What is Asset Protection?
The necessity for asset protection planning attorneys has never been stronger. Liability can arise from professional negligence, such as a physician’s medical malpractice; errors and omissions by accountants, engineers, architects and small business owners; the ownership of real property, (also known as “premises liability”); taxes or contractual obligations; imposition of criminal or civil fine or penalty; divorce or other domestic relations disputes; and in tort for negligent or intentional behavior. There also is a growing liability exposure for some who have done no wrong. These situations may involve strict liability or vicarious liability. There are an increasing number of Plaintiffs’ lawyers who are pursuing such actions. Having an experienced Florida asset protection planning attorney is critical to proper planning to avoid the loss of your assets to such liability claims, regardless of the validity of those claims.
When you are ready to protect your assets, call an experienced Florida asset protection planning attorney to assist you with your asset protection planning in the State of Florida, call us toll free at 866-510-9099, we can help you preserve and protect your assets.
Should I Hire an Asset Protection Planning Attorney to Help Me Put Together an Asset Protection Plan?
Many tools and strategies are available for the individual to consider. Some strategies are relatively simple to plan and implement, such as the use of statutory exemptions and titling of property as tenancy by the entirety or as joint tenants with the right of survivorship.
Other tools and strategies are complex, such as family limited partnerships (FLPs) and domestic asset protection trusts (DAPTs). Some are more effective for a particular need, others are effective generally. Tools and strategies include the use of trusts, both domestic and offshore, proper drafting of estate planning documents, including wills, partnerships, and limited liability companies, statutory and Constitutional exemptions from creditors’ claims, joint ownership of property, the use of entities such as a limited liability company (LLC), and the use of contractual liens.
You need the assistance of a Florida asset protection planning attorney to help design and implement your own specifically designed asset protection plan based on your personal circumstance. You can get the help you need by calling us to schedule your initial consultation. You can call us toll free at 1-866-510-9099, in Jacksonville at (904) 448-1969, or email us at Info@TheColemanLawFirm.com.
When Should I Start Asset Protection Planning?
Asset Protection Planning should begin before the need arises. If you wait until legal claims are made against you, or the lawsuit has already been filed, many of the available options will be removed from consideration. When you want to begin your asset protection planning, call your Florida asset protection planning attorney toll free at 866-510-9099 so we can schedule a consultation to assist you with your asset protection planning.
Should I engage in Asset Protection Planning if I am Exposed to Lawsuits?
No single asset protection planning technique can provide all of the protection that every individual needs. No two individuals have the same factual circumstances, goals and objectives, risk tolerance levels, or asset composition. Each individual should consult with an experienced asset protection attorney and must look at the various alternatives that provide the level of protection that is needed and available. Then you must decide upon what is compatible with your particular circumstances. Your tolerance for complexity will be a key factor. Many of the options that can be effective asset protection tools involve legal and practical complexities. Others are far less complex, but may not offer as much protection. Your asset protection planning attorney can help you decide what options work best for you.
In each case, tax considerations (including income tax, estate tax and gift tax), must be considered before any action is taken. In every case where implementing an asset protection plan or technique is involved, careful analysis of the potential impact of the fraudulent transfer act (sometimes referred to as the Fraudulent Conveyance Act) is required. Only an experienced asset protection planning lawyer can help you maximize the value of your asset protection plan.
Who Needs to Engage in Asset Protection Planning?
Only after considering all economically feasible alternatives, and all of the advantages and disadvantages of each one, can an individual decide which course of action is most appropriate for that individual’s peculiar circumstances and needs. An experienced Florida asset protection planning lawyer can help you develop a plan that will allow you maximum asset protection planning, and allow you to continue conducting yourself and your business enterprise as you have historically, but without the concern that your assets can be diminished, or entirely lost, as a result of the negligent action of an employee, a customer, or a vendor. A comprehensive asset protection plan designed and implemented by an experienced asset protection planning attorney can help you achieve peace of mind that you won’t unreasonably lose your business and other assets.
