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

What makes a household asset protection trust different from a spendthrift trust in Florida? To answer that question, you’ll need to understand what makes the two instruments different. 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 household 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 her life.

If you are considering creating a household asset protection trust as a Florida resident, think again. For any possibility of this type of trust to be relevant, most, if not all, of the activities 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 a 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 Alaska connections had an estate planning attorney set up an Alaska Home Asset Protection Trust that failed miserably. Therefore, it is highly unlikely that a Florida resident would benefit from this type of trust created in Nevada or Alaska and should be avoided at all costs unless Florida trust law changes. Does this mean that the Home 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 Home Asset Protection Trust? It depends on how the wasteful trust is prepared by the Florida estate planning attorney. If the Spendthrift Trust is created as a stand-alone trust, then the answer is “no.” This includes attacks by creditors against self-established revocable living trusts and self-established irrevocable living trusts as well. As a result, a so-called self-established trust, which is a trust established for one’s own benefit, does not provide asset protection against creditors under current Florida trust statutes.

In 2006, the Florida legislature enacted the new Florida Trust Code which became effective on July 1, 2007. Whenever 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 is protected by another person. The waste provision generally provides that a beneficiary may not assign or transfer his beneficial interest. The most common intent of a wasteful disposition is to prevent a beneficiary from squandering her estate. 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 a wasteful trust, the instrument must be prepared with an asset protection provision in which the trust is established by a trustee other than the beneficiary. A qualified and experienced Florida estate planning attorney would create a wasteful non-self-establishing trust if the intent of the instrument is to protect assets against creditors.

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

FULL DISCLOSURE

This article only reflects my personal views in an individual capacity. It does not necessarily represent the views of my law firm or my previous clients, and is not sponsored or endorsed by them. The case-specific information contained in this article is based on opinion only and 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 posts may be out of date by the time you view them.