Florida Asset Protection Law Blog | Attorney Jon Alper

Think what you may about the politics of Florida’s legislature and our new governor, but the seem to be pretty good about fixing bad court decisions. I wrote blog posts previously about more than one Florida court decision finding that a debtor’s IRA inherited from another family member, excluding spouses’ rollover, was not exempt from the debtor’s creditors because the IRA represented an inheritance rather than the debtor’s own retirement savings.

Legislature to the rescue. Florida statute section 222.21 will be amended to specifically included inherited IRAs as well as rollover IRAs. You can read it here. The bill is retroactive so it does not matter if the IRA was established or inherited before this bill becomes law. Also, the bill is applicable to IRAs owned by Florida residents even if the deceased owner lived elsewhere.

To be safe, if you inherit an IRA you may want to move the IRA account to a Florida branch of the IRA custodian. If the decedent lived in another state and had his IRA account maintained at an office in his home state a creditor could argue that the exemption laws applicable to your inherited IRA are the laws of the state where the inherited IRA account is maintained.
 

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I get asked from time to time whether a debtor’s mobile home which he occupies and maintains on a rented mobile home lot qualifies as exempt homestead. The answer is “yes” and “no.”

Mobile homes are not protected from creditors under Florida’s constitutional homestead protection when the debtors do not own the underlying land. Such mobile homes are protected from creditors under a Florida statute intended to extend creditor protection to certain non-traditional dwellings. Florida Statute 222.05 provides a statutory homestead exemption for mobile home occupants. Many courts have considered the homestead protection under Statute 222.05 to be an extension of Florida’s constitutional homestead. The statute accomplishes the same result, but it is different in some other respects.

The point is that if you live in a mobile home in a mobile home rental park your residence is protected from your creditors.

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A couple years ago I posted an article in my bankruptcy law blog regarding inherited IRAs. My post discussed a Florida state court decision which held that the statutory IRA exemption from creditors does not apply to IRAs which the debtor inherited. Subsequently, a Florida bankruptcy case held that inherited IRAs are not exempt in Chapter 7 bankruptcy cases. The bankruptcy court cited as authority a Texas bankruptcy court decision In re Chilton, 426 B.R. 612. In March of this year a federal district court in Texas reversed the Chilton decision. The Texas court said that inherited IRAs are tax exempt “retirement funds” which will support debtors during their retirement and should be protected under the bankruptcy code’s exemption of retirement proceeds.

The Texas federal court decision does not directly overturn the Florida cases denying the exemption to inherited IRAs, but it may give other Florida judges precedent and rationale to extend the exemption to the inherited IRA in future cases. Chilton v. Moser, 2011 WL 938310

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They fixed the LLC statute. I had wrote a post in March about legislation introduced in the Florida legislature to clean up the effect of the Olmstead decision and creditors' rights against a debtor's LLC membership interest.. The legislation passed both legislative chambers almost unanimously and awaits the governor’s signature.

You can read the bill yourself, but here is a summary. Florida’s LLC law now makes clear distinctions between single and multi-member LLCs. A creditor can use the full array of creditor tools to attack a debtor’s interest in a single member LLC, including without limitation, foreclosure and levy. And, if the creditor does take over the debtor’s single member LLC interest the creditor becomes a substituted member and the debtor is no longer a member. The purchaser of a single member LLC at a foreclosure sale likewise steps in the debtor’s LLC shoes.

The bill clearly states that the charging order is the exclusive remedy against a debtor’s interest in a multi-member LLC. The bill states that foreclosure of the multi-member interest is not an option.

Of course, the question on everyone’s (blog readers) mind is: “what makes an LLC a ‘multi-member’ LLC?” “Is one percent ownership enough?” The answer is : “nobody knows for sure.” The bill does not define a multi-member LLC other than state that a multi-member LLC is an LLC with more than one member.

 

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I have lost count of the number of asset protection inquiries about land trust where the prospective clients believe that the land trust is an asset protection tool. Land trusts provide no asset protection benefits. A land trust is a self-settled trust, meaning the debtor is the trustmaker and beneficiary. A living trust used for estate planning is another type of self-settled trust. In the case of a living trust the trustmaker/beneficiary is usually also the trustee. The trustmaker is never the beneficiary of a land trust.

A land trust is used to hide ownership of real property. People use land trusts for privacy and confidentiality. If you purchase property in the name of a land trust the recorded deed will list the name of the trustee (not you) and the property description. The deed and public record will not list the names of the trust beneficiary.

Privacy does not work in asset protection. Your judgment creditor will ask you to disclose under oath all of your legal or beneficial interests in real property. A debtor will have to disclose his beneficial interest in a land trust. Also, if the property owned by the land trust is investment property your federal tax return, discoverable by your judgment creditor, will likely reveal taxable losses or gains related to your ownership interests.

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A self-employed client owns an exempt Florida homestead. He thinks business may be better in Georgia, so he opens a store in Georgia. He rents an apartment in Georgia. If the homestead sells for an amount greater than the mortgage the client intends to buy a Georgia property. He maintains his Florida drivers license and does not get a Georgia license. He used his Florida address on his 2010 federal income tax return. The client asks me if he is still a Florida resident.

Florida residency depends upon the person’s intent as indicated by the facts of is case. The client wants to move from Florida to Georgia. However, his plan depends upon the new store in Georgia being profitable, and to some extent, upon the sale of his Florida house. I think the client could argue that unless and until these same conditions are met he does not intend to permanently leave Florida and that his venture into Georgia is temporary and conditional. His retention of his Florida driver’s license and ownership of the Florida property support Florida residence.

 

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A client received a lump sum disability insurance settlement and deposited the proceeds in his bank account. I told the client I thought his money is protected from creditors. The Florida statutes exempt proceeds of a disability insurance policy, and there are many judicial decisions which establish the general principal that proceeds of an exempt asset do not lose its exempt status after it is received and deposited in the debtor’s bank account. There are exceptions.

My client wants to invest his money. He asked me if the money would still be protected if he used the disability proceeds to buy publically traded stocks. He contends that as long as he can trace the stock purchase money back to the disability payout the stock still be exempt as proceeds of the disability policy.

I do not think the stocks would be exempt. In my opinion, the exemption attributed to proceeds of exempt assets goes only as far as the cash receipts placed in a financial account. My client’s purchase of stock converts the disability proceeds to a distinct type of asset. Unless the stock has its own exemption the investment of the money would lose end the disability protection. On the other hand, using disability proceeds to purchase an different exempt asset, such as an annuity or stock owned by the entireties, should not be a fraudulent conversion.
 

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