Financial Planners and The Florida Asset Protection Trust

The Florida Asset Protection Trust.

Most financial planners are unfamiliar with some of the modern twists available with Florida Asset Protection Trusts.  This is a special type of irrevocable trusts.  They tend to be familiar with the older style of irrevocable trust that can pose several problems for those who use them. These problems include:

  1. Loss of control over the management of the assets;
  2. A separate EIN number for tax reporting purposes;
  3. A larger tax bills because of the way traditional irrevocable trusts are taxed;
  4. A loss of the step up in basis available to assets owned by an individual upon the death of the settlor; and
  5. The inability to change provisions or beneficiaries in the future.
  6. The inability to transfer the ownership of insurance, annuities, life insurance and other securities.

While our Florida Asset Protection Trust is an irrevocable trust, this trust does not have any of the traditional problems that are discussed above nor it is a “self-settled trust” as defined by the IRS.  Because the Florida Asset Protection Trust is not self-settled, there is no 10 year lookback on transfers in the case of a bankruptcy. The Florida Asset Protection trust that we use is an Irrevocable Pure Grantor trust  (IPUG™). With this special type of Florida Asset Protection trust many of the advantages  and flexibilities that are traditionally only found with a revocable trust can be provided while maintaining the strong asset protection that can only be accomplished with an irrevocable trust.  Some may ask, why should we use an irrevocable trust instead of a revocable trust.  Here is a summary of the reasons that our Florida Asset Protection trust is superior to the traditional revocable trust and does not pose the problems that a traditional irrevocable trust presents:

  1. This is a grantor trust that you create and are in control of.  No beneficiary ever has a right to demand a distribution of income or principal during your life.
  2. The trust provides asset protection from future liability like car accidents, professional or personal negligence, and even can be structured to provide protection from Medicaid ineligibility.
  3. The trust is a disregarded entity for tax purposes and uses your social security number.  This means you are taxed just like as if you owned the assets yourself.
  4. You can transfer other assets owned in your own name like annuities, life insurance, bonds, and all types of securities, personal property and real property into the trust without the creation of a taxable event because the trust uses your own social security number.
  5. The trust does not remove assets from your estate so your beneficiaries receive a full step up in basis upon your death, just like with personally owned assets or those in a revocable trust.
  6. The assets in this trust are protected from the surviving spouse’s future marriage in much the same way that a prenuptial agreement would protect the assets.
  7. The trust can be designed to protect the assets from loss by the surviving spouse or other beneficiaries in the case of illness, injury, incapacity, or health related issues.
  8. The assets in an irrevocable trust may be designed to protect from an elective share claim in the future.
  9. You can change the beneficiary at any time without risking loss of the assets to creditors.
  10. The trust has special provisions to protect inherited IRAs from the claims of creditors.  (A recent Supreme Court case held that inherited IRAs are not protected from creditors)
  11. All assets that can be transferred to a revocable trust can be transferred to an Florida Asset Protection trust without penalties or termination because it is a grantor trust and uses your own social security number.
  12. The Florida Asset Protection trust can contain trust protectors that enable changes to the documents if the laws change in the future, in much the same way as one would have with a revocable trust.  Often in joint irrevocable trust, changes cannot be made after the death of the first spouse, but even with a joint Florida Asset Protection trust, changes can be made after the death of the first spouse through the trust protector.

As you can see there are some major advantages to using a Florida Asset Protection trust instead of or in conjunction with a revocable living trust.  These should permit financial planners to have greater flexibility with investing their clients’ funds without the risk of loss to creditors or the severe investment limitations that are necessary to offer a reduced level of protection to their clients through annuities and life insurance options.

The Florida Asset Protection Trust is a great tool for estate planning, asset protection, protecting from risks of loss from the surviving spouse and the risks of loss from the eventual beneficiaries. Given all the advantages to the Florida Asset Protection trust over a traditional revocable trust, financial planners should embrace this powerful modern twist to traditional estate planning without fear of the restrictions on a traditional irrevocable trust.

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