Last year the Federal annual gift tax exclusion was $15,000 and the amount remains the same for 2019. This means you can walk down the street and give out $15,000 to every person you meet and not have to file a gift tax return. If you are married, husband and wife can combine their annual exclusions and give $30,000 to each child or grandchild. As long as your gifts are below the annual exclusion amount, they are not counted against the lifetime gift exemption which is currently $11.4 million per person (Note: Be careful this is temporary and expected to drop to $5.6 million in 2026).

Note: Be very careful about making outright gifts to children. It is far safer to use a “Gifting Trust” so that the money is wisely used for the child’s college education or other needs – and so that the child does not blow it when he turns 18 or his creditors grab it when he is in his 20’s.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

It is a simple reality: We live in a hostile legal environment, and the chance you will not face costly litigation at some point in your career is not good. The good news is that you can fight back. Here is a quick summary of our “Porcupine” Asset Protection Strategy with tested legal strategies that can help protect your investments and property.

1. Make Your Assets As Unattractive as Possible to Attack with a Good Asset Protection Strategy

The starting point for most persons interested in helping to ensure that their hard earned investments are well protected is to make an inventory of all assets and, in consultation with an experienced asset protection attorney, divide these assets into “Protected Assets” and “Exposed Assets.” The goal is to take the Exposed Assets and turn them into porcupines, so if the wolf (creditors or future persons who may try to sue you) appears at your doorstep, their reaction will be the reaction porcupines get from their predators: after sniffing around they back off.

Therefore, the key point of the Porcupine Asset Protection Strategy is to turn attractive assets or “low-hanging fruit” into Porcupines with the initial goal to preempt lawsuits.

Note: What is the lowest of the low hanging fruit? Answer: Real estate titled in your name or joint name with your spouse.

Real estate is the ideal asset for creditors, because (1) it does not disappear overnight; (2) creditors can quickly lien it; and (3) creditors can foreclose on it. This is why almost all investment property should be in a multi-member Limited Liability Company (“LLC”) with a post 2012 Operating Agreement or Limited Partnership. See 4 Take-Aways Under Florida’s New LLC Law.

2. Asset Protection Planning is Not Dogmatic

Good asset protection strategy is not dogmatic; by this I mean that it does not apply a one size fits all approach. Sometimes in this field, you will find attorneys who have a hard bias toward off-shore planning; others will have a strong preference for domestic asset protection trusts; while others may say just stay at home and take advantage of your strong Florida laws. What is best for you depends on your unique goals, unique bundle of assets, and risk tolerance.

Good asset protection planning often combines multiple layers of protection with multiple defense options – not unlike Geno Smith, the legendary basketball coach of North Carolina, who employed a successful basketball defense based upon applying multiple defensive schemes. Therefore, it is possible – and commonly used – to employ multiple asset protection techniques: some assets will be protected by Florida law, some assets by a Delaware LLC, other assets by a Nevada Asset Protection trust; if the Nevada Asset Protection Trust is seriously threatened, it can be moved off-shore and established as a Nevis Asset Protection Trust or a Cook Island Asset Protection Trust.

3. Not Based Upon Concealment

Many lay persons believe that they can protect their assets by concealing them from creditors. For example, it may be tempting to transfer an investment real estate property to a family member or friend. Such transfers are likely doomed to failure – and we are assuming your friend or family member does not get sued. The reason is two-fold. First, with modern discovery laws in the United States, a creditor can discover virtually any transfer you have ever made because they can simply depose you and you must tell the truth under penalty of perjury. In addition, there is always a paper trail, in the form of texts, email’s, bank transfers, or tax returns. The second reason concealment does not work is FUFTA, the Florida Uniform Fraudulent Transfer Act, F.S. 726. Under this law, transfers made “with actual intent to hinder, delay, or defraud any creditor of the debtor” may be clawed back. See Point #8,

Note: While concealment should never be a basis for asset protection planning, there may be value in maintaining a low public profile, so that when a creditor performs a Google search your investment entities do not show up. This could be particularly beneficial for any professional in a high-risk profession – such as a doctor, dentist, or health professional.

4. Take Full Advantage of Florida Law

It is often surprising to me that some Florida residents think they need to go to Wyoming or South Dakota to protect their assets when they often have good options under Florida law. Florida has one of the strongest (if not the strongest) homestead laws in the United States. Of course, this is one reason why O.J. Simpson moved to Florida: he purchased an expensive Florida home and claimed it as his primary residence.