A. Revocable Trusts
An experienced Florida estate planning lawyer or asset protection planning attorney can assist you with your family’s asset protection planning needs to establish a revocable trust that can provide substantial asset protection value for your heirs. Call us toll free at 866-510-9099, or email us at Info@TheColemanLawFirm,com and we can help guide you in providing protection for your family.
B. Irrevocable Trusts
Irrevocable asset protection trusts, for purposes of this discussion, come in two varieties: self-settled trusts and trusts created by third parties, known as third party trusts. An experienced asset protection planning attorney should have detailed knowledge of how to structure irrevocable trusts to accomplish significant protection for you and your family.
In general, just like outright gifts of property, transfers to irrevocable asset protection trusts, conceptually, place assets outside the reach of the grantor, and in most cases outside the reach of the grantor’s creditors. Notwithstanding this general rule, a creditor can pursue the assets placed in the trusts where (i) the trust is funded as a result of a fraudulent conveyance, (ii) the grantor retained too much control over the trust, (iii) the grantor retained too much of an interest in the trust, and (iv) the trust is illusory.
A creditor can reach a debtor’s interest in a spendthrift trust, or one of the variations of it, when the trust was created and funded by the debtor (a self-settled trust). The general rule in these cases is that when a person creates for his own benefit a trust for support or a discretionary trust, his creditors can reach the maximum amount which the trustee, under the terms of the trust, could pay to, or apply for the benefit of the grantor.
An individual may be able to create a trust that is asset protected, in whole or in part, of which such individual is a permissible beneficiary, by restricting the discretionary authority of the trustee with respect to such individual. Such restrictions include: (i) limiting distribution to the trust grantor to an ascertainable standard (e.g., health, education, maintenance and support); (ii) requiring that distribution to the individual not hamper the ability of the trustee to provide for the support of other beneficiaries such as the spouse or children of the individual; and (iii) requiring the trustee to first obtain the consent of adverse beneficiaries prior to distributing funds to the grantor. The greater the restrictions, the less likely it is that the trust assets will be available to creditors of the grantor. Obviously, these provisions limit the grantor’s access to the assets owned by the trust.
When you want to retain a Florida asset protection planning lawyer to assist you with the preparation of an asset protection trust or other asset protection planning, please call us toll free at 1-866-510-9099.
C. Domestic Self-Settled Asset Protection Trusts.
The effectiveness of these DAPT statutes remains to be tested. For instance, the Delaware statute allows the grantor of a self-settled trust to retain the right to receive current income, thereby providing greater flexibility to the grantor. However, Florida courts might allow a grantor’s creditors to reach any income which the grantor retains a right to receive.
The Nevada statute allows the grantor of a self-settled trust to retain only a discretionary distribution right. Based on Florida precedent, the creditors of a Florida grantor with a Nevada asset protection trust can only reach the rights retained by the grantor – a discretionary distribution right. A creditor’s right to reach a grantor’s retained interest in a spendthrift trust, under Florida law, could be analogized by Florida courts to a charging order imposed against a partner’s interest in a partnership. A creditor’s right to a debtor’s discretionary distributions from a trust is similar to a charging order because, absent a fraudulent conveyance, and under the holding of Brown, the court can not order the trust to make a distribution to the grantor, and the creditor cannot attach an asset owned by a trust because the creditor must respect the terms of the trust.
From an asset protection perspective, a domestic asset protection trust may be more advantageous than a family limited partnership because a trustee generally has greater discretion in the timing and amounts of distributions to beneficiaries than a general partner in a partnership with multiple partners. In addition, the trustee often has greater latitude in purchasing non-business, not-income producing assets to be used by the beneficiaries (e.g., a condominium at Vail) than does a general partner of a partnership.
Many foreign offshore trusts permit the settler to direct the disposition of the trust assets pursuant to a general or special power of appointment to ensure that the transfer of assets to the trust is an incomplete gift and included in the grantor’s estate to avoid income tax under IRC §684. With a domestic asset protection trust, the grantor is not subjected to income tax under IRC §684 and need not retain a general or special power of appointment, which would subject the principal and income of the trust to the grantor’s creditors claims under Florida law. This line of attack is therefore effectively cut off with domestic asset protection trusts.
