Florida Asset Protection Law Blog | Attorney Jon Alper

Setting up an irrevocable trust for your childrens education after you have already been threatened with a lawsuit, or been sued,  is not a good asset protection. Yet, new clients frequently propose making a educational trust and irrevocably transferring money for the benefit of their children to avoid the parents’ creditors.

I read an article by attorney Jay Adkisson about a Ninth Circuit case where the appeals court set aside a minors trust both as a fraudulent transfer and as the alter-ego of the debtor. Husband and wife  established two separate trusts for their  child’s education trust while they were $5.4 million in debt. The couple filed bankruptcy. The bankruptcy trustee sought to set aside the trusts as the debtors’ alter egos.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I have advised many people over the past three years to walk away from their upside down mortgages- the “strategic default.” My clients typically are worried about foreclosure’s effect on their professional lives and their credit. Today I received a phone call from a client who consulted me over a year ago about mortgage foreclosure on his primary residence. After speaking with me initially the client decided to stop paying his mortgage. He lost his home to foreclosure in July. He called for some additional legal advice. After answering his legal questions I asked him how the foreclosure affected him and whether he had made the right decisions to walk away. Here is what he said.

The client told me that after the foreclosure his life can be described as “business as usual.” He recently got a new and better job. The job application asked him about prior foreclosures, and he answered truthfully. The foreclosure was not an issue during his job interview for his new job, nor had any other prospective employer raised the issue during his job search. He said that people with foreclosure on their credit report were no longer “outliers.” Its common.

The client has been getting credit card solicitations continually. He recently purchased a new car and got a car loan. Not 0 % interest, but 8% interest. High, but not impossible to deal with. His point was that he qualified for a new car loan four months after the foreclosure. Overall, the client stated that the “psychological and social stigma of foreclosure” was much less than he expected.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

An article in this month’s Florida Bar Journal has an interesting article about an asset protection tool for taxable estates written by well-known tax attorneys Barry Nelson and Richard Gans. The tool involves a husband’s and wife’s matching irrevocable lifetime QTIP trusts. It’s a complicated too, and I can offer only a layman’s summary; for a full understanding you’ll need to read the article.

Husband and wife owning assets as tenants by entireties is effective asset protection against the debts of either spouse. The T by E plan, however, creates estate tax problems in planning for taxable estates (for purposes of discussion, assume a $3.5m tax credit per spouse). Upon the first death the TE property automatically passes to the surviving spouse under the marital tax deduction, but the couple does not get to apply the deceased’s spouse’s tax credit. If the couple owns less than $3.5m of assets the estate is still not taxable, but if combined assets exceed the tax credit cover then the T by E planning results in possible estate tax when the second spouse’s dies with only one tax credit available to apply to all marital assets.

A QTIP trust is an irrevocable trust for a spouse. When the beneficiary spouse dies the property passes to the children. The QTIP trust is usually established upon the first death so that the decedent’s share of marital assets is held in the trust for the surviving spouse during his lifetime. These trusts are protected from the surviving spouse’s creditors.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Some of my clients come into my office with tips and tricks they have learned themselves which they believe will protect assets. People think that they can protect cash simply by depositing the money in an offshore account; Swiss bank accounts are the most popular. As I have written previously, I have been told that it has become very difficult for individuals to open accounts at Swiss banks because of pressure applied by US antiterrorism and taxing agencies. Nevertheless, one of my clients this week explained that they had previously traveled to Switzerland, walked into a bank without appointment or introduction, and opened an account with a substantial cash deposit. I told them I was surprised they were able to open the account so easily. This is their explanation.

When my clients had researched procedure for Swiss accounts they learned that the US  political pressure had been exerted against the larger, multinational Swiss banks. Smaller Swiss banks were unaffected, afraid, and were still very receptive to US customers. According to these clients, a US citizen can seek out a small Swiss bank and open a Swiss bank account “just like to old days.”

