One of the most common goals of Florida residents who seek professional estate planning guidance is to protect one’s personal assets against creditors. Depending on the individual’s purpose, distinct legal tools offer different levels of liability protection.
Are asset-protection trusts effective in Florida? Keep reading to find out.
What is an Asset-Protection Trust? – Understanding the Concept
A trust is a fiduciary relationship in which a trustor (the person creating the trust) transfers the ownership of assets to a trustee for the benefit of one or multiple beneficiaries. There are different types of trusts for distinct purposes.
An asset protection trust is a self-settled trust. In this type of trust, the trustor transfers the ownership of specific assets to a trustee while designating him or herself as the trust’s beneficiary.
Many people believe that asset-protection trusts can shield debtors against judgments or liens from creditors. Under Florida law, self-settled trusts are not efficient legal tools for asset protection, as a creditor may collect from a debtor’s interest in a trust established for his or her own benefit.
Asset-Protection Trust Law – Taking a Closer Look
In recent years, some US states have enacted specific statutory rules to provide asset protection to self-settled trusts. Under these statutes, this type of trust is generally referred to as a “domestic asset protection trust” (DAPT).
The creation of new laws solidifying the existence of DAPTs across different states incentivized businesses and property owners to create trusts in distinct jurisdictions to enjoy creditor protection.
Examples of states with statutory rules favoring DAPTs include Alaska, Delaware, Utah, and Nevada. Florida has no statutory provisions to protect self-settled trusts. Conversely, the state has followed a standard policy against this type of trust throughout the years.
States with favorable asset-protection trust laws have similar statutory rules governing trusts. DAPTs are generally created as irrevocable trusts, which prohibits trustors from modifying, amending, or revoking the terms of the trust instrument.
Most statutory rules in favorable DAPT states require trustors to designate at least one trustee that must be either a state resident or a corporation registered in that state’s jurisdiction.
Generally, some of the assets held in the trust must also be located or deposited within state jurisdiction. Depending on the state, it is possible to find the position of “trust protectors.”
A “trust protector” is a person who has the power to veto the trustee’s decisions to make decisions that may result in vulnerability to the trustor’s creditors. This type of provision prevents mismanagement and overspending from trustees, which is fundamental for asset protection.
Are Asset-Protection Trusts Enforceable Under Florida Law? – An Honest Answer
It is not unusual to find new Florida residents who have established asset-protection trusts in their previous residency states. In such cases, it is essential to consult with an expert attorney to assess whether a Florida court might apply the laws of the trust’s original jurisdiction or oppose self-settled trust protection.
Historically, Florida courts have no decisions declaring that a debtor’s interest in an asset-protection trust formed under another state’s jurisdiction is protected from valid creditors’ claims and judgments in Florida.