There are four common arguments attacking the effectiveness of the domestic asset protection trusts. They are (1) conflicts of laws arguments; (2) the full faith and credit clause of the U.S. Constitution; (3) the supremacy clause of the U.S. Constitution; and (4) the fraudulent transfer laws. The arguments in favor of the sustainability of the domestic asset protection trusts are strong in each of the four positions.
Several cases have been decided by the various state courts and bankruptcy courts that establish a benefit can be derived from such domestic asset protection trusts.
Additionally, clients may prefer domestic asset protection trusts compared to offshore asset protection trusts for a number of reasons. U.S. courts are more likely to recognize a domestic trust rather than one in a faraway jurisdiction. Clients may want the security and financial strength of a trust created under the laws of Delaware or Nevada and maintained by a trust company located within the U.S. A domestic asset protection trust avoids the special tax reporting rules of a foreign trust. And, a domestic asset protection trust avoids the potential adverse federal income tax consequences associated with the ownership of assets by a foreign trust.
The general preference for domestic asset protection planning techniques has become more dominant over the past decade as additional federal regulation of offshore investment accounts, and the forceful enforcement by the Internal Revenue Service of various tax treaties with formerly safe trust havens, have made it increasingly difficult and expensive to maintain trusts or investment accounts offshore.
The principal risks in using a domestic asset protection trust are that the legislation is still relatively new and the laws have not been fully tested in courts. Based upon an analysis of creditor rights, this risk may be acceptable to clients. Domestic asset protection trusts are a viable estate and asset protection alternative, and may become the predominant trust form in the future.
If you think a domestic asset protection trust may be of interest to you, you should contact a Florida asset protection planning lawyer with The Coleman Law Firm for a consultation to determine how a domestic asset protection trust may fit into your overall estate planning and asset protection planning needs. You can call us toll free at 1-866-510-9099.
D. Irrevocable Trusts – Trusts Created by Third Parties
The Florida Supreme Court has held that disbursements from spendthrift trusts can be garnished for alimony, incidental awards of attorney’s fees, and child support, before such disbursements reach the beneficiary debtor. As is the usual case, the Internal Revenue Service may satisfy a tax claim against a beneficiary of a spendthrift trust.
If you need a Florida estate planning attorney or asset protection planning lawyer to assist you with your family’s asset protection planning needs to establish third party trusts that can be effective against your creditors, please call us toll free at 1-866-510-9099.
E. Planning Considerations.
Practitioners should generally avoid making the individual who is the subject of the asset protection planning a trustee of a trust, regardless of whether the individual created the trust or whether the trust was created for the individual by another party. Florida asset protection lawyers should recommend to their clients that spouses and parents of doctors, lawyers, architects, accountants or other professionals and persons with personal guarantees or other potential creditor exposure consider leaving their inheritances in spendthrift or discretionary trusts. This strategy provides estate tax, income tax, and asset protection benefits that are not available with outright devises. Generation skipping tax planning can be utilized in such a strategy as well.
In restructuring the estate plans of spouses and parents of a person considering asset protection, Crummey powers should generally be avoided. The lapse of a Crummey power arguably creates a grantor trust and, at least to such extent may be reachable by creditors. In addition, bankruptcy trustees have the authority to exercise Crummey powers, which increases the need to provide flexibility in irrevocable Crummey trusts to enable the grantor to specify whether future gifts to the trust are subject to a Crummey power.
With regard to planning for expectancies from other family members, Bankruptcy Code §541(a)(5) provides that property received by the bankruptcy debtor, within one hundred eighty (180) days after filing a bankruptcy petition, by bequest, devise or inheritance, through a property settlement arrangement incident to a divorce or through beneficiary designation on an insurance policy or a retirement plan, becomes a part of the bankruptcy estate.
