Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

I have recently encountered significant discussion of Swiss annuities. One client asked me to research their effectiveness in asset protection; another client, a U.K. citizen, said that he already owned two Swiss annuities which he purchased in the U.K. I asked other attorneys if their clients had used Swiss annuities in asset protection. Attorney Alan Gassman, of Clearwater, Florida, a very good asset protection and tax attorney, said that two of his clients purchased Swiss annuities. Other asset protection attorneys, however, responded that they had no experience with these instruments

• Email This
• Print
• Comments (7)
• Share Link

I received an email from someone who wanted to know if he could claim homestead protection on a house he owned jointly with his parents. The questioner faced a potential judgment. The questioner and the parents lived together in this house. Florida homestead is not limited to one owner per property. All people who jointly own and also reside in a primary residence have homestead protection and no creditor of either of the co-owners and co-residents can force a sale of the property. If the questioner became a judgment debtor his interest in the residence and his parents' interest would be protected from forced sale. If, on the other hand, the questioner/debtor was a co-owner but resided elsewhere his interest in the property owned with his parents would not be protected. His creditors could still not force a sale of the house if his house was his parents' homestead residence. If all three co-owners voluntarily sold the house his parents' share of the equity would be protected as their homestead interest, but creditors might have a lien on the debtor child's share of equity

• Email This
• Print
• Comments (2)
• Share Link

The new bankruptcy law generally is not effective for six months after Bush signs it. Some provisions are effective immediately. One important change immediately effective is the $125,000 limit on protected homestead equity for those debtors who have owned their residence less than 40 months. Anyone with homestead equity greater than $125,000 and does not meet the 40 month waiting period and who is considering filing bankruptcy before the new bankruptcy law goes into effect should file bankruptcy immediately. The bill may be passed and signed in a couple weeks. File now and submit your completed schedules later.

The new bankruptcy law impacts homestead protection only in bankruptcy court and does not affect the homestead protection available in state court collection proceedings.

• Email This
• Print
• Comments (1)
• Share Link

I had set up a single member limited liability for a client to hold his investment assets. The client asked that the LLC appoint a friend as manager. The friend was appointment as manager so the client would not hold discretion to make distributions which could be subject to a charging lien. The LLC agreement gave the members (client) the right to replace the manager. The client asked if he should insert an anti-duress provision in the agreement which would say that the manager would not make distributions under duress. These anti-duress clauses are usually found in offshore trusts agreements to prevent the offshore trustee from complying with U.S. court orders. Sometimes they work; often they do not work. I don't think they would work with a domestic LLC because the manager, if a U.S. resident, would comply with the court to protect himself from contempt regardless of the anti-duress language.

• Email This
• Print
• Comments (1)
• Share Link

The new bankruptcy law will create a wide disparity between asset protection in state court venues and protection in bankruptcy court. Exemptions will be fewer and harder to defend in bankruptcy. An example is Florida homestead which will continue to provide immediate protection against state court collections, but which will not be protected in bankruptcy court until 40 months after purchase or payment of mortgage principal. The increase of creditor rights in the bankruptcy setting will encourage creditors in some instances to consider filing petitions for involuntary bankruptcy. A Florida resident who was successfully protecting his wealth against creditor collections in a large homestead property could find his homestead protection stripped away if forced into bankruptcy. If a debtor has more than twelve unsecured creditors, any three creditors can join in a petition to have the debtor involuntarily declared bankruptcy. In the past, involuntary bankruptcy is uncommon because petitioning creditors can be held liable for damages and debtor's attorneys fees if their involuntary petition is denied for any reason. Involuntary bankruptcy will be a greater concern in asset protection planning after the new bankruptcy law goes into effect.

• Email This
• Print
• Comments (1)
• Share Link

California is serious about collecting judgments. A gentleman called me from California last week to inquire about moving to Florida and transferring his bank accounts and his wife's separate bank accounts to Florida bank accounts owned by he and his wife jointly. A judgment had already been entered against the caller by a California court, although his wife had not been named in the lawsuit. In Florida, as blog readers know, a creditor cannot garnish bank accounts owned jointly by the debtor and the non-debtor spouse because such joint accounts are presumed to be tenants by the entireties property. TE assets of Florida residence are protected from judgments against one spouse

• Email This
• Print
• Comments
• Share Link

The Senate version of the Bankruptcy Reform Act included a compromise amendment curbing asset protection trusts. My understanding is that compromise amendment included in a debtor's bankruptcy estate subject to distribution among creditors the debtor's beneficial interest in a self-settled asset protection trust created within the past 10 years if the debtor had the "actual intent" to evade obligations to certain government agencies and regulations, such as securities regulation. The amendment did not distinguish domestic asset protection trust from foreign trust. Although foreign trust may be maintained outside U.S. court jurisdiction, a debtor's property anywhere in the world is subject to bankruptcy court jurisdiction. Subject to further analysis, it appears that the Senate may not have impacted the effectiveness of properly created asset protection trust against most creditor claims in bankruptcy.

