By: Florida Estate Planning Attorney Thomas Upchurch of Upchurch Law – Daytona Beach, FL
Asset protection is an important aspect of Florida Estate Planning and is a delicate process for Florida residents. In some states such as Nevada and Alaska, they allow what is known as a Domestic Asset Protection Trust that protects the trust against creditors. There are approximately 13 other states that allow a Domestic Asset Protection Trust. Florida is not one of them. In fact, public policy in Florida cringes at the thought of Domestic Asset Protection Trust instruments being created to avoid paying creditors or estate taxes. A Florida Estate Planning Attorney may prepare a Spendthrift Trust for asset protection but must ensure the instrument is not prepared as a self-settled trust or the trust is not protected from creditors.
WHAT DIFFERENTIATES A DOMESTIC ASSET PROTECTION TRUST FROM A SPENDTHRIFT TRUST IN FLORIDA?
In order to answer that question you will need to understand what sets the two instruments apart. First, think of the trust as being similar to an offshore account. This particular trust may be useful for individuals in high-risk industries or people trying to avoid taxes on their estate. A Domestic Asset Protection Trust is a self-settled trust that is allowed in Nevada, Alaska, and 13 other states. In other words, the trust is created by the Settlor for the benefit of the Settlor during his or her lifetime.
If you are thinking you can create a Domestic Asset Protection Trust as a Florida resident, think again. In order for any possibility for this type of trust to be relevant most, if not all, activity must be in the state that allows the instrument such as Nevada or Alaska. Even though the activity may be in the allowable state, it could still lead to disaster down the road. See Waldron v. Huber (In re Huber), 2013 WL 2154218 (Bk.W.D.Wa., Slip Copy, May 17, 2013). In this case, a Washington resident who had no connections to Alaska had an estate planning attorney prepare an Alaska Domestic 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 cost unless the trust law changes in Florida. Does this mean Domestic Asset Protection Trust will not be allowed in the future? Only time will tell.
WILL FLORIDA’S SPENDTHRIFT TRUST WORK SIMILARLY TO NEVADA AND ALASKA’S 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-settled trust, then the answer is “no.” This includes creditor attacks against self-settled revocable living trusts and self-settled irrevocable living trusts too. As a result, a so-called self-settled trust, which is a trust established for one’s own benefit, does not provide asset protection under Florida’s current trust statutes.
In 2006, the Florida legislature enacted the new Florida Trust Code which became effective on July 1, 2007. As long as a trust agreement includes a “spendthrift provision,” Florida courts have consistently held that a beneficiary’s interest in a trust established for his or her benefit by another person is protected. The spendthrift provision usually states that a beneficiary may not assign or convey his beneficial interest. The most common intention of a spendthrift provision is to prevent a beneficiary from squandering his or her inheritance. As a result, the beneficiary’s creditors cannot force the assignment to pay the beneficiary’s debts because the trustmaker prohibits the beneficiary from assigning his or her beneficial interest.
In order for the asset protection to be effective in a Spendthrift Trust, the instrument must be prepared with an asset protection provision wherein the trust is set up by a trustmaker other than the beneficiary. A skilled and experienced Florida Estate Planning attorney would create a Spendthrift Trust that is not self-settled if the intention of the instrument is for asset protection against creditors.
Lastly, for effective Florida Estate Planning utilizing section 736.0502, Florida Statutes (2013), an attorney should ensure the spendthrift provision expressly restrains both voluntary and involuntary transfers of a beneficiary’s trust interest. If the spendthrift provision does not specifically express this language, the provision will not meet the statutory 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.
Florida Estate Planning Attorney Thomas Upchurch serves the entire state of Florida, serving primarily in vicinities of Central and North Florida Areas which include Daytona Beach, Port Orange, Deland, Ormond Beach, Jacksonville, Palm Coast, Orlando, Saint Augustine, and New Smyrna Beach. Areas he serves in South Florida include Miami, Ft. Lauderdale, Coral Springs, and Coral Gables and in West Florida include Tampa and Clearwater. Even if your city is not listed, Attorney Upchurch may still handle your matter.
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