Articles Posted in Asset Protection

If you have been told, don’t worry about your IRA it is protected because Florida has statutory protections for IRAs, you may have misunderstood or been mislead. While Florida does have statutory protection for inherited IRA’s, this protection only applies if your beneficiaries are residents of Florida at the time of your death.

Why take a chance with naming individuals as a beneficiary of your IRA. A properly designed trust should be the beneficiary of your IRA to protect the proceeds from the creditors of your beneficiaries at the time of your death.

In June of this year, the US Supreme Court in Clark V Rameker stated that children or other “non-spouse” individuals who inherit are at risk of loss to their creditors. This was not a close call, it was a 9-0 decision and clarifies that an inherited IRA is not protected from the creditors of its owners.

While a spouse can be named, the spouse has a unique option that other beneficiaries do not have. The spouse can do a rollover IRA. This protection does not help one who dies without a spouse or has serious risks if the surviving spouse is in need of long-term care.

While in the past, most financial professionals would object to naming a trust as a beneficiary, you will start to see them realize the benefit as they become aware of the new risks to the beneficiaries that they did not foresee. They also did not understand that it is possible to create a trust where the stretch out provisions are not lost.

To maintain the stretch out provisions in an inherited IRA where a trust is a beneficiary, the trust must be a qualified beneficiary. For a trust to be a qualified pass thru beneficiary of an IRA, it must meet 4 criteria:

  1. The trust must be valid under state law;
  2. The trust must have identifiable “human” beneficiaries;
  3. The Trust must be irrevocable after the death of the settlor; and
  4. a copy of the plan document must be provided to the plan administrator

It is important to comply with these rules when naming a trust as a beneficiary of an IRA or other retirement account.

If a spouse was to maintain the decedent’s IRA status and draw out funds over the life expectancy of the decedent, the IRA would not be protected as a Roll over IRA or a new IRA.

If you would like to discuss how to properly name a trust a beneficary of your IRA, please contact our Jacksonville estate planning lawyers.

We often get asked about the iPug™ Trust and how it can be so different than a traditional revocable trust or a standard irrevocable trust. The iPug™ takes the best parts of an irrevocable trust and mixes them with the best parts of a revocable trust to create a new type of irrevocable trust where you are in control and can make changes to the beneficiaries and management of the trust just like you can with a revocable trust.

Why Do People Love iPug™?
Because iPug™ Protects You and Your Family From:

  • Lawsuits
  • Nursing Homes
  • Those that want to take away what you worked hard for.
  • Children’s indiscretions, their spouses and divorce.

An iPug™ Keeps You In Control By:

  • Allowing you to control your assets until death.
  • Allowing you to retain some, all, or none of thel income from your assets.
  • Permitting you use of your assets during life.
  • Ensuring you are able to qualify for Medicaid in the shortest period of time possible (often less than three years).
  • Favorable income and estate tax treatment.

Asset Protection Planning includes many complex laws, including, trust law, Medicaid law, probate law and contract law. If you have been using a traditional trust or will to protect from probate, it may be time to upgrade your planning to include asset protection. An iPug™ trust can be used with your current estate plan with some minor changes to your will and trust documents.

Many times we get questions from clients asking if their revocable trust provides asset protection from creditors. The answer to this is the typical legal answer “It Depends”. That is it depends on who owes the money. In Florida a revocable trust can provide some limited protection against the creditors of your beneficiaries through a spendthrift clause, but it will not provide protection from the creditors of the person who creates the trust. Upon your death, the assets in your revocable trust are available to your creditors.

There is a new type of irrevocable trust that is similar to a revocable trust in terms of management, control, and no negative tax effects. This special irrevocable trust is called an IPUG and can be structured to provide asset protection for the items placed in the trust.

An IPUG can be designed to protect an entire asset, the principal, or the income from the asset. The most common design is to protect the entire assets. If you are concerned about protecting your assets from future creditors and the creditors of your children, an IPUG may be the right choice for you.

More articles on what an IPUG is and the benefits of using an IPUG trust.

