Legal Law
Florida Estate Planning: What’s Florida’s Position On Home Asset Protection Trusts?

Florida Estate Planning: What’s Florida’s Position On Home Asset Protection Trusts?

Asset protection is an important aspect of Florida estate planning and is a delicate process for Florida residents. In some states like Nevada and Alaska, they allow what’s known as a Home Asset Protection Trust that protects the trust against creditors. There are approximately 13 other states that allow a Home Asset Protection Trust. Florida is not one of them. In fact, public policy in Florida is embarrassed by the idea that Home Asset Protection Trust instruments are created to avoid paying creditors or estate taxes. A Florida estate planning attorney can prepare a trust for asset protection, but they must ensure that the instrument is not prepared as a self-established trust, otherwise the trust will not be protected from creditors.

What differentiates a domestic asset protection trust from an investment trust in Florida? To answer that question, you will need to understand what distinguishes the two instruments. First, think of the trust as something similar to an offshore account. This particular trust can be useful for people in high-risk industries or people trying to avoid taxes on their estate. A national asset protection trust is a self-established trust that is allowed in Nevada, Alaska, and 13 other states. In other words, the Settlor creates the trust for the benefit of the Settlor during his lifetime.

If you are thinking that you can create a Home Asset Protection Trust as a Florida resident, think again. For any possibility of this type of trust to be relevant, most, if not all, the activity must be in the state that allows the instrument, such as Nevada or Alaska. Even though the activity may be in the allowed state, it could still lead to disaster in the future. See Waldron v. Huber (In re Huber), 2013 WL 2154218 (Bk.WDWa., Slip Copy, May 17, 2013). In this case, a Washington resident with no connections to Alaska had an estate planning attorney prepare an Alaska Domestic Asset Protection Trust, which failed miserably. Therefore, a Florida resident is highly unlikely to benefit from this type of trust created in Nevada or Alaska and should be avoided at all costs unless the Florida trust law changes. Does this mean that the Household Asset Protection Trust will not be allowed in the future? Only time will tell.

Will the Florida Spendthrift Trust work similarly to the Nevada and Alaska Household Asset Protection Trust? It depends on how the Florida estate planning attorney prepares the Spendthrift Trust. If the Spendthrift Trust is created as a self-established trust, the answer is “no.” This includes creditor attacks on self-established revocable living trusts and also on self-established irrevocable living trusts. As a result, the so-called self-established trust, which is a trust established for personal gain, does not provide asset protection against creditors under current Florida trust statutes.

In 2006, the Florida Legislature enacted the new Florida Trust Code that took effect on July 1, 2007. As long as a trust agreement includes a “wasteful provision,” Florida courts have consistently held that the interest of a beneficiary in a trust established for his or her benefit from another person is protected. The wasteful provision generally states that a beneficiary cannot assign or transmit his beneficial interest. The most common intention of a wasteful provision is to prevent a beneficiary from wasting their inheritance. As a result, the beneficiary’s creditors cannot force the assignment to pay the beneficiary’s debts because the trustee prohibits the beneficiary from assigning his beneficial interest.

For asset protection against creditors to be effective in an investment trust, the instrument must be prepared with an asset protection provision in which the trust is established by a trust creator other than the beneficiary. A qualified and experienced Florida estate planning attorney would create an investment trust that is not self-liquidating if the intent of the instrument is to protect assets against creditors.

Finally, for effective Florida estate planning using Florida Statutes (2013) section 736.0502, an attorney must ensure that the wasteful provision expressly restricts voluntary and involuntary transfers of a beneficiary’s fiduciary interest. If the wasteful provision does not express this language specifically, the provision will not meet legal requirements. Once the beneficiary receives the distribution from the trustee, the money held by the beneficiary is no longer protected from the beneficiary’s creditors.

THE FULL DISCLOSURE

This article only reflects my personal views on an individual basis. It does not necessarily represent the opinions of my law firm or my previous clients, and is not sponsored or endorsed by them. The case-specific information in this article is based on opinions only, is provided for educational purposes only, and is not intended to provide specific legal advice. No representation is made about the accuracy of the information published in this article. Article topics may or may not be up to date and entries may be out of date at the time you view them.

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