Asset Protection Trusts Under Florida Law

Florida law provides several trust structures that protect assets from creditors, each with different levels of protection depending on the trust’s design, who created it, and who benefits from it. The critical distinction is between trusts that the debtor created for their own benefit (self-settled trusts, which Florida law does not protect) and trusts created by one person for the benefit of another (third-party trusts, which receive strong statutory protection). Understanding this distinction is the starting point for evaluating any trust-based asset protection strategy.

The Self-Settled Trust Limitation

Florida Statutes § 736.0505(1)(b) provides that a creditor of a trust’s settlor can reach the maximum amount that the trustee could distribute to the settlor. A person who creates an irrevocable trust and names themselves as a beneficiary gains no creditor protection for the trust assets, regardless of the trust’s other terms. This statutory prohibition is absolute and cannot be overridden by spendthrift provisions, discretionary distribution language, or any other trust design feature.

The self-settled limitation means that domestic asset protection trusts created under other states’ statutes (Nevada, South Dakota, Wyoming, and similar jurisdictions) may not protect Florida residents. Florida courts apply Florida’s public policy against self-settled trusts, potentially disregarding the DAPT state’s protective statutes. The effectiveness of a DAPT for a Florida resident depends on an unresolved conflict-of-law question that Florida courts have not definitively answered.

The self-settled limitation does not apply to trusts where the settlor is excluded from the class of beneficiaries. A person who creates an irrevocable trust for their spouse and children, with no beneficial interest for themselves, creates a third-party trust that receives full protection under Florida’s trust creditor statutes.

How Irrevocable Trusts Protect Assets

An irrevocable trust provides creditor protection through two independent statutory mechanisms that work together.

The first is the spendthrift provision. Florida § 736.0502 provides that a valid spendthrift provision restrains both voluntary and involuntary transfers of a beneficiary’s interest, preventing creditors from attaching or garnishing the beneficiary’s trust interest before distribution. A spendthrift trust creates a barrier between the trust assets and the beneficiary’s personal creditors, though certain exception creditors (child support, alimony, and creditors who provided services to protect the beneficiary’s trust interest) can penetrate spendthrift protection.

The second mechanism is discretionary distribution authority. Under § 736.0504(2), a creditor cannot compel distributions from a trust where the trustee has discretion over whether, when, and how much to distribute. Discretionary distribution protection is arguably broader than spendthrift protection because it may block even exception creditors from compelling distributions. The strongest creditor protection combines both mechanisms: a spendthrift provision and fully discretionary distribution authority in the same trust.

Protection ends when assets leave the trust. Once the trustee distributes cash or property to a beneficiary, those assets become the beneficiary’s personal property and are reachable by the beneficiary’s creditors through normal judgment enforcement. The trust protects assets only while they remain inside the trust structure.

Revocable Trusts Offer No Protection

A revocable trust provides zero creditor protection during the settlor’s lifetime. Because the settlor can revoke the trust and reclaim all assets at any time, courts treat the trust assets as the settlor’s own property for creditor purposes. Florida courts have consistently held that creditors can reach assets in a revocable living trust to the same extent they could reach the settlor’s individual assets.

The difference between revocable and irrevocable trusts for creditor protection purposes is binary, not gradual. Understanding how revocable and irrevocable trusts compare is essential before selecting a trust structure.

Trust Types and Their Protection Characteristics

Spousal Limited Access Trust

A spousal limited access trust (SLAT) is an irrevocable trust created by one spouse for the benefit of the other spouse and the couple’s descendants. The settlor-spouse is excluded from the class of beneficiaries, avoiding the self-settled limitation. The beneficiary-spouse and the children receive distributions at the trustee’s discretion. A SLAT combines creditor protection with estate tax benefits by removing the transferred assets from the settlor-spouse’s taxable estate while keeping them accessible to the marital household through distributions to the beneficiary-spouse.

Dynasty Trust

A dynasty trust extends creditor protection across multiple generations. Florida permits trust durations of up to 1,000 years under § 689.225(2)(f), allowing a properly structured dynasty trust to protect assets from the creditors of successive generations of beneficiaries. Each generation receives discretionary distributions, and the spendthrift provision prevents each generation’s creditors from reaching the trust corpus.

Domestic Asset Protection Trust

A domestic asset protection trust (DAPT) is a self-settled trust created under the statutes of states that permit self-settled asset protection. Florida does not have a DAPT statute. Florida residents who create DAPTs in other states face the risk that Florida courts will apply Florida’s self-settled trust prohibition rather than the DAPT state’s protective statutes.

Offshore Trust

An offshore trust places assets under the jurisdiction of a foreign country that does not recognize U.S. civil judgments. A Cook Islands trust is the most widely used structure for Florida residents. The foreign trustee operates outside U.S. court authority, which means a U.S. court order directed at the trustee has no binding effect. Offshore trusts provide stronger protection than any domestic structure but require compliance with IRS reporting obligations and carry higher setup and annual maintenance costs.