In Florida, a multi member LLC, has asset protection characteristics. Prior to 2011, Florida law was not clear on whether a charging order was the exclusive remedy for a creditor of a member of a multi member LLC. Assets in a Florida multi member LLC are protected from the reach of the member’s creditors so that the debts of one member do not cause harm to the other members. Once a creditor receives a judgement, they can apply for a charging order and stand in line to receive distributions that are made to that member. The problem with this is that a charging order also subjects the creditor to the tax gains that a member is allocated. For this reason, it is difficult to find a lawyer who will take a case on a contingency basis against a multi member LLC. Even if a creditor is successful, the potential downside from the tax liability is huge and can be painful.

In Young v. Levy, the 4th DCA ruled that the trial court erred in entering a writ of garnishment upon the member’s interest in a multi member limited liability company because as of 2011 the charging order is the exclusive remedy that a creditor of a member of a Florida multi member LLC can obtain as per Florida Statute 605.433(5).

A Florida multi member LLC is not real asset protection like is available with some of our IPUG Asset Protection Trusts, but the LLC can, in the right circumstances, give you the ability to wait out your creditors and make it expensive for them to try. This, in turn, can give you a great ability to negotiate a favorable settlement.

In many cases, a trust may be a better solution, but that cannot be determined without reviewing your specific circumstances and goals.

It is important to make sure that you are not violating fraudulent transfer or conveyance rules when transferring assets to a Florida multi-member LLC.

A TAP trust is an extremely versatile trust designed to hold a variety of assets. This type of trust helps the grantor avoid needless estate taxes without the restrictions of other trusts.

The TAP trust can hold a variety of assets that include: real estate, stocks, insurance policies, bonds, and a few other business interests. A TAP trust can even own an IRA after the grantors death.

A TAP trust can set up as a grantor, or non-grantor trust. This distinction will decide h A non-grantor trust is taxed like a separate taxpayer with all income directly taxed to the trust at a trust income tax rate. However as a grantor trust, all income is taxed on the personal income tax of the grantor at an individual’s tax rate.

Those who are knowledgeable of estate planning have most likely encountered an ILIT, or an Irrevocable Life Insurance Trust. This trust was designed to hold life insurance policies after a person dies to ensure the funds within the trust were not included in the probate of the estate.

The ILIT can be either a grantor or non-grantor trust. A grantor trust is a trust in which the IRS deems the grantor the owner of the funds for tax purposes. This means all of the income generated by the trust is taxed to the grantor and the trust is spared the tax. This is sometimes ideal because the top tax rate for a trust occurs around $11,000, while the top tax bracket for an individual is only reached at the $450,000 mark.

Traditionally, the ILIT trust was used, along with a few other trusts, to secure a person’s assets through estate planning. The TAP trust is a fairly new trust that provides much more flexibility and convenience for clients because one trust can hold so many different assets. A TAP trust is so flexible it can even be used for IRA planning purposes by acting as the stand-alone IRA trust.

Another great way a grantor can use a TAP trust is to use the trust to make annual gifts to avoid yearly estate taxes. These taxes are avoided by the trust making annual gifts in the amount of the tax exclusion, which is currently $14,000. These gifts should be made to the grantor’s beneficiaries, such as children and grandchildren. In turn, these benefactors should be appointed as trustee of their own separate trust and have the funds deposited there.

The main purpose of the TAP trust is to ensure all gifts made to the trust will be excluded from the grantor’s estate. For more information on TAP trusts and how they can benefit your estate, contact Jacksonville attorney David Goldman today.

Last week, The Supreme Court unanimously ruled that the funds contained in an IRA are not protected from creditors after bankruptcy.

You may need to reevaluate how your estate plan deals with your IRA. If your beneficiaries live in Florida, this may not be a concern because the Florida Legislature has an IRA exemption statute which includes inherited IRAs. As it is difficult to predict where your beneficiaries will live at the time of your death, you may not be able to count on the Florida statutes to protect your beneficiaries.

We have recommended to make an asset protection trust the beneficiary of your trust to protect from the retirement funds from the loss that could be associated with creditors of our client’s beneficiaries (typically their spouse or children). Many have not seen the need for this and as a result, there may be many families using traditional beneficiary designations which place their retirement funds at risk.