For decades, Florida courts have done a superb job of protecting homestead. A good example is the Florida Supreme Court Havoco decision. In this case, Havoco obtained a $15,000 judgment against Hill. Three days before the judgment became enforceable, Hill purchased a $650,000 property claiming to make this property his homestead. Creditors argued this property could not be protected homestead because Hill converted non-exempt assets into the homestead with the intent to defraud his creditors. Despite the obvious intent to defraud the creditors, the court found the homestead was protected. See 790 So. 2nd 1018 (Fla. 2001).

Of course there are limitations to the Florida homestead protection that are beyond the scope of this summary. Florida homestead is a complex and often misunderstood protection where you need to consult with an experienced Florida attorney.

Florida homestead is not the only Florida law that residents should take advantage of. Real estate investors should almost always consider LLC’s – limited liability companies – to protect their real estate and limit creditors to an unattractive remedy called a charging order. The two fundamental take-aways on Florida LLC’s is that they should be multi-member (unless owned by a limited partnership) and they must have a robust LLC Operating Agreement drafted after 2012 because the Florida LLC law was fundamentally changed in 2012. See Basic LLC Checklist.

Other investments protected by Florida law are (1) IRA & qualified plan benefits; (2) wage exemption; (3) wage accounts (but only for 6 months); (4) life insurance, both term and cash value provided the policy is owned by the insured; (5) annuities; (6) Florida Pre-Paid Plans; (7) 529 college plans. Note: this is not a complete list.

5. Domestic Asset Protection Trust – That Can Be Moved Off-Shore – As A Core Planning Tool

Most persons considering the best way to protect their cash, stocks and other equities likely need a Domestic Asset Protection Trust (“DAPT”). This is where Florida residents usually need to consider another state jurisdiction because Florida does not protect “self-settled” trusts: a trust where the grantor is also the beneficiary. However, Nevada, Delaware, Alaska and other states do have strong legislation protecting self-settled trusts.

Nevada has modern laws designed for robust DAPT’s. The 5 major advantages of a Nevada DAPT are: (1) no state income tax; (2) 2 year statute of limitations for future creditors; (3) 2 year statute of limitations or 6 months from date of discovery for pre-existing creditors; (4) No pre-existing torts exception creditors; (5) allows self-settled trusts. For a more complete discussion of such trusts, and specifically the Hybrid Nevada DAPT, see my article Nevada Asset Protection Trusts: Your Best Option?

6. Asset Protection Plan integrated with Estate Plan

Prior to the new federal tax law, the Tax Cut and Jobs Act of 2017, much asset protection planning could have a sound estate tax avoidance rationale. Now, with the estate tax exemption of $5.6 million in 2026 (the current exemption is $11.2 million, but this is temporary and drops down to $5.6 million in 2026) such a rational is not realistic for many persons. However, there are often fundamentally sound estate planning reasons to do such planning because a good asset protection plan should usually be integrated with your estate plan. Usually the goals are not just to protect your assets now and for the rest of your life, but also to protect them for your children and grandchildren. No one wants to spend your life working to build a valuable nest-egg, only to see a big piece of this nest-egg lost in your child’s divorce case. Further, the core component of most estate plans is a revocable living trust; such a trust must be integrated with all domestic corporate entities and other trusts. The take-away here is that you should not do asset protection planning without connecting and integrating it with your estate plan. If challenged, you have a legal basis to claim that transfers made were done as part of your over-all estate planning, and not attempts to “to hinder, delay, or defraud any creditor”.

7. Insurance As War Chest – Not An Incentive For Lawsuit

Insurance – such as malpractice insurance for the professional or casualty insurance for the real estate investor – is a critical component of a comprehensive asset protection plan. However, in determining how much insurance you need consider that a primary purpose of your insurance should be to give you a war chest to defend a legal attack. More commonly, insurance is an incentive to a lawsuit. The first request you will get from a personal injury for a person injured at your business is a demand letter for disclosure of all insurance that you have on the property. You are required to disclose this information under Florida law. If the damages are substantial, the PI attorney will want to go beyond the policy limits and sue you personally. Insurance – not coupled with an asset protection plan – is a big incentive for a lawsuit; it is the equivalent of putting a bulls-eye target on your assets. Under our Porcupine Asset Protection Strategy we want to minimize any such incentive. Therefore, the two big take-aways here are: First, have adequate insurance to fund a war chest to vigorously defend a lawsuit. Second, do not rely simply on insurance – take advantage of Florida law and other laws to protect these assets with a good asset protection plan. In the long run, such a plan is far cheaper than paying for large insurance policies.

