Florida Estate Planning: What Is Florida's Stance on Domestic Asset Protection Trusts?

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Asset protection is an important aspect of estate planning in Florida and is a delicate process for Florida residents. In some states, such as Nevada and Alaska, they allow what is called a Domestic Asset Protection Trust, which protects the trust from creditors. There are about 13 other states that allow a national asset protection trust. Florida does not belong to it. In fact, Florida's public policy is concerned that Domestic Asset Protection Trust instruments are created to avoid paying creditors or death duties. A Florida estate planning attorney can prepare a Spendthrift trust for the protection of assets, but must ensure that the instrument is not prepared as a self-settled trust, otherwise the trust is not protected from creditors.

What differentiates a trust from the national assets of a Spendthrift Trust in Florida? In order to answer this question, you will have to understand what distinguishes the two instruments. First, think of trust as similar to an offshore account. This particular trust can be useful for those working in high-risk industries or those seeking to avoid inheritance taxes. A domestic trust for the protection of assets is a self-established trust that is licensed in Nevada, Alaska and 13 other states. In other words, the trust is created by the settlor for the benefit of the latter during his lifetime.

If you think you can create a national asset protection trust as a resident of Florida, think again. In order for any possibility for this type of trust to be relevant, most activities, if not all, must take place in the state that allows it, such as Nevada or Alaska. Even though the activity may be in the allowed state, it could still lead to a disaster later. See Waldron c. Huber (Huber case), 2013 WL 2154218 (Bk.WDWa., Sticky copy, May 17, 2013). In this case, a Washington resident who had no connection to Alaska had asked a estate planning lawyer to prepare a fund for the protection of Alaska's domestic assets that had failed miserably. Therefore, it is highly unlikely that a Florida resident benefits from this type of trust created in Nevada or Alaska and should be avoided at all costs unless the trust law is changed in Florida. Does this mean that the Domestic Asset Protection Trust will no longer be authorized in the future? Only time will tell.

Will the Florida Spendthrift Trust operate in the same way as Nevada and the Domestic Asset Protection Trust? It depends on how the Spendthrift Trust is prepared by the Florida estate planning attorney. If the Spendthrift Trust is created as a self-established trust, the answer is "no". This includes creditor attacks on self-established revocable life trusts and self-established irrevocable life trusts. As a result, a so-called self-established trust, which is a trust established for its own benefit, does not provide asset protection against creditors under existing Florida trust laws.

In 2006, the Florida legislature enacted the new Florida Trust Code, which came into effect on July 1, 2007. As long as a trust contract includes a "spending disposition", the Florida courts have always ruled that the interests of a beneficiary in a trust established to his advantage by another person is protected. The spending disposition usually states that a beneficiary can not assign or convey his beneficial interest. The most common intention of a spending disposition is to prevent a beneficiary from wasting his or her inheritance. Therefore, the beneficiary's creditors can not force the assignment to pay the debts of the beneficiary, because the creator of the trust forbids him to surrender his beneficial interests.

In order for asset protection against creditors to be effective in a Spendthrift trust, the instrument must be prepared with an asset protection provision in which the trust is created by a trustee other than the beneficiary. A competent and experienced estate planning lawyer in Florida would create a Spendthrift trust that is not self-settled if the instrument is intended to protect assets against creditors.

Finally, in order for estate planning in Florida to be effective, pursuant to Article 736.0502 of the Florida Statutes (2013), a lawyer must ensure that the spending provision specifically restricts voluntary and involuntary transfers to the beneficiary's trust. If the spending disposition does not specifically express this wording, the provision will not meet the legal requirements. Once the beneficiary receives the trustee's distribution, the funds in the hands of the beneficiary are no longer protected from the trustee's creditors.

FULL DISCLOSURE

This article reflects only my personal opinions in a personal capacity. It does not necessarily represent the point of view of my law firm or my former clients and is not sponsored or endorsed by them. The case-specific information contained in this article is based solely on opinions, is provided solely for educational purposes, and is not intended to provide specific legal advice. No representation is made about the accuracy of the information posted in this article. Article topics may or may not be updated and entries may be out of date by the time you view them.


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