• Email This
• Print
• Comments
• Share Link

Previous blog entries have discussed issues concerning wage exemption from garnishment for single owner businessmen or professionals. In short, there are cases in Florida that say that creditors can garnish wages paid to a person who is the sole owner of his employer. These cases pertain to doctors/lawyers/dentist who are solo practicioners and who draw a salary form their professional corporation or businessmen who are the sole owners of their own corporations or LLCs even when the debtors are head of family. The Florida cases held that the sole owner has too much control over his business and distributions to qualify for wage garnishment protection which, the cases say, is designed to protect people who earn compensation from an arms length relationship with an employer. The cases previously discussed in other blog post involved "bad facts" including lack of a written employment agreement and varying amounts to distributions to the debtor rather than fixed amounts of periodic payments usually associated with arms length employment.

• Email This
• Print
• Comments (1)
• Share Link

The Wall Street Journal and other sources reported that the new bankruptcy law protects property held in domestic asset protection trusts. My understanding is that the new law ( and I haven't read it) does not mention domestic asset protection trust. An amended was proposed to specifically deny protection of these trust assets in bankruptcy. The amendment was defeated. By defeat of the amendment, the Senate expressed its intent not to include in the debtor's bankruptcy estate the beneficial interest in a properly formed domestic asset protection trust. I have not seen anything to suggests that these trust would be protected from the bankruptcy trustee's allegations of fraudulent conveyance, or that a trust reserving excessive control to the debtor (as most trust do) would not be included in bankruptcy estate property. The status of asset protection trust under the new bankruptcy law is more complex than it appears to be in the newspapers.

• Email This
• Print
• Comments (4)
• Share Link

The Senate's immanent has been widely reported in the press. The bill proposes an effective date six months after it is signed by the President. The bill is extensive and complex, and it will have some Florida asset protection consequences. It is important to remember that the new bankruptcy law is only applicable when a debtor chooses to file bankruptcy. None of the bankruptcy reform act impacts Florida's asset protection provisions of the Florida constitution or Florida statutes. Therefore, the Bankruptcy Reform Act should not affect asset protection planning against state court collection efforts. The primary impact upon Florida asset protection appears will be felt by those debtors who move to Florida with the intention of buying a homestead and subsequently filing bankruptcy. Under current bankruptcy law, a debtor from another state who establishes Florida residency must wait at least twelve months after purchasing the Florida homestead before filing bankruptcy. The new bankruptcy law extends the waiting period to 40 months.

• Email This
• Print
• Comments (4)
• Share Link

A caller wanted to purchase a residential lot and then build on the lot his primary residence. The caller was about to go into default on a substantial amount of credit card debt and was concerned about creditors taking the lot prior to his ability to complete and occupy a house.

Several entries on this blog have pointed out that homestead protection is not effective until a property is occupied, and that houses under construction are not protected. This caller proposed to take title during construction in a separate LLC and then convey title to himself personally when a certificate of occupancy was issued. If a judgment was entered against the debtor prior to occupancy and homestead protection the judgment would not attache to the LLC. Moreover, the debtor's interest in the LLC could not be taken by creditors. Once the debtor is ready to move into the property he would have to convey title out of the LLC to himself personally because homestead protection is not available to LLCs or other legal entities other than natural persons.

• Email This
• Print
• Comments
• Share Link

A caller from California asked me whether Florida law would protect from creditors a Florida property owned by a Florida LLC which in turn was owned by the caller's self-directed IRA. I responded that Florida law exempting IRAs from creditors would not apply to this California resident, although because the real estate would be situated in Florida the creditor remedy may be limited by Florida law which makes charging liens the sole remedy to pursue a member's LLC interest. I have not researched this issue, and it could be that a California court may give a creditor greater rights to levy on the LLC interest.

• Email This
• Print
• Comments (3)
• Share Link

The N.Y Times ran an article on the proposed bankruptcy reform legislation now being debated in the U.S. Senate, and it said the law failed to close loopholes created by domestic asset protection trusts which are provided for by statutes of several states including Alaska, Delaware, and Utah. The Times quoted experts who stated that the new law would not stop people who had established domestic, as well as offshore, asset protection trusts from protecting their assets in bankruptcy.

These commentators are correct in theory, but their comments may not apply to most real life asset protection planning. First, most asset protection trusts are not set up correctly. Because most debtors fear relinquishing control over their assets to a third party trustee, debtors usually insist that either they or a closely related family member serves as trustee or that they at least retain the right to remove and replace their trustee. When a debtor files bankruptcy all of his interests and rights are turned over to the bankruptcy trustee including, if applicable, his control over the trust or his control over the trustee of the trust. Bankruptcy courts can force the debtor to exercise his retained control to appoint the bankruptcy trustee as trustee of the asset protection trust.

• Email This
• Print
• Comments (1)
• Share Link