8. Timing Is Critical

Timing is one of the most critical considerations in asset protection planning. Asset protection planning is usually not viable after:

• Parent of 18 year old driver who seriously injures a young biker
• Owner of rental real estate where late night party results in a fight and guest getting stabbed;
• The doctor who is served with a summons after a botched surgery;
• Pre-divorce planning by a husband trying to scam his wife (or wife trying to scam her husband. (Here there is a good pre-marriage legal solution: it is called a Prenuptial Agreement.)
• Owner of house where worker pressure cleaning the roof falls off and breaks back.

In such situations it may be too late to do any planning. The reason is FUFTA: Florida Uniform Fraudulent Transfer Act, F.S. 726. This is a powerful creditor civil remedy (not a criminal remedy) that allows a creditor to claw back any transfer made “with actual intent to hinder, delay, or defraud any creditor of the debtor”. Creditors may rely upon the “badges of fraud,” such as making transfers to an asset protection entity that renders the creditor insolvent.

The take-away on this is simple: Plan when waters are quiet – before the problem arises. Do not put this planning off to another time; do it now.

Conclusion

Asset Protection Planning covers a wide breadth of law; it requires an experienced attorney who concentrates in such planning. For more information contact Rarick Trusts & Wills Law at info@raricklaw.com or call (305) 709-2858.

For 2016 the federal estate and gift tax exemption is now $5.45 million – up from $5.43 million in 2015. This means a single U.S. citizen can leave $5.45 million to their family members and friends and pay no estate tax if they die in Florida since Florida does not have an estate tax. (As some commentators have stated, Florida is a great place to die. For states where you don’t want to die see Where Not To Die)

Married U.S. citizens can leave $10.9 million to their heirs but there is a trap here for the surviving spouse. This benefit does not pass automatically to the survivor. The surviving spouse has to make a timely election to secure the benefit of the unused portion of the deceased spouse’s exemption known as the DSUEA – the decease spousal unused exclusion amount. If the surviving spouse does not make a timely election to claim the DSUEA following the death of the spouse, or did not have a credit shelter trust established and funded prior to the death of the first spouse, the surviving spouse will likely be left with the $5.45 million exemption.

Note: Let’s say the husband dies first with an estate of $8 million. Because of the unlimited estate tax exemption, the husband can gift an unlimited amount estate tax free to the wife. Therefore some might believe the surviving spouse does not need to file a 706. But to preserve the DSUEA, the wife needs to timely file a 706 return to claim her deceased husband’s $5.45 exemption.

3 Take-Away Points

1. If you have not reviewed your estate plan since 2012, this year is the time to do so because the 2012 American Taxpayer Relief Act (ATRA) has fundamentally changed how most persons plan their estates. See The Estate Planning World Has Flipped 180 Degrees by ATRA.

2. Do not be fooled into believing you have no tax issues to worry about if your estate is under $5.45 million. Now, an important tax planning objective for many persons – especially persons who purchased real estate years ago with a low basis – is to secure a step-up in basis to minimize capital gains.

3. The state of residence is important. For snowbirds or persons who split time between Florida and another state it is often advisable to clearly establish Florida as your state of domicile for tax reasons.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

Family law attorneys are increasingly using trusts to secure and safeguard the payment of financial obligations in their marital settlement agreements. Such trusts can provide the following key benefits:

• Security that payments will be made in a timely fashion
• Assurance that the monies will be spent exactly as directed: for the child’s health, education, support – not for the other spouse’s whims and enjoyment
• Third party over-sight by neutral fiduciary on a monthly or quarterly basis
• Protection against outside creditors of the child or spouse

Of course, each trust must be tailored to the specific needs of the children or spouse. Here are a few examples of trusts commonly structured as irrevocable grantor trusts:

• Educational Trust. Purpose: secure private school tuition for minors and/or quality college/university education after high school graduation.
• Life Insurance Trust. Purpose: secure payment of life insurance premiums for child support or alimony obligations; prevent rogue spouse from changing beneficiaries.
• Safe Harbor Children Trust (Spendthrift Trust). Purpose: secure funds to provide for the health, support, maintenance and education of the children. This trust would provide the following protections: (a) child cannot “blow it” (ex: buy a new yellow Mustang upon turning 18) as the trust funds are administered by a neutral fiduciary; (b) child’s creditors cannot grab it; (c) if child marries without a prenuptial agreement the funds are protected from claims of the child’s new spouse.
• Minor’s Trust for Paternity Support. Example: Father believes mother to be a poor money manager but is ordered to pay support for the minor child. Father wants no more contact with mother. Father establishes a Minor’s Trust to fulfill his support obligations administered by a neutral fiduciary.

