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

Over the years I have received many calls from Georgia residents wanting asset protection help. Other than inviting these caller to move to Florida there was not much else I could advise them to do for protection. I felt bad from these Georgia debtors because Georgia has few asset protection tools. For instance, the Georgia homestead exemption is limited to $10,000 equity. Georgia has no wage garnishment exemption and no tenants by entireties exemption. In Georgia, you have to pay your debts.

To appreciate the impact of the Ohmstead decision (discussed fully in prior post) it is interesting to compare the asset protection status of Florida LLCs to how Georgia law treats a debtor’s LLC interest. In Florida, after Ohmstead, a creditor can use all available creditor remedies to attack a debtor’s LLC membership interest, certainly in the case of single member LLC and probably in the case of multi-member LLCs as well. Under Georgia law, a creditor may get a charging lien and other remedies, but the Georgia statute specifically prohibits a creditor from foreclosing a debtor’s membership interest, The law also specifically prohibits a creditor from participating in LLC management which prohibition seems to stop a creditor from forcing the LLC manager to make distributions which could be subject to a charging lien. Georgia law has better LLC protections than does Florida law after the Ohmstead decision.

I never thought Florida’s asset protection laws could be worse than Georgia, but its happened with respect to LLC interests. It appears that our LLC protection has hit bottom.

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I’ve written previously that asset protection planning is not effective against collection by certain federal government agencies. The July 2010 issue of Trust and Estates journal contains an interesting asset protection article titled, Beware of Federal Super Creditors. The article explains the difference between federal and state law jurisdiction in asset protection and collection. The article states that, "state law determines the nature of an interest or the type of rights a person has in an interest, but federal law determines whether that interest is considered a ‘property interest.’" If federal law determines a debtor has an interest in property then the federal super creditors may attach and sell the property regardless of state law exemptions and remedy limits.

The article explains that there are two principal federal super creditors: the IRS and the SEC. Each of these agencies have their own federal collection statutes that supersede the state collection paradigms. The IRS and SEC can ignore statutory asset exemptions such as IRA, pensions, and annuities; they can ignore state property immunity such as tenancy by entireties law; and they are not limited by state collection tools such as charging liens applicable to certain partnerships and limited liability companies.

The authors conclude that the safest asset protection tool against the federal super creditors is an offshore trusts with discretionary distributions to the debtor/beneficiary. Discretionary trusts under some states’ trust statutes may provide protection although there are unresolved issues in the effectiveness of domestic trusts. The article states that federal agencies other than the IRS and SEC must look to state procedure and state law for collecting a judgment.

The Trust and Estates article is not available online so I cannot include a link thereto.

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Nevada passed a law this year applying the charging lien remedy to stock in a multi-shareholder  Nevada corporation. Charging liens are the creditor’s remedy to attack a debtor’s interests in limited partnerships and LLCs in most states. In Florida, the charging lien is a creditor’s exclusive remedy against limited partnership interests and an optional, but non-exclusive, remedy against debtor’s Florida LLC interests. Prior to the Nevada law, no state had said that judgment creditors are restricted to a charging lien , instead of levy and sale, of a debtor’s stock in a corporation.

Does the Nevada statute provide an asset protection tool for Florida debtors? There are no cases on this brand new statute, but I think the likely answer is that a Florida creditor may levy upon a Florida debtor’s stock in a Nevada corporation notwithstanding the Nevada statute stating that creditors a limited to charging liens. A levy is an action against the debtor’s stock certificate and not against the corporation. A creditor does not have to make the corporation a party in a levy proceeding, and therefore, the forum of the corporation is not controlling on the Florida remedy. I think a Florida judge will be able to permit creditors to levy upon Nevada corporate stock.

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Two articles in the news this week are interesting for people trying to get out of  mortgages.on upside down real estate.  The first article published online on marketwatch.com addressed people's frustration with the long time it takes to get short sales approved.  The article stated that lenders require extensive time in short sale applications to, among other things, verify property value and make sure that proposed short sale is between unrelated, arms-length parties.

The second article in July 19, 2010,USA Today reported that Fannie Mae and FHA were trying to crack down on mortgage defaults by people who financially could afford the mortgage payments- the so-called "strategic defaults." The article did not say that these agencies were now actively pursuing deficiency judgments, as many people publically speculated would happen, but the article did report that Fannie Mae and FHA would be denying new mortgages for many years to anyone who strategically defaulted on  a prior mortgage insured by these agencies. The article stated that Congress was about to pass legislation that barred future FHA mortgages to people who were foreclosed when they had the ability to pay.