Attorney and U.S. Bankruptcy Trustee William Rameker won a landmark case in Clark v. Rameker last week that will fundamentally change bankruptcy law. The Supreme Court Justices held funds contained in an IRA, which were inherited by Heidi Heffron-Clark after her mother died, did not qualify as retirement funds.

The general rule in bankruptcy law is an IRA held by the original owner is considered a retirement fund and is exempt from creditors. Before this case, there was a gray area in the law upon how to treat a non-spousal inherited IRA. This ruling has cleared up the confusion. Now these funds are no longer protected by the retirement exemption.

The court reasoned inherited IRAs do not operate like ordinary IRA’s. Unlike a traditional IRA, a person who inherits an IRA can withdraw funds from it at any time. The owner of an inherited IRA must actually withdraw all the funds or else be required to take minimum distributions on an annual basis. Additionally, the owner of an inherited IRA can never make contributions to the IRA.

Clark inherited the IRA after her mother died in 2001. When she first received the IRA it was worth over $450,000. She took monthly installments from this IRA until 2010, when she and her husband filed for Chapter 7 bankruptcy.

Rameker argued Clark’s inherited IRA, now worth $300,000, was not exempt from creditors under 11 U.S.C. § 522(b)(3)(C) because the funds in an inherited IRA are not “retirement funds.” The Bankruptcy Court agreed with Rameker, but was overturned by the District Court, which felt the law protected any funds that were originally accumulated for retirement purposes.

The District Court was then overturned by the Seventh Circuit Court, who held the differences between an IRA and an inherited IRA were fundamentally different. The most important difference to the Court was that an inherited IRA “represent[s] an opportunity for current consumption, not a fund of retirement savings.”

The Supreme Court agreed and found there was three legal characteristics that lead the Court to conclude funds held in inherited IRAs are not set aside for the purpose of retirement. These reasons included the IRA holder’s inability to invest more money into the account, and the law that requires the holder to withdraw the funds no matter how far from retirement the holder may be.

The Supreme Court reasoned the IRA holder’s ability to withdraw 100 percent of the funds from the IRA at any time without penalty was too dissimilar from a traditional IRA. In a traditional IRA, the holder is penalized a 10 percent tax penalty if he or she withdraws any funds before the age of 59.

How this holding will affect bankruptcy law is unclear as there is now a risk that IRA money left to heirs will no longer be protected from creditors if the beneficiary is in financial trouble. However, in Florida these inherited IRA’s may still be protected from creditors by state law.

Bankruptcy law is constantly changing, and therefore it is important to consult an experienced estate-planning attorney to ensure your estate is secure for your heirs. For more information on IRAs and estate planning, contact Florida attorney David Goldman at (904) 685-1200.

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One of most common topics we discuss with our business and estate planning clients is asset protection. The best time to do asset protection is when you do not have any known or potential creditors. Unfortunately, this is often the least likely time to consider protecting your assets.

Today we have some innovative trusts that provide asset protection without the risks, expenses, and IRS compliance associated with Foreign ssset protection trusts or Domestic asset protection trusts (DAPT). A domestic asset protection trust is a trust created under state statute (not in Florida) which purports to protect the assets while still giving you access to the assets when there are no creditors. Unfortunately many states will not recognize the protections when there are assets which are located in another state. For example if you have your Florida property or bank account in a Nevada or other state’s DAPT, it is likely that a court in Florida may not offer you the protections you have expected.

Unlike a DAPT which relies on another state’s laws, our Florida Asset Protection Trust is an IGAP Trust which is based on statutory and common law principles regarding Trusts and Property and can be structured to protect the principal or principle and income of the property being held by the trust. The IGAP trust has no adverse tax consequences like some trusts do because it is taxed just as if you owned the property yourself. In addition some asset protection trusts lose the ability to increase the basis in the assets to the value at your death, but the IGAP Florida asset protection trust does not have this problem and receives the same tax treatment as if you owned the property yourself.

The biggest difference between property in an IGAP Florida asset protection trust and other trusts or property you own individually is that your future creditors cannot reach the principal or principal and income (depending on how the trust is structured). The IGAP trust can also be used to remove assets from the assets which can disqualify you from Nursing home or other forms of government assistance. A DAPT has a 10 year look back period if you became subject to a voluntary or involuntary bankruptcy while assets in the IGAP trust are not subject to the 10 year loop back period.