For more information. We publish a periodic Florida Trusts and Probate Report that flags key issues of interest to family law attorneys. Recent reports are:

• Avoiding a Marital Settlement Sand Trap: Losing Control Over Insurance Policies Solution: Irrevocable Children’s Safe Harbor Trust (Includes suggested marital settlement language)
• 7 Point Checklist for Pre-Divorce Planning
• 9 Key Benefits Available to Florida Same-Sex Couples
• The “Son-In-law Problem”: Keeping Your Wealth Safe – And Out of Reach From Your Daughter’s Husband

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For over 20 years, Rarick Trusts & Wills Law has been the trust firm other lawyers have turned to for help resolving their client’s estate planning, asset protection, and business matters. Since 1993, more than 500 similar law firms located outside of Florida have asked us to help their clients resolve legal issues concerning trusts, wills, and guardianship. We are frequently being asked to assist family law attorneys; we would be pleased to work with you and your firm.

For more information contact Phil Rarick at info@raricklaw.com or call 305-709-2858.

We welcome your comments or questions.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

One of the most important decisions you can make for your estate plan is your batting order of successor trustees: who do you want to step up to the plate for you if you cannot? It is important to place in position those persons in whom you have complete trust. Your successor trustee is charged with managing your financial affairs. This person is a fiduciary, and therefore under the law has a high fiduciary duty to follow your trust instructions exactly, pay all taxes on time, keep a good accounting of all monies coming in and going out – these are just a few of the many tasks. For a good summary of successor Trustee duties see our report: 12 Point Summary of Florida Successor Trustee Duties.

Many persons prefer to name a family member as a successor trustee – such as an older child. However, this position can sometimes cause conflict and disharmony in the family – especially when the older child must make discretionary decisions about distributions of trust funds to the other children.

These conflicts can be avoided by naming a non-family member who can be an individual or corporate trustee. Corporate trustees (such as Coral Gables Trust, Northern Trust or SunTrust) are generally viable options for large estates of $5 million or more. For estates less than this, you may wish to consider an individual who could be your CPA, attorney, or other licensed professional.

For non-family successor trustees, we typically recommend a CPA or trust attorney. Both Jay Beskin and I are available to act as successor trustee – we have served in this capacity for multiple families. As Miami trust attorneys, we and our staff have many years of consulting and administering estates and trusts; we are confident we can provide efficient trust administration in a cost-effective way.

Do you know your batting order – the order of succession for your trustees? Will your order of succession work or cause disharmony in the family if you are disabled or die? If you would like to review your trustee succession with us, we can offer a free consultation. Simply call Christy at (305) 709-2858.

Special Note

The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.

1. Show Loyalty To All Trust Beneficiaries. Even if the successor trustee is himself a beneficiary, as trustee he has the duty of loyalty to all the other beneficiaries, including the remaindermen. Remaindermen are beneficiaries who do not have a current interest in the trust income or principal, but have a future interest in the trust.
2. Deal Impartially With Beneficiaries. The successor trustee cannot favor the income beneficiaries over the interests of the remainder beneficiaries unless the trust specifically directs otherwise. Typically, the trustee must walk a fine line that balances the interests of the income beneficiaries against the interests of the remaindermen.
3. Make Trust Property Productive Of Income. The trust portfolio of assets is expected to achieve conservative growth. Therefore, this duty may be violated if the successor trustee keeps large amounts in a checking account that does not pay interest and does not grow in value. This duty can also be violated if the trustee keeps trust assets in land that does not produce income, such as vacant land or commercial land that does not produce rental income in excess of maintenance costs.

Remember: The sole reason for the trust to exist is to serve the beneficiaries. It is not an employment program for the trustee. If you are administering a trust that has or acquires unproductive assets, consult with us and we can advise you as to your options.