In my opinion, these policies are reasonable but difficult to apply fairly in the future when someone who previously went through foreclosure applies for a mortgage on a new home. The underwriter will have to investigate the applicant's financial situation many years ago when the foreclosure took place. It may be hard for the applicant to prove financial hardship years after documents may have been lost or destroyed. Most of my clients who consider mortgage defaults accept that future mortgage applications will be difficult. They are more concerned about their current financial difficulty and prospective deficiency claims. I do not think that threats of future financing problems will deter many people considering strategic defaults.

 

 

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The Orlando bankruptcy court is preparing to adopt a rule providing for mandatory mediation between homeowners and their mortgage companies to facilitate mortgage modification. Congress rejected a change in the bankruptcy code that would have empowered Chapter 13 debtors to force reduction in their first mortgage principal to their residence’s current fair market value.

This proposed procedural rule will not circumvent the bankruptcy code law and will not force reduction of first mortgage principal. What the Orlando local rule will do is enable Chapter 13 debtors by motion filed with the Orlando bankruptcy court to compel a bank representative with full authority to modify their mortgage to meet with the debtor and an independent mediator to negotiate in good faith a possible modification of the debtor’s first mortgage terms. This bankruptcy rule should make Chapter 13 bankruptcy attractive to homeowners who want to save their homes provided they can obtain a reasonable modification of their mortgage.

The Florida Supreme Court is requiring mediation in state court foreclosure cases. This state court rule is helpful, but the bankruptcy court rule could be better for homeowners. In state court procedures the homeowner has to be in a foreclosure case before having the opportunity to mediate with a bank agent with full authority. The homeowner first has to stop paying the mortgage for at least three months, wait for the bank to file a foreclosure lawsuit, hire a civil attorney to answer the lawsuit, proceed for several months in civil litigation, and then at some point, arrange for a court ordered mediation.

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The Orlando Sentinel ran a front page article in this Sunday's paper about short sales and foreclosures. The author stated that while the housing crisis affects all central Florida neighborhoods the wealthier neighborhoods fare better because the homeowners have money to maintain payments while negotiating short sales with the lenders, whereas in less affluent neighborhoods the homeowners are forced to abandon properties and suffer foreclosure. The author states that foreclosures are worse than a short sale for the homeowner because foreclosures have a more damaging and longer lasting effect on the homeowner’s credit rating.

I have never spoke to any attorney who recommends their clients pursue short sales. Not one. I have almost never recommended short sales to my own clients. Credit rating is not a legal issue, but in terms of their legal effect, and particularly asset protection, I rarely see an advantage to a short sale. In the "old days" a short sale arrangement included a release of liability; the lender would accept less than the full mortgage balance and release the mortgage and the underlying promissory note. In today’s mortgage environment a homeowner who negotiates a short sale must remain liable on the promissory note. No release.

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I occasionally get phone calls about Delaware Series LLC. A "series LLC" is one parent LLC which owns several subsidiary LLCs. Each subsidiary LLC is a separate legal entity. People who own several similar assets, such as multiple rental properties, often use a series LLC where each property is owned by a separate subsidiary LLC. Series LLCs are also used to avoid sales tax associated with rental payments between two affiliated entities. Delaware was the first state to enact a series LLC law in 1996, and their series LLC act is best known. Since then, other states have enacted similar statutes. Florida does not have a series LLC option.

I came across a blog post in theLLC Law Monitor which discusses the Texas series LLC law enacted in 2009. The post gives a good overview of the advantages of series LLC planning as well as several undecided legal issues. The article concludes that, "The law of series LLCs is an infant, still a little unsteady on its feet."

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I read an article in the N.Y. Time Week in Review section about the government's expansion of tax breaks to home builders. The government is permitting builders to amend tax returns and use losses incurred during the past two years to offset income reported as far back as 2004. The Times characterized this policy as a "gift.". I have had builder clients over the past few months who have told me they expect huge tax rebates coming from the government's retroactive tax loss program.

My clients who expect a large income tax rebate usually have current creditor problems. Usually the problems concern commercial loans which have been called or may be called in the near future. In most cases, the tax refund from the retroactive loss program is not enough to pay off the problem bank loans.

