payments from enforcement of a creditor judgment, there are limitations to this protection when fraud is involved. More specifically, this can occur when there is a “fraudulent conversion” (as provided for under Florida statute) involving converting a non-exempt asset into an exempt asset. In the Rensin case however, the opinion states that it was not the debtor who converted assets into annuities, but it was a trustee over whom the debtor had no authority to direct where trust assets would be invested. Therefore, the debtor engaged in no fraudulent conversion.