Posted on May 15, 2012 by Jonathan Alper

Tax Liability From Short Sale: What Does Bankruptcy Provide Relief?

 Income tax liability for imputed income from debt forgiveness is a big issue for people contemplating a strategic defaults or doing short sales related to  mortgages on an investment property. There is imputed income from debt forgiveness on your primary home through 2013, but no such exemption exists for debt forgiveness following foreclosures on investment property. Insolvency is a defense. A property owner who shows he is insolvent does not have to pay tax on imputed income when the bank forgives personal mortgage liability either after a foreclosure or as part of a short sale arrangement.

 
An attorney asked me about his client who arranged for a short sale of investment property in 2011. The attorney had negotiated a forgiveness of debt on the client’s behalf.  The owner has a large retirement fund, but not counting the creditor exempt retirement account he was insolvent. In 2012, the same homeowner filed bankruptcy. Bankruptcy is per se insolvency for tax purposes. Two questions: are exempt assets such as retirement account considered for insolvency, and if so, must the homeowner have filed bankruptcy in the year of the foreclosure (2011).
 
Continue Reading...
Tags: , , ,
Posted on May 13, 2012 by Jonathan Alper

Constructive Trust: An Alternative To Creditor Equitable Lien Upon Homestead

 Creative creditors and their attorneys are looking for ways to get around debtor’s unlimited Florida homestead protection. There are exceptions to unlimited homestead protection. One exception is when a debtor acquired money by fraud and used the proceeds of the fraud to buy a homestead. If the creditor can prove that the debtor purchased the homestead with the intent to protect the money from creditors the court may put an equitable lien on the homestead. The court will not force the sale, but the creditor will have a lien on proceeds of a sale or refinance. 

What does the creditor do if he is unable to prove the elements of fraudulent conversion. For example, the debtor may have invested the proceeds of fraudulent activity in a house, but the debtor may be able to demonstrate that he did not buy the house to protect the money from creditors. Maybe the debtor could not have anticipated the fraud allegation when he bought the house, or maybe the debtor could show financial reasons why he need to avoid or minimize a mortgage. 
 
Continue Reading...
Tags: , ,
Posted on May 9, 2012 by Jonathan Alper

Tenant By Entireties For Personal Property In Other States

 Some states other than Florida have tenants by entireties protection. The protection is not equal among states. In some states, tenants by entireties ownership is available for only real property. Other states have entireties ownership for personal property as well as real property. Even in states that protect both real and personal property owned as tenants by entireties the creditor protection is not a great as Florida’s entireties exemption.  

Consider, for example, on of my married clients facing a potential civil judgment The client holds a promissory note, secured by a mortgage,  payable to he and his wife by a North Carolina resident arising out of the sale of North Carolina real property. The property was owned jointly by my client and his wife. The face of the note does not specify entireties ownership. The note states that payments are made by separate, equal check to the husband and to his wife. The husband is facing a potential judgment.
 
 
Continue Reading...
Tags:
Posted on May 5, 2012 by Jonathan Alper

Garnishment's After Effect: Bank Rejects Applicant With Unpaid Banking Fees

 Sometimes I get calls from people anticipating  judgments who ask me how to protect against creditor garnishment of cash in their bank accounts. In many cases I have advised them to use new banks located in states outside of Florida. When some of these people try to open new bank accounts they find that the bank rejects their accounts. Most of these debtors assume their accounts are rejected because they have bad credit or because a lawsuit has already been filed against them.  

I called one such bank to ask the bank manager how they screen new account and why they had rejected on of my clients. The bank said that their rejection has nothing to do with the applicant’s credit score or legal entanglements. Banks do not run credit checks on new customers unless they apply for credit, and they do not search court records to see if the applicant is being sued or has a judgment against him.  
 

 

Continue Reading...
Tags:
Posted on April 30, 2012 by Jonathan Alper

LLC Creates A Trust To Be Its Second Member: Is This A Multi-Member LLC?