I explain to these clients that these prospective tax refunds, even though not receivable until the client files his next return or amends prior returns, is an asset today. When the law passes, the client/debtor is immediately entitled to claim the money from the government. Today's creditor can levy upon the tax refund and collect the refund when claimed. This happens every day in bankruptcy court. The Chapter 7 bankruptcy trustees typically gets debtors to provide their 2009 tax return when filed. The trustee may take any refund due to the debtor for his income prior to filing bankruptcy in 2009, when the debtor files his income tax return in April, 2010.

If you are a builder or developer with potential retroactive tax refunds you need to consider how you can protect these tax refunds from current creditors. Or, you will need to protect the cash you ultimately receive from your potential future creditors.

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The 2009 Nevada legislature passed an interesting estate planning statute designed to increase the effectiveness of family limited partnership (FLP) and family limited liability companies (FLLC) for estate tax planning. The bill, SB 350, went into effect on October 1, 2009. An article about the new law appeared this week in Lawyersusaonline.com. Lawyers USA Online. I was intervied by the author, Correy Stephenson,  in order to discuss the bill's effect on asset protection planning.

The bill provides for new business entities called Nevada Restricted Limited Partnerships and Nevada Restricted Limited Liability Companies. The "restriction" aspect means that the LP or LLC is restricted from making distributions to its partners (members) for a period of up to ten years. The restrction against distributions effectively locks money inside these entities. In theory, the applicable restrctions warrant greater valuation discounts from fair market value of assets held in these new entities. For families with taxable estates a greater valuation discount means lower estate tax bills. Estate tax planning is the primary benefit of the Restricted LP and LLC.

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I would like to ask you, the blog readers, to help a reporter who is investigating  practices in the mortgage modification programs. A national business publication is investigating overly aggressive second mortgage lenders. The reporter, Mr. Robert Berner (312-451-7149), is looking at situations where a second mortgage lender sues a homeowner after the homeowner has already entered into a modification agreement with the first mortgage. The second mortgage gets a judgment against the homeowner and then garnishes the owner's bank accounts or salary which causes the homeowner to default under the first mortgage modification agreement. These second mortgage lenders are sabotaging the modification programs set up and encouraged by the government to help homeowners. In some cases where the same bank holds the first and second mortgage the bank modifies the first mortgage and then sells the second mortgage to a third party investor which then agressively collects the second or even sues the homeowner for delinquent second mortgage payments. These mortgage lenders appear cooperative in modifying their first mortgages but then undermine the same modification by collecting or selling the second mortgage.

A related mortgage issue I have heard about from my own clients occurs when a homeowner has checking accounts at the same bank that holds his home mortgage. Some clients have reported that when they missed a mortgage payment the bank invaded their checking account and pulled the mortgage payment out of their checking account without notice. I have previously posted my general advice which is to move your accounts out of the bank that holds your home mortgage if you miss a mortgage payment.

Please get involved. If you have had a mortgage modification plan ruined by a second mortgage holder who sued you during the modification process, or if you have had your mortgage lender grab mortgage payments from your checking account at the same back before a foreclosure or other lawsuit was even filed, call Mr. Berner (312-451-7149) and discuss your experiences.

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Many people, if not most people, facing a foreclosure or bankruptcy are very concerned about the impact on their credit rating. Clients frequently ask me how will the foreclosure, short sale, or bankruptcy affect my credit and how can they rebuild credit. Credit rating is not a legal issue; I don't know any legal procedures relevant to credit restoration. From time to time when one of my own clients is in the mortgage underwriting business or car lending business I pass on to my clients or blog readers what these people tell me about credit rating.

This past week the Wall Street Journal published a clearly written article about credit scores. The article summarized the important factors affecting credit score and gave practical suggestions about increasing credit rating. Those concerned about the impact on credit rating of their current financial difficulties should read this article. Credit Scores: Shattering Some Common Myths

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Many of my clients are facing the prospect of lawsuits for personal liability on account of default on mortgages. Some of these clients have invested in many investment properties which are now upside down and unsustainable. During the real estate bubble many people inflated their income and assets on mortgage applications. My clients often ask me if the mortgage company will refer their case to the government for criminal prosecution because the clients had lied to their mortgage company in order to get financing. This week I received a call from a criminal defense attorney who was referring a client to me for asset protection advice. During our conversation I asked him if the mortgage companies or the government were prosecuting mortgage fraud related to the real estate bubble.