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Asset protection planning requires knowledge of many different areas of the law. The multi-disciplinary nature of asset protection is what makes it difficult and why relatively few attorneys have the breadth of experience to practice competently in this field. Today, I encountered another example. One of my asset protection clients owed substantial money to a former business partner. The client owned a private corporation with significant value. He had signed a promissory note to his former partner and they had a security agreement pledging the stock in his corporation as collateral. The client was concerned that neither he nor his former partner ever filed a UCC-1 on the public record which he thought necessary to perfect his partner’s interest against subsequent judgment creditors. The client wanted to pledge the stock to secure his relatively friendly former partner and protect the stock against adverse judgment creditors.

I explained that the former partner’s security may have priority against all future creditors even though there was no UCC-1 filed. Generally speaking, a lender’s security in real estate is perfected by recording a mortgage. A lender’s security in personal property is perfected by filing a UCC-1. But, UCC-1 forms are not required to perfect security interests in all types of personal property. Security perfection in personal property is governed by the Uniform Commercial Code as adopted in the Florida Statutes. The Code and Statutes provide that a lender perfects security priority in corporation stock by possession of the original stock certificates. A UCC-1 is not required. If this client had   given his former partner the stock certificates at the same time he executed the note and security agreement the former partner’s priority against this stock would date back to the date of the note.

If you seek to protect non-exempt personal property by pledging the property to a bona fide preferred creditor make sure you research the proper procedures to perfect the security interest.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A man from southwest Florida  consulted with me about filing Chapter 7 bankruptcy in Ft. Myers, Florida bankruptcy court. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.

There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy  boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.

In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this  boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Since the mortgage mess started, in 2007, I have never advised a client to participate in a “short sale” of their upside down residence. I cannot find any legal advantage for a homeowner. The lender benefits by having the homeowner market the house and usually procuring much higher sale proceeds compared to the lender’s own fire sale. The biggest beneficiary is the real estate broker. The buyer benefits by acquiring a house at a low price. But, where’s the benefit to the homeowner. The lender almost never releases the homeowner from personal liability so the chances of a lawsuit seeking a deficiency judgment lingers after the short sale just as it does after foreclosure.

The most common reason people give me for their insistence in pursuing a short sale before letting a home go to foreclosure is “credit.” Most people tell me that a foreclosure has a worse effect on the borrower’s credit score, and they assume their credit will recover quicker if they provide the mortgage lender with a buyer in a short sale arrangement. Really?

A week ago, on Saturday, November 27, 2010, the Wall Street Journal, Nick Timiraoas wrote an article about short sales and credit. He posed the question, “Is a short sale as damagin to a borrower’s credit as foreclosure.” His answer was, “Generally speaking, yes.”  He explained that in either a foreclosure or a short sale a borrower’s credit score will fall by about 100 points according to Fair Isaac Corp.  So, your credit will get hit the same whether you make the effort to short sale your property or simply walk away.

 

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

Asset protection clients often deal with judgments against both themselves individually and their closely held business. Many of my clients believe that they can deal with their businesses’ liability and potential judgment by closing or bankrupting their business. When I asked them how they plan to make a living after they close their business the response is something like, “I’ll just start a new business doing the same kind of work.” Not exactly. I’ve written before on this blog that when the debtor’s new business is nothing more than a name change or a successor business that uses the goodwill and other assets of the debtor business the creditor can levy upon the new business as the continuation or alter-ego of the debtor business.

I am addressing this problem again because I read recently a post on this subject dated September 29, 2010, t on The Sale of Business Law Blog. The blog discusses a court decision where the judge found that a newly formed business was liable for the debts of a closed debtor business where the new business, among other things, took the former business’ employees and customers and operated in the same physical location.

In most instances the only way to be sure a new business is protected from the debts of a former business is to file Chapter 7 bankruptcy for the former business. Any assets of the old business, including goodwill, would be part of the bankruptcy estate so that there should be no assets to transfer to a successor venture.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link