Often times asset protection trusts work by having you give up control over the assets and appoint someone else to make decisions on your behalf. With the IGAP, you remain in control and make decisions on buying and selling assets as well as if, when, and to whom assets are distributed.

Because there are no annual fees or additional tax returns associated with a IGAP, it is a very cost efficient option for asset protection and estate planning. Many of you may be familiar with a revocable trust as part of an estate plan. If you think of the revocable trust as your savings account, an IGAP Asset Protection Trust would be your savings account.

If you would like talk about how to start protecting your assets along with and estate planning analysis or a complimentary review of your existing estate plan just contact our office and request our estate planning form. Once you complete it, you can schedule a consultation to discuss your circumstances and goals.

Over the last year I worked with an intern in our office of a Law Review article for Texas Tech University. This article describes problems with current estate planning and takes the premise that most estate planners have become lazy because of advancements in technology. That is, most only ask their clients about issues that their software is capable of addressing. We identify 6 primary areas that are not addressed in most estate plans:

  1. Firearms;
  2. Digital Assets;
  3. Asset Protection;
  4. Life Planning;
  5. Controlling from the Grave; and
  6. Pets

The citation for the article is
David Goldman & Charles Jamison, The Future of Estate Planning: The Multigenerational Life Plan, 5 Est. Plan. & Community Prop. L. J. 1 (2012).
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asset-protection-cash.jpgEach state has different asset protection laws. Florida’s asset protection laws are considered one of the most liberal ones. Therefore, it is a good idea to discuss your case with an estate-planning attorney with expertise in asset protection to take advantage of the liberal asset protection laws of Florida. Florida’s asset protection laws apply to permanent residents and people in other states with property in Florida. Florida’s asset protection laws are based on several legal sources: the Florida Constitution, Florida Legislature, and common law. Courts also establish asset protection through their interpretation of provisions of the constitution, statutes, and common law.

Florida assets protection laws provide many options to protect your assets from creditors. People anticipating substantial civil judgments often move from other states to Florida to become a resident for asset protection purposes. For example, OJ Simpson took advantage of Florida’s asset protection by purchasing a large estate in Florida in part to avoid creditors.

4 Key Asset Protection Exemptions for Florida Residents
1. Homestead exemption: Article 10, section 4 of Florida’s Constitution provides that the homestead is exempt from forced sale under process of any court. In a nutshell, it is nearly impossible for creditors to force the sale of a homestead. Florida’s homestead exemption also protects spouses and children of decedents: a spouse cannot transfer the property by Will if survived by a spouse or minor child.

2. Life insurance and annuities: Florida statutes section 222.14 provides that 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 are not subject 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).

3. Qualified plans, IRAs and pension: These are fully exempt if the federal requirements are met. Florida statutes section 222.21 provides that any money or other assets payable to an owner, a participant, or a beneficiary from, or any interest of any owner, participant, or beneficiary in, a fund or account is exempt from all claims of creditors of the owner, beneficiary, or participant if the fund or account is:

  • a. Maintained in accordance with a master plan, volume submitter plan, prototype plan, or any other plan or governing instrument that has been preapproved by the Internal Revenue Service as exempt from taxation.
  • b. Maintained in accordance with a plan or governing instrument that has been determined by the Internal Revenue Service to be exempt from taxation .
  • c. Not maintained in accordance with a plan or governing instrument described in point a or b, if the person claiming exemption under this paragraph proves by a preponderance of the evidence that the fund or account is maintained in accordance with a plan or governing instrument that is in substantial compliance with the applicable requirements for tax exemption or would have been in substantial compliance with the applicable requirements for tax exemption but for the negligent or wrongful conduct of a person or persons other than the person who is claiming the exemption under this section

4. Prepaid tuition and medical savings accounts: Florida’s asset protection laws protect assets in qualified tuition programs, medical savings account, Coverdell education saving account, and hurricane savings account (Fla. stat. § 222.22).

For a Florida estate planning attorney with experience in asset protection law, call the Law Office of David M. Goldman PLLC at (904) 685 – 1200 or click the “Contact Us” tab at the top of this page.

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