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Clients often ask me why it takes some banks so long to begin foreclosure on default loans. Part of the problem is backlog at the mortgage companies or their attorneys. Some banks are deliberately delaying foreclosures for reasons discussed this week in a Wall Street Journal article Condo Boards Take On Lenders . The article states points out that mortgage lenders are liable for unpaid condo dues when they take over the property after the foreclosure sale. In Florida, lenders are liable for as much as six months of late condo dues once they take title after foreclosure.  Some condo associations  are themselves foreclosing on bank owned condo units. The mortgage bank is being forced to pay accrued condo  fees in  order to hang on to the foreclosed property. The Journal article states that some mortgage lenders are delaying foreclosure to avoid HOA liability

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People facing possible mortgage foreclosure often complain that their mortgage lender won't talk to them about loan modification or that they don't know how to reach any lender representative with authority to resolve their situation. Some courts in Florida are making it easier for homeowners to negotiate with their mortgage lender. However, help is not available until the case is within court jurisdiction in the form of a foreclosure lawsuit.

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A large proportion of people seeking bankruptcy or asset protection advice are homeowners facing mortgage foreclosure. Up to now, most of my clients report that their mortgage lender and mortgage service company were reluctant to modify mortgage terms and payments although an increasing number of mortgage lenders had eased procedures for short-sale approval. This past Saturday's Wall Street Journal had two articles about mortgage lenders' new programs to help homeowners avoid foreclosure by mutual modification of mortgage terms. Examined closely, these new programs, while welcome, apply to a limited segment of homeowners with problem mortgages and upside down houses. Continue Reading...

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I have previously posted on this Blog information about homeowner mortgage benefits in the initial bailout bill that was rejected by the House on September 29, 2008. I have reviewed the final, revised bill signed into law on October 3, 2008. The final bill contains essentially the same mortgage modification provisions. The bill directs the Treasury to encourage mortgage service companies to mitigate foreclosure by adjusting the interest rate, payment terms, as well as the mortgage balance of certain home mortgages. The law is written generally and without details. The Treasury Department likely will issue federal regulations which state whom is entitled to benefits and the procedures to request mortgage modification.

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The current draft of the governments' financial recovery act, formally the "Emergency Economic Stabilization Act of 2008" contains several provisions designed to help homeowner prevent foreclosure. The terms of the Act, being referred to as "the bailout bill", are drafted in general, unspecific terms, and certainly there will be many government regulations needed to implement the new law before any agency can actually provide foreclosure relief. The foreclosure relief provisions are found in Sections 109 and 110 of the recovery package.

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The Eleventh Circuit Court of Appeals has asked the Florida Supreme Court to resolve an important issued about asset protection benefits of a limited liability company. The Florida Statutes state that a creditor's remedy against a judgment debtor's membership interest in a limited liability company is a charging order against the LLC's distributions to the debtor member. Some attorneys have raised the issued of whether limitation of collection remedies applies to membership interests in a single member LLC when the debtor is the single member. A few courts in other states suggested that single member LLCs do not have the same protection from creditor collection as do multi-member LLCs. Most states have not distinguished between LLC protection on the basis of membership number. The issue have never been addressed by any Florida court.

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There was another article on the mortgage mess in the Orlando Sentinel this week. Link: They're just walking away from homes -- OrlandoSentinel.com. The article explained that many people are walking away from mortgages on houses with no equity. The article said nothing about deficiency judgments. I believe that lenders do not want to state their liberal policy about deficiency judgments for publication in the news media, and that reporters are intentionally not addressing the issue. Nobody wants to report that mortgage lenders are not currently prosecuting deficiency claims. Any report to that effect would open foreclosure floodgates. The fear of deficiency liablity is one of the primary reasons people try as long as they can to avoid foreclosure. I recommend that people do not deplete their retirement accounts and savings to avoid deficiency judgments. Deficiency liability is unlikely, but the need for retirement security is certain and crucial to financial recovery.