If you need a Florida estate planning lawyer or asset protection planning attorney to assist you with your family’s asset protection planning needs to establish third party trusts that can be effective against your creditors, please call us toll free at 1-866-510-9099.
F. Insurance Trusts and Partnerships
Partnerships and limited liability companies may be used to own life insurance pursuant to a buy-sell agreement or for other purposes, and are entitled to the charging order protection that is discussed in more detail below.
If you need a Florida estate planning attorney or asset protection planning lawyer to assist you with your family’s asset protection planning needs to establish an insurance trust, a partnership or a limited liability company that can be effective against your creditors, please call us toll free at 1-866-510-9099.
G. Children’s Trusts
A similar result is achieved using Education IRAs, and Sec. 529 plans, where the owner/transferor transfers a complete interest in the property used to fund the plan, and does not retain control over the account.
The primary concern in making such transfers is to assure that there is no violation of the fraudulent transfer laws.
If you need a Florida estate planning attorney or asset protection planning lawyer to assist you with your family’s asset protection planning needs to establish children’s trusts, call us toll free at 1-866-510-9099 or email us at Info@TheColemanLawFirm.com.
1) Ensure that a separate account is established and continuously maintained in the name of the FLP and the corporation, and that the assets in such accounts remain separate from nonentity accounts (such as personal or trust accounts), and from account(s) of other entities.
2) The president of the corporation, the general partner of the FLP, should endorse all transactions involving the FLP; the president of the corporation should endorse all transactions involving the corporate general partner.
3) Establish and maintain a separate capital account for each partner of the FLP. An accountant should be consulted to establish and maintain such accounts.
4) Conduct annual meetings on behalf of the corporation pursuant to its bylaws to elect corporate officers and discuss corporate transactions. Such annual meetings should be documented in corporate minutes prepared and signed by the corporation’s secretary.
5) Maintain accurate records of FLP transactions as they occur and prepare an annual account of all FLP transactions for the given year to be maintained with FLP records.
6) Engage an accountant to prepare the appropriate tax returns for the FLP (Form 1065) and the corporation (Form 1120-S, assuming an S-election is made). Although the entities are treated as “flow through entities,” these returns are informational type returns that are required to be filed accurately and timely.
7) Ensure distributions from the FLP are made to the partners in accordance with their respective partnership percentages. Additions to the partnership should be made by the partners in accordance with their respective partnership percentages at the time of the addition.
8) Ensure personal obligations and expenses incurred by shareholders and/or partners are satisfied from such shareholders’ or partners’ personal accounts, never from entity accounts.
9) Ensure each entity remains active in its state of formation. Such active status should be maintained by payment of registered agent fees and satisfaction of any state tax requirements (i.e., payment of franchise tax, filing of annual reports, etc.) on a timely basis.
10) If the FLP agreement requires, ensure the corporation (as general partner) provides the appropriate FLP financial information to the limited partners, such as a balance sheet for the FLP, profit and loss statement for the FLP, federal and state tax returns, etc., as may be reasonably necessary for the limited partners to be advised of the financial status and results of operations of the FLP.
11) Limited partners may have reduced decision-making capacity with regard to the FLP; however, they are generally entitled to be apprised of the operations and maintenance of the FLP. Partners of the FLP and shareholders of the corporation should be advised to retain a portion of their assets outside of the FLP (i.e., in their revocable trusts and/or individual accounts). Such assets should be used for the partners’ and shareholders’ daily maintenance, expenses, gift giving, etc.
12) Ensure the FLP and the corporation are respected as true business entities. If the FLP and/or corporation engage in business transactions, all parties (family members included) to such transactions are required to abide by the appropriate transaction terms as evidenced in contracts, notes, etc. For example, payments of interest and/or principal on a note should be paid when due and, if not so paid, the appropriate interest and/or penalties should be calculated and collected.If you need the assistance of an experienced asset protection lawyer to assist you with the establishment, maintenance and operations of a family limited partnership, please call The Coleman Law Firm, PLLC toll free at 1-866-510-9099.