What Is a Florida Asset Protection Trust?

An asset protection trust is a self-settled trust designed to protect assets from judgment creditors. These trusts are often used by individuals looking to protect their wealth from unforeseen legal claims, including judgments, divorce settlements, or business liabilities. Asset protection trusts are irrevocable, meaning that once you place your assets into the trust, you cannot easily remove them.

What Is a Domestic Asset Protection Trust?

A domestic asset protection trust is a type of self-settled trust. A trust is a self-settled trust if the person (trustmaker) who creates the trust and transfers the assets to the trust is also a trust beneficiary. A revocable living trust (used for estate planning) is a typical example of a self-settled trust.

A self-settled trust does not provide asset protection in Florida. A judgment creditor can levy upon a debtor’s interest in a trust that the debtor created for their own benefit.

Some states in the U.S. have enacted statutes that expressly provide asset protection benefits to self-settled trusts. Trusts created under these state statutes are referred to as domestic asset protection trusts. These domestic asset protection trusts were designed to attract businesses and assets to their states by offering creditor protection.

Most state domestic asset protection trust statutes have several common features:

• The domestic asset protection trusts are irrevocable.
• The trustmaker may not change their mind and change the beneficiaries or terms of the trust agreement.
• At least one trustee to be either a state resident or a corporation doing business in that state, and some trust assets must be located or deposited in the state.
• The domestic asset protection trust statutes typically provide for a “trust protector,” who is a person with the power to veto the trustee’s decisions to make distributions if such distributions may be vulnerable to the trustmaker’s creditors.

Which States Offer Domestic Asset Protection Trusts?

Domestic asset protection trusts are established under state laws that allow for asset protection. States like Nevada and Delaware have favorable laws that provide protection from most creditors. However, DAPTs are not recognized in all states, and there can be limitations on the types of claims they protect against, particularly in federal cases like bankruptcy.

Florida law does not allow self-settled domestic asset protection trusts. Instead, Florida has consistently followed a public policy against self-settled trust providing asset protection for the trustmaker.

Many legal experts make reasonable arguments supporting the DAPT’s asset protection. The legal issue in DAPT planning is a “conflict of law” issue.

Suppose a Florida resident forms a self-settled trust in a domestic asset protection trust state such as Delaware, Alaska, or Utah. In that case, the legal issue is whether Florida courts will apply (a) the protective laws of the DAPT state, which has encouraged self-settled trust protections, or (b) the Florida law opposing self-settled trust protection. Resolving the conflict between Florida’s public policy against self-settled trusts and contrary policy in DAPT states is legally complicated.

In general, a Florida resident’s domestic asset protection trust is more likely effective asset protection if the trust assets, records, and parties are situated in the DAPT state. However, the more the DAPT trust assets and parties are in Florida, the more likely Florida courts will apply Florida law, and trust assets will not be protected from creditors. To date, no Florida court has held that a debtor’s interest in a DAPT formed under the laws of another state is protected from a Florida judgment.

It is possible to structure an estate planning trust in Florida to achieve asset protection. Although assets in the debtor’s living trust, a form of a self-settled trust, are not protected from the debtor’s creditors, a Florida resident may protect assets in a trust created by another person.

There is legal authority that a debtor’s interest in a trust that the debtor forms or funds with their own non-exempt money will be protected from creditors if anyone other than the debtor is given control over trust assets. Therefore, a properly drafted Florida trust may provide the trustmaker with effective asset protection even though Florida has not enacted specific asset protection trust statutes.

Do Florida Living Trusts Provide Asset Protection?

One of the primary purposes of a revocable trust is to avoid guardianship while the trustmaker is alive and to avoid probate after the trustmaker dies. Some people believe that their living trust also provides asset protection.

A living trust is a self-settled trust because the trustmaker is the beneficiary of the trust during the trustmaker’s lifetime. Therefore, a Florida living trust provides no asset protection for the trustmaker.

FAQs About Asset Protection Trusts