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Previous posts on this blog have discussed income tax risk associated with giving banks a deed in lieu of foreclosure or arrangements for a short sale. The general rule is that foregiveness of debt, including a bank's waiving mortgage deficiency liability, is taxable income. Last month, December, 2007, Congress passed a bill to relieve many homeowners from income tax liability associated with deeds in lieu, short sales, or foreclosure. The Mortgage Forgiveness Debt Relief Act of 2007 states that homeowners will not be subject to income tax from release from mortgages used to buy or improve their primary residence. Mortgage Forgiveness Debt Relief Act of 2007

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In the current real estate recession many of my new clients are investors who purchased too many residential rental properties too late in the market cycle. Most of these people are frustrated because their mortgage lender will not negotiate to adjust payments until the market improves. They also fear the lender's active pursuit of deficiency judgments if there is a foreclosure. This past week I discussed the current mortgage and real estate situation with a man with over 25 years in the mortgage lending and banking business. What he told me may interest some of you.

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I received an email from a prospective creditor located in Georgia. Allegedly, one of her family members serving wrongfully took money from an decedent's estate. The same family member moved to Florida and purchased a Florida homestead. A Georgia judge has ruled that the executor committed fraud. Can the family members who are beneficiaries of the estate get a lien on the executor's Florida homestead?

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One of biggest problems for people facing foreclosure of investment property in today's real estate recession is tax liability for the difference between the mortgage balance and the value of the property at the foreclosure sale or at time of a deed in lieu or short sale. The Wall Street Journal reports that there is a bill in the House of Representatives to eliminate income tax liability for debt forgiveness for homeowners. The bill passed Ways and Means Committee, and according to the paper the bill has bi-partisan political support. The law if passed would remove a significant tax penalty for people facing the loss of real estate during the current market downturn.

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More and more calls and emails are coming from people in trouble with investment real estate. The typical person is concerned about his personal liability and vulnerability of assets in the event one or more of his real estate investments is foreclosed by mortgage lenders. A deficiency judgment refers to a lender's judgment against the borrower for the difference between the outstanding balance of the mortgage note, plus costs and attorneys fees, and the value of the property foreclosed. The property value is determined on the date of the foreclosure sale. In Florida, a foreclosure does not automatically result in a deficient judgment. The mortgage lender has to file a motion for a deficiency after the foreclosure sale, and the court holds a separate hearing on the lender's request for deficiency liability.

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read an interesting and important article in this months Florida Bar Journal about limited partnerships and limited liability companies in bankruptcy. The article was, "Asset protection Proofing Your Limited Partnership or LLC for the Bankruptcy of a Partner or Member", by Thomas O Wels and Jordi Guso. The LP and LLC have effective asset protection features outside of bankruptcy. If a debtor files bankruptcy, the bankruptcy trustee has greater powers to attack and liquidate the interest of the debtor partner or member, to the detriment of both the bankruptcy debtor and his other business associates. The Bar Journal article cited a bankruptcy decision in the case of In re Ehmann and certain sections of the bankruptcy code which provide powers to the trustees to attach partnerships and LLCs which powers are not available to normal judgment creditors.

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I receive many calls people, and often retain new clients, who have previously established Nevada corporations or who ask me if I can help set up a Nevada corporation as part of an asset protection plan. I almost always respond that Nevada corporations are not necessary or beneficial asset protection tools for Florida residents. Nevertheless, many people have been convinced by some other source of the benefits of establishing business through Nevada corporations. There are on the internet many services which market services to help set up business in Nevada. Based on an article in today's Wall Street Journal, the purported benefits of a Nevada corporation may be tax evasion rather than asset protection.

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I occasionally get email questions about offshore trusts for people interested in sheltering income taxes. My reply always is that asset protection planning is income tax neutral, and that an asset protection plan is not designed to reduce taxes. Nevertheless, there are promoters and attorneys who market various plans to reduce income tax involving one or more offshore legal entity. There is a well know website called Quatloos.com which reports on tax evasion scams and the prosecution of their promoters. In a November 1, 2006, post Quatloos includes a report on offshore tax havens written by the U.S. Senate committee investigating income tax scams.

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The Florida legislature enacted a new trust law which has favorable asset protection features. The new statute codifies in the statutes the protective benefits of "spendthrift provisions" which limit the beneficiary's right to assign or pledge their interest in an irrevocable trust. There are some exceptions to spendthrift protection. The new trust code also adds protection to discretionary trust where the trustee may make discretionary distributions of income and principal to the beneficiary. The law states that a beneficiary's creditors cannot compel a trustee to make a discretionary distribution which may become subject to creditor attack. This protection applies to trusts in which the beneficiary serves as trustee with discretionary powers over his own trust share so long as distributions are subject to certain standards of discretion.