4. Follow the Prudent Investor Rule, F.S. §518.11. This rule generally means that the trust portfolio should be broadly diversified and invested in conservative investments designed to stay ahead of inflation but not in aggressive growth. As a Trustee, you are not expected to be Warren Buffet, but you better not lose money or you will need to account to the beneficiaries. Often, it is best to retain the services of a Certified Financial Planner (CFP) experienced in helping manage conservative portfolios. Note: The successor trustee is obligated to exercise reasonable care, judgment and caution in selecting an investment agent.
5. Account To Beneficiaries And Keep Beneficiaries Informed. Upon commencement of the trust administration, the successor trustee must inform all income and remainder beneficiaries of his or her acceptance of the trustee duties. If a beneficiary requests it, the successor trustee is required to provide that beneficiary with a complete copy of the trust document, including any amendments as well as relevant information about the assets of the trust and the particulars relating to administration. In addition, even without request, all beneficiaries must be provided with an annual statement of the accounts of the trust pursuant to F.S. 736.0813.
6. Keep Trust Assets Separate. The successor trustee must keep the assets of each trust separate and keep his personal assets separate from the trust assets. This requires separate bank accounts, brokerage accounts, and safe deposit boxes for trust assets. It is particularly important that you keep the assets of the Credit Shelter Trust (also known as the AB Trust, Marital and Family Trust, or Bypass Trust) separate from all other assets, since these assets will pass tax-free at the death of the income beneficiary. If the successor trustee comingles any other assets in with these assets (or even simply takes the assets out of the trust and mixes them with her personal assets), in addition to breaching fiduciary obligations, the successor trustee will have subjected these assets to taxation when she dies, whereas they would not have been subjected to tax otherwise.
7. Avoid Conflicts Of Interest And Self-Dealing. The successor trustee cannot buy assets from the trust or sell his personal assets to the trust. He cannot favor himself as a beneficiary at the expense of any other remainder or potential remainder beneficiary. He cannot make any distribution to anyone or any withdrawals from the trust unless specifically authorized by the trust to do so. The trustee is entitled to a reasonable compensation for trust services or compensation as otherwise set forth in the trust. However, the successor trustee cannot otherwise profit or benefit from the trust unless also a beneficiary. Conflicts of interest and self-dealing is a broad area with many traps. If you are a trustee and have any concern as to any specific action or situation, consult with a Miami trust attorney.
8. Preserve The Trust Assets And Uphold The Trust. The successor trustee is liable if trust assets are lost, misplaced or destroyed because of inattention or negligence. If the trust assets are equities, the trustee needs to monitor their performance. If the trust assets are commercial real estate, the trustee must monitor that the properties maintain a high occupancy level, rents are collected in a timely fashion, and of course deposited in a trust account. This may require hiring a property manager. The successor trustee should be certain that all trust assets are appropriately insured. For example, if the trust owns a house in south Florida, it is imperative that the home be insured for property and wind damage that may be caused by hurricanes, heavy rains, and the weather related events we experience here. If the house is vacant, there should be a security system for obvious reasons.
9. File Tax Returns And Pay Any Tax Due. Each trust has a tax year, which like the personal tax year, ends annually on December 31. The trust must have a taxpayer identification number and file a tax return no later than April 15 of the year following. The income tax return for the trust is Form 1041, the Fiduciary Income Tax Return. The best advice here is to use a professional CPA who routinely prepares 1041’s. As mentioned above, such an expense is a typical cost paid by the trust.
10. Minimize Income Taxes. Income generally includes interest earned on bank accounts, CDs, bonds or mortgages, and dividends on stocks and mutual funds as well as all rental income. The trust has a high tax environment: income not distributed may be taxed at 39.6%. Therefore to minimize income taxes, the trustee may need to distribute income out to the income beneficiaries if the trust terms so allow.
11. Pay Trust Expenses. The administration of the trust necessarily requires certain expenditures. Example of expenses include insurance, real estate taxes, CPA fees, and legal services.
12. Good Record Keeping. The trustee needs to keep accurate records of every dime that comes into the trust and every dime that goes out. For small trusts, we recommend using Quickbooks or Quicken. If the successor trustee does not know these programs, it is highly advisable to hire a professional bookkeeper. If the successor trustee becomes disabled or dies, another person must be able to seamlessly step into her shoes and understand the current status of trust matters.

Note: Before the trust is terminated or before the trustee can be released, the trustee will need to provide a detailed accounting to all beneficiaries for all expenses, income and distributions during the time the trustee served.

EXPERIENCE MATTERS

Miami trust attorneys at Rarick Trusts & Wills Law, P.A., have assisted families and business persons for over 20 years. Our firm has worked with over 400 similar law firms located in states outside of Florida to represent their clients in legal matters concerning trust administration and probate. To schedule a meeting with a Miami trust attorney call (305) 709-2858, or e-mail info@raricklaw.com. We look forward to meeting you!