 One of my clients told me he wants to create a two member LLC to operate his business. He understands that he needs more than one member for asset protection, but he has no business partners and he is unmarried. So, he proposes to have the LLC manager (him) cause the LLC to form an irrevocable trust for the client’s benefit with discretionary distributions and a spendthrift clause. The LLC would be the grantor; my client would be the trustee and beneficiary. The trust would own 10% of the new LLC. He asks if this arrangement would protect his interests in the LLC.  

 
Continue Reading...
Tags: , ,
Posted on April 26, 2012 by Jonathan Alper

Spendthrift Trusts And Discretionary Trusts Discussed In Florida Bar Journal

 There is an interesting asset protection related article in the  March edition of the Florida Bar Journal (that’s a professional magazine which the Florida Bar distributes to Florida attorneys). The article discussed and compared asset protection of spendthrift trusts and discretionary trust; most people don’t know theirs is a difference between the two trusts. 

 Most people are familiar with a spendthrift trust provision. A spendthrift provision states that a beneficiary my not voluntarily, or involuntarily, assign or pledge his future interest in trust assets or income. Most of my clients, and most attorneys, understand that a beneficiary’s interest in a spendthrift trust is protected from the beneficiary’s creditors, in and out of bankruptcy. Florida has a spendthrift trust statute (recently drafted in 2006) which defines a spendthrift trusts, tells us how to draft a spendthrift trust provision in a trust agreement, and provides that the beneficiary’s interest is an exempt asset. 
 
 
Continue Reading...
Tags:
Posted on April 22, 2012 by Jonathan Alper

Could Irrevocable Pay On Death Account Be Creditor Protected?

 A “ pay on death account” is a popular, and inexpensive, estate planning tool. A person owns a financial account which, on the title, provides that all money is paid upon the person’s death to one or more other people (usually children). The account title and proceeds are transferred upon the owner’s death without probate.  

A caller asked me whether he could make his POD designation irrevocable and thereby protect the account from his creditors during his lifetime. He suggested than an irrevocable pay on death designation would give his payees a vested interest in the account which would have priority over the interests of his lifetime creditors. 
 
 
Continue Reading...
Tags:
Posted on April 18, 2012 by Jonathan Alper

Intending To Move Permanently To Florida Is Not Florida Residency

 Let me clarify “intent to reside in Florida” for purposes of being a Florida resident. A caller from Tennessee owns a vacation condo in Florida where he spends time each year. He said he has put his Tennessee home up for sale, and that as soon as it is sold, he and his wife will move into the Florida condo. Therefore, he concludes, he can claim Florida residency and Florida exemptions today because he owns property in Florida and intends, honestly and completely, to make Florida his permanent home. 

 
 
Continue Reading...
Tags: , ,
Posted on April 12, 2012 by Jonathan Alper

Homestead Protection Of Insurance Proceeds Paid For Sinkhole Damage

 This past week a client asked me about exemption of an insurance proceeds from a claim made on his homestead.  First, a homeowner’s primary house was damaged by a small sinkhole. The insurance company wrote him a check equal to the repair costs. The homeowner is considering abandoning the home and depositing the check in a bank account while he searches to rent or buy a new home. He asked whether the insurance money is protected in his bank account. 

 
 
Continue Reading...
Tags:
Posted on April 9, 2012 by Jonathan Alper

Florida Debtor's IRA Garnished In Another State, Again

 I consulted with an asset protection client who was moving to Florida from Tennessee where he had previously set up an IRA with a bank’s investment department. I suggested that the client relocate the IRA to a Florida financial company or open an IRA with a national financial firm at its Florida office. After our initial meeting, the client reviewed my asset protection plan with his general business attorney. He reported that his attorney advised him that it was not necessary to relocated the IRA because it would be exempt after the client became a Florida resident. The client and his attorney thought I was being overly cautious.  

 
Continue Reading...
Tags: