Irrevocable Trusts as an Asset Protection Tool in Florida

An irrevocable trust is a trust agreement that, once executed, cannot be revoked or amended by the person who created it. Florida law provides strong creditor protection for properly structured irrevocable trusts, making them one of the most effective domestic asset protection tools available to Florida residents.

The key distinction is between third-party irrevocable trusts and self-settled trusts. Florida protects the former and rejects the latter. Understanding where that line falls determines whether an irrevocable trust will actually shield assets from creditors or leave them fully exposed.

How Irrevocable Trusts Provide Asset Protection Under Florida Law

Florida law protects irrevocable trust assets through two independent legal doctrines: spendthrift provisions and discretionary distribution clauses. Each operates differently, and both can be combined in a single trust agreement for layered protection.

Spendthrift Protection

A spendthrift provision restricts both voluntary and involuntary transfers of a beneficiary’s interest in the trust. Under Florida Statutes § 736.0502, a valid spendthrift clause prevents a beneficiary from assigning their trust interest to a third party and simultaneously prevents the beneficiary’s creditors from attaching or levying on that interest.

Florida law requires that a spendthrift provision expressly restrain both voluntary and involuntary transfers to be enforceable. A clause that restricts only one type of transfer does not qualify. When properly drafted, the spendthrift provision means a judgment creditor cannot step into the beneficiary’s shoes and demand distributions from the trustee.

One important limitation applies. Once a trustee distributes funds from the trust to the beneficiary, the distributed money is no longer protected by the spendthrift clause. The protection attaches to the beneficiary’s interest inside the trust, not to assets after they reach the beneficiary’s personal accounts.

Discretionary Distribution Protection

Florida Statutes § 736.0504(1) provides a separate layer of protection for trusts that give the trustee discretion over the amount and timing of distributions. A beneficiary’s creditor cannot compel a trustee to make a discretionary distribution, even if the creditor has obtained a judgment against the beneficiary.

This protection applies regardless of whether the trustee’s discretion is limited by an ascertainable standard (such as “health, education, maintenance, and support”) and regardless of whether the trustee has arguably abused their discretion. The statute broadly prohibits creditor interference with the trustee’s distribution decisions.

Discretionary distribution protection is legally distinct from spendthrift protection. A trust can have one without the other. In practice, most well-drafted irrevocable trusts include both provisions, creating overlapping protections that make it extremely difficult for a beneficiary’s creditors to access trust assets.

Self-Settled Trusts Receive No Protection

Florida draws a firm line against self-settled trusts. Under Florida Statutes § 736.0505(1)(b), if the person who created the trust is also a beneficiary, a creditor of that person can reach the maximum amount that could be distributed to or for the benefit of the settlor.

A revocable living trust is the most common example of a self-settled trust. The trustmaker creates the trust, funds it with their own assets, and remains the primary beneficiary during their lifetime. Despite occasionally being marketed as an asset protection tool, a living trust provides zero creditor protection in Florida.

The same rule applies to irrevocable self-settled trusts. If a Florida resident creates an irrevocable trust, transfers their assets into it, and retains any beneficial interest, creditors can reach the trust assets as though the trust did not exist. This is true even if the trust includes spendthrift provisions or discretionary distribution language.

Florida’s prohibition extends to domestic asset protection trusts formed in other states. A Florida resident who creates a DAPT in Nevada or South Dakota remains subject to Florida’s public policy against self-settled asset protection. Florida courts apply their own law to the debtor, not the law of the DAPT state.

Structuring an Effective Florida Irrevocable Trust

An irrevocable trust that provides meaningful asset protection in Florida must be structured so that the person whose assets are at risk is not a trust beneficiary. The most common approach is a family irrevocable trust, where one person creates and funds the trust for the benefit of their spouse, children, or other family members.

The Grantor’s Role

The grantor transfers assets into the trust and is not named as a beneficiary. By staying outside the class of beneficiaries, the grantor avoids triggering Florida’s self-settled trust prohibition. The grantor’s creditors cannot reach trust assets because the grantor has no beneficial interest to which a creditor claim could attach.

Choosing a Trustee

The trustee holds legal title to the trust assets and controls distributions. Florida law permits a beneficiary to serve as trustee of a discretionary trust without losing the trust’s asset protection benefits. Section 736.0504(2) expressly provides that a beneficiary’s interest in a trust is not exposed to creditors merely because the beneficiary serves as trustee with discretionary distribution authority.

However, appointing an independent trustee often strengthens the trust’s creditor protection posture. An independent trustee reinforces the separation between the grantor and the trust assets and reduces arguments that the grantor retains indirect control over distributions.

