Some Easy Asset Protection Tips
I have received a number of inquiries lately from potential clients who are interested in asset protection. The absolute best time to engage in asset protection is before you have any creditors or potential creditors. While there are some sophisticated techniques that an attorney can help you with, there are also some simple things that everyone should know. Note that (1) this applies to Florida residents only, as I am not familiar with the laws in other states, and (2) more importantly, this is general information only, and may not apply to your specific facts and circumstances.
- If you are married, then one of the best things you can do for asset protection is to own all of your assets with your spouse as "Tenants by the Entirety." Tenants by the entirety is a special form of joint ownership that is available only to spouses. What makes it a powerful form of asset protection is that the individual creditors of either spouse cannot reach the asset. However, a creditor of both spouses jointly might be able to. Be aware however that when you own property as Tenants by the Entirety, when one of the spouses dies, the other spouse automatically inherits the entire property. Based on your individual situation, this might not be ideal from an estate planning perspective.
- Certain assets are exempt from creditors. That means that if you are sued and lose the lawsuit, your creditors may not force you to sell these assets to pay them, or collect against them. These assets include (1) your Homestead (with certain very important caveats); (2) your IRA, Pension Plan, 401(k) or other Retirement Plans; (3) the cash value of any life insurance policy that you own on your life; (4) certain annuities.
- The rules regarding your Homestead and its exemption from creditors are tied into the federal bankruptcy law. There may be some limitations based upon how long you have lived in the state and the value of your homestead. If this is a concern, you should consult an attorney.
- Despite what you might have heard, a revocable living trust does not provide any creditor protection at all. Zero. None. Zilch. The purpose of a revocable living trust is to avoid probate, and to plan for incapacity. That's it. Now, probate avoidance and incapacity planning, can be and is very important. It could save your family the burden and cost of a Guardianship if you are incapacitated (as could a durable power of attorney); and avoid the cost of probate after your death. However, it is not an asset protection tool.
These are just some simple tips that everyone should know. If you are concerned about potential future creditors, by putting your wealth into some of the above assets, they should be protected.
There are also some more advanced creditor protection techniques, including family limited partnerships, irrevocable trusts in certain states, and other ownership structures. However, if you are interested in these, you should see an attorney.
The section of this article regarding exempt assets mentions "certain annuities". Is it possible for you to provide examples of types that are....or types that are not... exempt assets? For example, are single premium, deferred or immediate fixed annuities issued by insurers in the U.S. considered exempt assets in Florida? Thanks.
Hi Jim, and thank you for reading. That's a good question and a bit more detailed than I want to go into on a blog posting.
However, I will direct you to Florida Statute section 222.14 which states, "the cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor."