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

Asset protection planning is part of estate planning. Tax planning is part of estate planning. Often, however what is good tax planning is not good for asset protection. A recent example is a client who is attempting to reduce their taxable estate by using a estate tax tool called a qualified personal residence trust ("QPRT"). The QPRT is a well-known estate tax reduction technique whereby the taxpayer transfers a residence to a trust and retains use of the residence. After a period of time specified by the trust title to the property passes to the heirs who rent the property back to the former owner and trustmaker. The technique freezes reduces the value of the residence for estate tax purposes. The asset planning issue is that conveyance of a primary residence to a QPRT probably strips the house of homestead protection in Florida. The Florida Constitution protects homestead owned by a natural person. Courts have protected homesteads owned by living trusts where the debtor is the trustmaker, trustee, and beneficiary. A QPRT involves third party beneficiaries and often third party trustees. I do not think a QPRT can own a homestead in Florida.

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As a general rule, mortgage lenders have not been pursuing deficiency judgments during the real estate recession. Second mortgage lenders have sued borrowers individually in cases. Until this week I have not spoken with any client who had been sued for a deficiency claim by a first mortgage lender after or as part of a foreclosure. I have spoke to many attorneys who defend mortgage foreclosures none of whom have reported seeing a deficiency claim by a first mortgage lender in any of the cases they are handling. This week, I saw my first deficiency judgment by a first mortgage lender. Whether this is an isolated incident by one bank in one real estate development, or an indication of changing bank policy and greater risk for mortgage borrowers is unclear.

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A man told me he is liable on several business loans and lines of credit. He is afraid that the bank may either call the loans or demand substantial principal reductions which he cannot afford to pay in today's economy. He personally guaranteed all the business loans. The man owns 50% of the common stock in a profitable corporation. The corporation pays him a small salary and profit distributions. If a bank sues on any of his bank loans and gets a judgment against him the bank could then levy on the stock in his corporation. The non-debtor partner would be in business with the debtor's creditors. The man suggested selling his stock to his partner in consideration for a small cash down payment and a promissory note in order to get the stock out of his name. He intends to invest the cash in his homestead. His plan will not work as intended because the judgment creditor could garnish the note payable by the partner and demand payments from the partner.

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Several courts have sustained a debtor's exemption of retirement fund proceeds deposited in a financial account even though the applicable exemption statute does not state that retirement proceeds are exempt after money is withdrawn from the debtor's retirement plan. The annuity exemption statute specifically exempts annuities. Courts have read into the retirement fund exemption an protection of proceeds paid. One would expect that at some point in time money withdrawn from retirement and deposited for other use would eventually lose protection. Eventually, the exempt character of retirement distributions deposited or invested should transform to the debtor's non-exempt assets. A recent bankruptcy case considered a debtor who withdrew retirement money in 2004, deposited the money in a financial account, and then in 2007 wrote a check from the same financial account payable to his attorney's trust account for legal work to be performed on the debtor's behalf. The bankruptcy trustee claimed that the money held on the debtor's behalf in the trust account could not be exempt under the Florida Statute protecting retirement money.

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Many of my clients current live in another state and are considering moving to Florida for asset protection purposes. Almost everyone wants to know when homestead protection applies to a new Florida home they will buy. The general answer is that the owner has to actually live in the home as a permanent residence to make the house a Florida homestead. This past week a client posed a question regarding homestead occupancy which required I renew my research on the topic. Its not appropriate to repeat the exact question because my research is incomplete, but in the course of research, I found several cases (some old, some new) which expressed interesting principals about the occupancy of a new Florida homestead.

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