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Many people who contact me by phone or email present questions about other asset protection tools they read about on the internet or hear from friends. Many asset protection plans sponsored by people who are not attorneys are actually scams. As asset protection becomes more popular, and more people facing lawsuits reach out for help, ineffective and expensive asset protection plans marketed under enticing names proliferate around the country.

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Sunday's Washington Post included an article by syndicated columnist Michelle Singletary in which I was quoted as an expert on bankruptcy law and consequences of bankruptcy. http://www.washingtonpost.com/wp-dyn/content/article/2006/07/22/AR2006072200106.html?sub=new. I post the article primarily because it address a frequent and serious financial planning mistake that can lead to ruined credit and bankruptcy. The article warns about risks you take when you let someone else become an authorized user on your credit card. The most frequent problems I see are parents who lend their credit card, or their signature, to children to help the children buy something a lower interest rates. If the child fails financially the well-intentioned parents bear the financial burden, often leading to their own bankruptcy. You should read the article and pay attention to what Ms. Singletary's grandmother, "Big Mama" , had to say about this subject.

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This week the Florida legislature voted to eliminate the common law doctrine of joint and several liability. The Governor promised to sign the bill. Under the current law, joint and several liability applies in modified form to economic damages but it had been previously dispensed with for noneconomic damages in favor of a comparative fault approach. The new law eliminates joint and several liability completely.

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A Florida resident owns an LLC with in turn owns real estate. The LLC sells the real estate and receives substantial case proceeds. The owner wants to purchase an annuity with some of the sales proceeds because of the investment features and because he heard annuities are protected from creditors. The LLC owner would be the annuitant and beneficiary. Does it make any difference if the LLC distributes the sales proceeds to the owner who in turn buys the annuity versus having the LLC buying the annuity directly and naming the owner as the beneficiary. Lets look at the applicable statute.

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I received an interesting email from a guy in Georgia who is a reader of the blog. The reader says:

"Your Florida Asset Protection Blog has certainly been interesting reading. I bet I have a situation you have not heard of yet! Here in Georgia there is a new statute which provides that, in any attempt to execute a domesticated judgment against a Georgia resident, the judgment debtor has the same protections as a resident of the state from which the judgment was issued. (see O.C.G.A. 44-13-120)."

If this accurate summarizes the new Georgia law, Florida residents could take their exemptions, including homestead protection, with them if they move north. The reader says Georgia homestead protection is limited to $10,000. After being sued in Florida, a person who owns a Florida homestead could sell the house and buy a new residence in Georgia and enjoy unlimited homestead protection. Or, a Georgia resident who sees a possible lawsuit on the horizon can move to Florida, buy a homestead, and make the creditor sue him in Florida courts. The debtor could let the creditor get a Florida judgment. Then, some time in the future after establishing Florida residency, the debtor could change his mind and return to his original home with his new Florida exemptions.

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The Florida Bar News is a professional publication which is mailed to all lawyers in Florida. This month's issue featured on the front page an article about legal blogs titled "Lawyers in Blogland."Link: The Florida Bar News - Current Issue.

The Florida Asset Protection Blog is one of the blogs featured in this article. The article discusses a wide variety legal topics covered by specialized law blogs in Florida and in other states around the country.

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Previous posts in this Blog discussed the recent Florida Supreme Court decision on the documentary stamp tax in the Crescent case. Documentary stamp tax ("doc stamps") are important for Florida asset protection planning because this tax is potentially assessed whenever a person conveys property titled in his individual name into an asset protection entity wholly owned by the same transferor. The Supreme Court held that no doc stamps are chargeable on the transfer of real estate owned free and clear to a wholly owned transferee with no monetary consideration. Where the property transferred is subject to a mortgage loan, doc stamps must be paid on the amount of the mortgage balance at time of transfer.

An article in the October issue of the Florida Bar Journal suggests a broader application of Crescent case holding. The article states that not only can doc stamps be avoided in liability protection transfers, but it is also possible to structure a sale for full value to an unrelated third party so that doc stamps are not imposed. Again, the plan assumes no mortgage on the property.