The Trust Protector

Most asset protection irrevocable trusts include a trust protector position. The trust protector holds specific powers that enhance the trust’s flexibility and protective features, including the authority to remove and replace the trustee, modify distribution provisions in response to creditor threats, change the trust’s situs or governing law, and add beneficiaries.

A critical feature of many family irrevocable trusts is the trust protector’s power to add the grantor as a beneficiary at a future date. Because the grantor is not initially a beneficiary, the trust is not self-settled at creation. Whether a later addition of the grantor as beneficiary could retroactively convert the trust into a self-settled arrangement is an open question under Florida law, but the weight of authority supports the trust’s continued protection when the addition is made by an independent fiduciary acting within defined trust powers.

Divorce Protection

A family irrevocable trust for a spouse should include provisions addressing divorce. Standard drafting includes a clause that automatically removes the spouse as a beneficiary upon the filing of a divorce proceeding, preventing a divorcing spouse from claiming an interest in trust assets as part of the marital estate. The trust protector can also hold the power to remove beneficiaries, providing an additional safeguard. A spousal limited access trust (SLAT) is a specific variation of this structure that combines asset protection with estate tax reduction.

Fraudulent Transfer Limitations

Transferring assets to an irrevocable trust does not create instant protection. Under Florida’s Uniform Voidable Transactions Act (Florida Statutes Chapter 726), a creditor can challenge a transfer to an irrevocable trust as fraudulent if the transfer was made with the intent to hinder, delay, or defraud the creditor, or if the grantor was insolvent at the time of the transfer.

The statute of limitations for a fraudulent transfer claim in Florida is four years from the date of the transfer, or one year after the transfer was or reasonably could have been discovered, whichever is later. No irrevocable trust, regardless of its terms, will protect assets from a creditor who can prove the transfer was fraudulent within the applicable limitations period.

For this reason, the most effective asset protection planning occurs well before any creditor claim arises. A trust funded years in advance of litigation, when the grantor is solvent and has no pending or threatened claims, is far more defensible than one funded in response to an emerging threat.

When to Use an Irrevocable Trust in Asset Protection Planning

The most common use of an irrevocable trust in asset protection is a parent creating a trust for the benefit of their children during the parent’s lifetime. This differs fundamentally from a revocable living trust, where children typically become beneficiaries only after the trustmaker’s death. In an irrevocable trust, children are current beneficiaries from the day the trust is funded.

Protecting Assets Set Aside for Children

A parent who plans to set aside money for their children anyway can accomplish two asset protection objectives simultaneously by using an irrevocable trust. First, the assets no longer belong to the parent once transferred, so they are beyond the reach of the parent’s creditors. Second, the children’s beneficial interests are protected from the children’s own creditors by the trust’s spendthrift and discretionary distribution provisions.

The tradeoff is that the children hold current beneficial interests rather than future ones. For a parent who was going to make gifts or set aside funds for children regardless, this is not a meaningful sacrifice. The irrevocable trust simply formalizes the intention while adding legal protection on both sides.

Florida law permits the settlor to serve as trustee of this type of trust. Because the settlor is not a beneficiary, serving as trustee does not create a self-settled arrangement. The settlor-as-trustee structure gives the parent continued control over investment decisions and distribution timing while keeping the assets outside the parent’s personal estate for creditor purposes.

Creating a Multi-Member LLC

An irrevocable trust can serve as a second member of a limited liability company, converting a single-member LLC into a multi-member LLC. This matters for asset protection because Florida courts have held that creditors of a single-member LLC can reach LLC assets directly, while creditors of a multi-member LLC member are limited to a charging order against the member’s distributions.

A parent creates an irrevocable trust for a child or children, then assigns a small membership interest in the LLC to the trust. The trust becomes a second member, and the LLC gains the stronger charging order protection available to multi-member entities. The parent retains the majority interest and management control.

This structure works because the trust is a legitimate, independent legal entity with its own beneficiaries, trustee, and terms. Courts are more likely to respect the multi-member status when the second member is a properly administered irrevocable trust with real economic interests rather than a nominal arrangement designed solely to create the appearance of multiple members.

Combining an Irrevocable Trust with Other Tools

An irrevocable trust is one component of a broader asset protection plan. Florida residents often combine irrevocable trusts with statutory exemptions for homestead, retirement, and annuity assets, along with LLCs for business and investment holdings. For individuals facing active litigation, an offshore trust provides a stronger layer of protection because the foreign trustee operates outside U.S. court jurisdiction.