What Trusts Can and Cannot Protect

Whether a trust can protect specific types of assets depends on the asset type, the trust’s structure, and the timing of the transfer.

Florida homestead property receives special treatment when placed in a trust. A revocable trust can hold homestead property without destroying the homestead exemption, but the trust provides no additional creditor protection beyond what the homestead exemption itself provides. An irrevocable trust can hold a home, but transferring homestead property to an irrevocable trust may forfeit the constitutional homestead exemption. The decision to put a house in a trust requires careful analysis of whether the homestead exemption or the trust’s creditor protection provides the stronger shield.

An irrevocable trust can hold financial accounts, investment portfolios, business interests, real estate in other states, and other property. Trusts that own property in another state must consider the property laws and tax treatment of the state where the property is located.

IRS tax liens present a different challenge because the IRS is not bound by state trust law; whether an IRS lien can reach trust assets depends on the nature of the taxpayer’s interest rather than on state creditor statutes. Trusts can also serve Medicaid planning functions: a Medicaid asset protection trust removes assets from Medicaid’s resource calculation while creating collateral creditor protection for trust beneficiaries.

Key Structural Decisions

Trustee Selection

The choice of trustee affects both the trust’s creditor protection and its practical administration. A beneficiary who also serves as trustee retains the trust’s creditor protection under § 736.0504(2), which provides that discretionary distribution protection applies whether or not the beneficiary serves as sole trustee. An independent trustee (someone other than the settlor, a beneficiary, or a related party) strengthens the trust’s position against creditor challenges because the independent trustee’s decisions are more difficult for a creditor to characterize as the settlor’s continued control.

Trust Protector

A trust protector holds specific powers that can strengthen the trust’s creditor protection over time. Under the Florida Directed Trust Act, the protector can remove and replace trustees, change the trust’s situs and governing law, veto distributions during creditor threats, and add or remove beneficiaries. These powers allow the trust to adapt to changing circumstances without requiring judicial modification.

Spendthrift and Discretionary Provisions

The trust agreement must include both a spendthrift provision and discretionary distribution authority to maximize creditor protection. A trust with only one of these mechanisms has gaps that creditors may exploit. Drafting the trust agreement to combine both protections is the single most important design decision for creditor protection purposes.

Modifying Existing Trusts

Irrevocable trusts are not permanently fixed. Florida law provides several methods for modifying an irrevocable trust after it is created, including judicial modification, nonjudicial modification by consent, and trust decanting. Trust decanting is particularly useful for asset protection because it allows the trustee to transfer assets from an older trust with weak creditor protections into a new trust with stronger spendthrift provisions, discretionary distribution authority, or a more protective governing jurisdiction—all without court approval.

Costs, Disadvantages, and Divorce

The cost of an asset protection trust varies significantly by trust type. Third-party irrevocable trusts typically cost $2,500 to $7,500 for setup, while SLATs range from $5,000 to $10,000 and offshore trusts from $15,000 to $25,000. Annual maintenance, trustee fees, and tax reporting add ongoing costs. The most cost-effective approach maximizes free statutory protections first (homestead, retirement account exemptions, tenancy by the entirety) and reserves trust structures for assets that remain exposed.

Trusts carry real disadvantages that limit their suitability in certain situations. Irrevocability means the settlor permanently surrenders control. Concentrated trustee authority creates a single point of failure. Annual administrative costs accumulate over the trust’s lifetime. Self-settled trusts provide no protection in Florida. These constraints do not make trusts unsuitable, but they require careful evaluation of whether the protection gained justifies the control surrendered.

Trusts play a specific role in protecting assets from divorce. Third-party irrevocable trusts funded with nonmarital assets before or early in the marriage provide the strongest protection against equitable distribution. Revocable trusts provide no divorce protection. Self-settled trusts face the same limitations in divorce as they do against other creditors.

Evaluating Whether a Trust Is the Right Tool

Not every asset protection problem requires a trust. Florida’s statutory exemptions protect homestead property, retirement accounts, annuity proceeds, life insurance cash values, and certain other asset categories at no cost and with no ongoing administration. LLCs protect business and investment assets through charging order limitations. Tenancy by the entirety protects jointly owned marital assets from individual creditors of either spouse.

A trust is appropriate when the individual holds significant assets that do not qualify for a statutory exemption, when the individual wants to extend protection across generations, when the individual’s risk profile warrants the cost and complexity of trust administration, or when offshore protection is needed for assets beyond U.S. court jurisdiction. The marketing term “bulletproof trust” does not describe any specific legal structure—every trust has limitations, and the right structure depends on the nature of the assets, the timing of the creditor risk, and the individual’s willingness to accept irrevocability.