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The Florida legislature passed this session a new Revised Uniform Limited Partnership Act. The Act was signed by Gov. Bush on June 20, 2005, and the Act became effective July 1, 2005. The new law potentially affects all family limited partnerships. The purpose of the new law is incorporation of reforms of the model parternship act developed by the National Conference of Commissioners on Uniform State Laws. The main practical effects concern mergers of different business entities. I have not read the full text of the bill, but summaries of the new law indicate no change in asset protection features of limited partnerships in Florida. The new bill is CS/SB 1056. More information is available at Florida's government website: http://www.leg.state.fl.us/Welcome/index.cfm

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For those of you who enjoy reading national articles about asset protection visit a recen article in Bloomberg's online financial magazine. Link: Bloomberg.com: Bloomberg Wealth Manager Magazine.

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Some asset protection and many bankruptcy clients have asked me how they can get a credit report for free. The Orlando Sentinel ran a column last week instructing people how they can check their credit and get their credit score. Previously, you could get a free credit report by being turned down for a credit application. Now, getting a free report is easier because the law requires each of the three major credit reporting agencies to give you a free credit report once a year. You can get an immediate copy of your credit report online at annualcreditreport.com. You can get a free report from just one or all the agencies. For a small fee, you can also request your current credit score

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At a party I attended last week I spoke with an orthopaedic surgeon who had dropped malpractice coverage about a new insurance policy that covered only the cost of legal defense. This insurance paid up to $100,000 for legal fees required to defend a malpractice action, but he insurance provided no benefits to the plaintiff and his attorney in the event the jury awarded damages. The legal defense policy for this specialty was less than 20% of the cost of typical malpractice insurance.

Legal defense insurance is designed for physicians who have implemented asset protection planning. The theory of legal defense insurance is that once the plaintiff's attorney finds out that there is no pot of liability insurance to pay legal fees and an award to the client, and where the doctor has ample funds to defend a lawsuit making the plaintiff's victory uncertain, difficult, and expensive, the plaintiff's attorney will be reluctant to take on even meritorious cases.

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I attended the Florida Bar's annual asset protection conference in Miami where I spoke on the topics of attorney ethics in asset protection and the effect of the new bankruptcy law. The conference gives me the opportunity to get news and updates from the best asset protection attorneys in the state. Stuart Morris and Alan Gassman , both very smart attorneys from Ft. Myers and Clearwater respectively, state that the Department of Revenue has reversed its position on imposing documentary tax on type of real estate transfers often involved in asset protection. The Department had been imposing tax on the entire fair market value of properties transferred to asset protection entities even where the ownership of the protection entity was the same as the current ownership. This position imposed a significant cost on common planning transactions involving real estate such as a client's conveyance of a property he owns to a new limited liability company or family partnership owned 100% by the same client. After suffering more than one defeat of its position in court cases the Department of Revenue, according to Stuart and Alan, now seeks documentary tax only on the amount of mortgage on transferred property. If the client owns the property free and clear, he can transfer title to any asset protection entity without any doc stamp tax.

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I received a kind comment from Kevin O'Keefe who is this country's leading authority on legal blogs as a result of my being mentioned and quoted in the business section of last Sunday's (January 16, 2005) New York Times. Link: Real Lawyers :: Have Blogs : Legal blog on niche topic brings solo practitioner national attention. Thank you Kevin for your generously kind comment.

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One important feature of filing bankruptcy is that any money or property acquired after the date the bankruptcy petition is not part of the bankruptcy estate. As soon as a bankruptcy petition is filed the debtor can begin a new business, buy new assets, deposit funds in his bank account, and receive gifts and awards. An example I and other attorneys use to illustrate this point is the hypothetical situation of a person who files Chapter 7 bankruptcy during the week and then wins the lottery the following weekend. This lucky debtor would be both bankruptcy and a millionaire because his lottery winnings occured after the filing date. Of course, most people dismiss this example as an exaggeration.

But, is this example impossible. No !. Consider the following newspaper report of a Chapter 7 bankruptcy debtor from New York who this month hit the lottery soon after filing his bankruptcy petition...

