Asset Protection Trust in Florida

What Is an Asset Protection Trust?

In Florida, an asset protection trust is a self-settled trust designed to protect assets from judgment creditors. In general, 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.

What Is a Domestic Asset Protection Trust?

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.

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Which States Offer Domestic Asset Protection Trusts?

Alaska, Delaware, Utah, and Nevada are states with favorable domestic asset protection trust laws. 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.

Important: Avoid making sudden or significant transfers into an asset protection trust during the threat of litigation. Such transfers could be unwound as fraudulent conveyances.

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.

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.

Important Court Cases

In re Brown, 303 F. 3d 1261 (11th Cir. 2002): Self-Settled Spendthrift Trusts Do Not Provide Asset Protection

Florida law prohibits a judgment creditor from reaching a beneficiary’s interest in a trust with properly drafted spendthrift provisions. However, when the debtor establishes a trust for their own benefit so that the debtor is both the settlor or trustmaker and beneficiary, the trust is characterized as a self-settled trust. Spendthrift provisions do not protect the trustmaker’s own beneficial interest from creditors in a self-settled trust. The court says Florida public policy strongly disfavors self-settled trusts.

Miller v. Kessler, 34 So. 3d. 172 (3rd DCA Fla. 2010): Discretionary Trust Protects Beneficiary’s Interest From Creditors

When a trust document provides the trustee complete discretion over distributions to beneficiaries, a beneficiary’s creditor may only reach those distributions that the trustee actually makes to the beneficiary. The court cited section 736.0504(2) of Florida law. The beneficiary’s creditor may not compel a distribution from the trustee or attach any interest in the trust before the trustee makes the distribution.

FAQs About Asset Protection Trusts

How does an asset protection trust work?

In states that allow it, an asset protection trust protects a judgment debtor’s property from execution. The trust owns the property and is prohibited by its terms from distributing income or principal to the judgment creditor.

What is the cost of an asset protection trust?

A domestic asset protection trust typically costs between $2,500 and $10,000. More sophisticated trusts will be on the higher end of the scale.

Which trust is best for asset protection?

The best type of trust for asset protection in Florida is an irrevocable trust. However, Florida law prohibits self-settled trusts, making a traditional asset protection trust ineffective.

Jon Alper

About the Author

I’m a nationally recognized attorney specializing in asset protection planning. I graduated with honors from the University of Florida Law School and have practiced law for almost 50 years.

I have been recognized as a legal expert by media outlets such as the New York Times and the Wall Street Journal. I have helped thousands of clients protect their assets from creditors.