A private annuity is a device that is sometimes used by wealthy folks to try to shield their assets from creditors and the tax man. The idea is that a person transfers their money to a private company or trust, and the private company or trusts in return gives them an annuity stream for life.

A detailed discussion of private annuities is beyond the scope of this article. Suffice it to say, however, that there has long floated a theory that private annuities should be able to take advantage of state laws that exempt annuity payments from creditors, including in Texas where annuity payments are given by statute a complete exemption from creditors.

We here find out that theory might not match up to reality.

Sam Wyly and his brother, the late Charles Wyly, were wealthy entrepreneurs from Texas, who made hundreds of millions creating and developing various businesses. They had a lot in common, including apparently a hungry appetite to take very aggressive steps to minimize their taxes. (Eventually, Sam would be held to owe $1.1 billion in taxes and penalties to the IRS.)

But cheating the tax man was not the Wylys' only passion, as they also played their trading in the securities of various businesses fast and loose through the use of offshore trusts and corporations to try to hide their activity -- including trading in shares of companies on whose Board of Directors they sat, and thus were privy to insider information. This eventually resulted in the U.S. Securities & Exchange Commission taking an interest, and judgments by the SEC of over $120 million against Sam (with interest, it came closer to $200 million) and $60 million against the late Charles' estate. The SEC's axe fell in 2014.

Sam and Charles having grown up dirt-poor in rural Texas, we thus join yet another rags-to-riches-to-rags story already in progress. We'll take it up in October, 2014, when Sam and Charles' widow Dee Wyly filed for bankruptcy because of the SEC's judgment, and a court order requiring Sam (and his brother's estate) to cough up their ill-gotten gains.

In his bankruptcy filing, Sam listed two significant assets that he claimed were exempt under the very liberal Texas exemption laws. First, Sam claimed that his Dallas house worth a little over $12 million was exempt. Second, and more interestingly, Sam claimed that that the payments that he was to receive under several private annuities -- to be explained further shortly -- were exempt.

We're not talking your grandpappy's annuity here that gave him an extra $300 bucks a month. No, no, no, no. Sam was due to be paid just short of $250 million from nine private annuities. You read that right: Sam was seeking to exempt about a quarter of a billion dollars in future annuity payments from the claims of his creditors.