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The Wall Street Journal published an article today, October 13, 2004, about a "new type of individual retirement account" referred to as a "Delaware IRA." The Delaware IRA is reported to be a creation of two Wilmington, Del trust companies. The IRA s operate financial like regular IRAs but the IRA documents treat them as trusts including "spendthrift provisions" which are used in trust documents to protection the interest of trust beneficiaries from their creditors. The article points out that these Delaware IRAs have not been tested in any court, and it states that the U.S. Supreme Court will during the current term take up the issue of whether IRAs are generally protected under federal bankruptcy law.

All of this is interesting, but it is not relevant for Florida residents. In Florida, IRAs are protected from creditors judgments and are exempt in bankruptcy filings under specific Florida statutes. A few other states, such as Texas and New York, have similar blanket protection of IRAs. Therefore, if a financial professional approaches you about creating a Delaware IRA because of its supposed superior asset protection I recommend that you decline the offer if you are a resident of Florida. The Delaware IRA could only increase the exposure of your current IRA to future creditor problems.

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According to judicial decisions in Florida a person who served as trustee of a trust which held real property for the benefit of another person could expose the real property to the trustee's personal creditors. These cases held that real property titled in the name of a trustee belongs to the trustee in his individual capacity, and as a result, the property is vulnerable to the trustee's individual creditors or part of his bankruptcy estate. A new Florida Statute (HB 529) clarifies whether deeds or mortgages belongs to a trustee in his individual capacity or to the trust and the trust beneficiaries. The bill retroactively states that real property or a mortgage belongs to a trust and its beneficiaries if the instrument conveying the real property interest to the trustee includes any of the following information: 1. the name of a beneficiary of the trust; 2.the nature and purpose of the trust; or 3. the title or date of the trust. If none of this information is including on the instrument of conveyance then the real property or mortgage interest in real property belongs to the trustee where it can be seized by the trustee's individual creditors to the detriment of trust beneficiaries.

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The Spring 2004 edition of the American Bar Associations's Real Property Journal included an interesting comparison of homestead laws of different states. It is well known that Florida and Texas have the most protective homestead provisions in their state constitutions. Both states protect unlimited value of homestead property, and the courts of both states have liberally construed these homestead protections in favor of debtors. Texas protects homesteads of unlimited value up to 200 acres in size, and Florida protects homesteads of unlimited value up to 160 acres in a county and ½ acre within a municipality. So, which state has the best protection?

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Mr. Charles Clemons, who operates the asset protection website "thoroghbredinc.com" pointed out to me last week that an article touting the benefits of Nevis LLCs for asset protection appeared in a 2002 article in the online version of Forbes MagazineForbes.com: Buried treasure. Note that the article points out that Nevis LLCs, and offshore planning in general, does not involve hiding money and is of little use to protect assets from government prosecution.

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A common illegal tax evasion scheme is when U.S. taxpayers divert money earned to offshore bank accounts titled in the name of offshore corporations . The taxpayer does not pay tax on the money on the theory that he did not receive the money, but then the same taxpayer uses the money for personal expenses by charging expenses on credit cards issued by the offshore bank. The following news release issued by the Department of Justice describes how the government attacked another one of these operations. Why do people think they can get away with these tricks? Again, legitimate asset protection should not be confused with criminal tax evasion.

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The Charleston Regional Business Journal published today an article about selecting appropriate business structure for asset protection purposes. Asset protection varies with corporate structure

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Another article about doctors dropping malpractice insurance in today's (March 23, 2004) Wall Street Journal in the Personal Business Section. Article says doctors are trying to get patients to waive their right to file "frivolous lawsuits". Also, physicians have threatened to file counter-claims against any patient who files lawsuit against them in order to intimidate patient and to delay the plaintiff's progress through the courts. Once again, Florida was identified as one of the problem states.

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In December, 2003, Newsweek Magazine ran a cover story on the lawsuit epidemic in the United States. The fear of lawsuits demonstrated in this article underlines the need for asset protection planning. The following is a quote from the introduction in this article.

"Americans will sue each other at the slightest provocation. These are the sorts of stories that fill schoolteachers and doctors and Little League coaches with dread that the slightest mistake--or offense to an angry or addled parent or patient--will drag them into litigation hell, months or years of mounting legal fees and acrimony and uncertainty, with the remote but scary risk of losing everything. And while lawsuits can be a force for good, they are also changing and complicating the lives of millions of American professionals in ways that confound common sense and cast a shadow over a system that can, at its best, offer people relief and redress from legitimate grievances "

People concerned about asset protection should read this article; you are not alone.

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