Irrevocable Trust in Florida – a Powerful Tool for Protecting Your Assets

An irrevocable trust in Florida can help you meet your estate planning and asset protection goals, such as:

Qualify for Medicaid – An irrevocable trusts in Florida may be able to help you qualify for Medicaid, including home care and nursing home coverage.

Protection from creditors and lawsuits. A properly executed and funded irrevocable trust in Florida will shield the principal of the trust from creditors and lawsuits.

Avoiding Probate – Probate proceedings can become expensive and delayed. Property that you will transfer to a trust will not have to go through probate.

Protection from your children’s spouses and creditors. You may not want any of your hard-earned assets to go to your child’s spouse, whether in divorce or as an inheritance. You do not want any of the assets you give to your child to go to your child’s creditors, whether as a result of a lawsuit or in bankruptcy.

Maintain Privacy – Proceedings in probate court are public record. Any person or organization will be able to find out the extent and location of your assets. Not so with trusts.

Avoid Multiple-State Probate Proceedings – If you have property in multiple states, you can avoid ancillary probate proceedings by transferring your property into an irrevocable trust in Florida. Upon your death, the property will pass according to the trust and multi-state Surrogate’s Court proceedings will not be required.

Protection from irresponsible beneficiaries. An irrevocable trust in Florida can provide limits on how your beneficiaries can spend the assets. For example, you can specify amounts upon reaching a specified age.

Avoid Interruption of Income and Use of Assets – A trust provides for the continuity of management of your assets, and avoids interruption of income and use of assets upon your death or disability. Without a trust, your estate or business may be subject to restrictions imposed by the probate court.

Provide Planning for Mental Disability – A trust lets you select a trustee – someone you trust to manage your estate on your behalf in the event you become unable to do so yourself. Read more in Planning for Disability.

Save Money on Estate Taxes – Trusts can help you legally save a substantial amount on estate taxes. Read How to Minimize Estate Taxes to learn more about the credit shelter trust the life insurance trust. A “QTIP” trust or a QDT trust for the benefit of your spouse can further your tax savings goals.

A Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT) will help you maximize your tax advantage per charitable dollar and can help you minimize capital gains taxes. A Grantor Retained Annuity Trusts (GRAT), an Intentionally Defective Grantor Trusts (IDGT), or a Unitrust are advanced trusts that remove appreciation of your property from your estate. Read more in Advanced Estate Planning.

Revocable vs. Irrevocable Trust in Florida

An irrevocable trust in Florida cannot be revoked once established. However, the state of Florida has one of the most flexible irrevocable trust structures in the country. In most states, there is difficulty in modifying irrevocable trusts. However, in Florida, both Florida Statute (Chapter 736) and common law provide for ways to terminate and modify irrevocable trusts. A good Florida lawyer can help you structure an irrevocable trust that still allows you to retain some control over the trust assets, but would still be considered an irrevocable trust for purposes of asset protection.

Based on the name itself, a revocable trust is one that can be revoked. An irrevocable trust is one that is not revoked. However, in order to understand whether a trust is revocable or non-revocable, the provisions must be scrutinized. A revocable trust is a trust that can be modified by the grantor alone during his lifetime. In contrast, an irrevocable trust in Florida is a trust that a grantor, alone, cannot modify during his lifetime. Generally, when the trust contains language giving the grantor the power to change the trustees and beneficiaries, it is revocable during the lifetime of the grantor because he retains control over the trust assets. A revocable trust is not a useful tool for asset protection.

Terminations of Irrevocable Trust in Florida

Under Chapter 736 of the Florida Statute, irrevocable trusts in Florida can be terminated non-judicially through unanimous agreement of the trustee and all qualified beneficiaries. F.S. 736.0412. Qualified beneficiaries are current beneficiaries, intermediate beneficiaries, and first-line remainder beneficiaries, whether vested or contingent. F.S. 736.0103(16). Under Florida common law, an irrevocable trust may also be terminated by agreement of the settlor and all beneficiaries, even when the trustee opposes. Demircan v. Mikhaylov, Nos. 3D18-2054 & 3D18-1684.

Judicial termination of irrevocable trusts, on the other hand, can be made, in whole or in part, on the following grounds: (a) the purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impractical to fulfill; (b) because of circumstances not anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust; or (c) a material purpose of the trust no longer exists. F.S. 736.04113(1).

Other grounds for terminating a trust are: (a) termination by trustee (F.S. 736.0414(1) or court (F.S. 736.0414(2)) if the trust assets are below $50,000 and the value of the trust property is insufficient to justify the cost of administration; (b) if the trust was created through fraud, duress, mistake or undue influence (F.S. 736.0406); (c) merger of interests when the trustee and the sole beneficiary become one person.

Modifications of an Irrevocable Trust in Florida

Aside from termination, Florida irrevocable trusts may also be modified, unlike in other states. Florida allows the trustee to modify an irrevocable trust out-of-court by transferring the trust assets to another irrevocable trust, subject to strict requirements and conditions. F.S. 736.04117. An irrevocable trust’s provisions can also be modified using a Special Limited Power of Appointment, granting a “trust protector” certain rights. The beneficiaries can also modify a trust by replacing the trustee.

Different Types

The type of irrevocable trust that would suit a person would depend on the purpose for creating an irrevocable trust. A different trust is required for someone who’d like to keep his assets away from creditors as opposed to someone who would like to put his assets in a trust in order to be eligible for Medicaid. Different types of Florida irrevocable trusts are: (a) qualified income trusts which are used for Medicaid income problems; (b) special needs trust which provide protection for Medicaid benefits; (c) pooled trusts which is another type of special needs trust; (d) irrevocable asst protection trusts which protects one’s assets from the nursing home or other creditors; and (e) irrevocable life insurance trusts.

Self-settled vs. Non-self-settled

A self-settled irrevocable trust is a trust created by the grantor who designates himself as a beneficiary. Because the beneficiary is the grantor, the trust assets are used for his benefit, and under the maximum permissible distribution rule in F.S. 736.0505(1)(b), the creditors can still reach the maximum amount of the beneficiary’s beneficial interest, even if there is a spendthrift provision. A spendthrift provision is a clause in the trust prohibiting the garnishment of a beneficiary’s interest in a trust, save for a few special creditors (such as a child for child support claims, ex-spouse for alimony, professionals who have provided services for the beneficiaries, and the government).

As an example, if the trust provides that the trustee has the discretion to give the beneficiary as little or all of the trust assets as the trustee sees fit, the creditors can garnish 100% of the trust assets. If the trust instrument limits the trustee to giving a distribution of $10,000 a year to the beneficiary, the beneficiary’s creditors can only garnish $10,000 a year, the maximum amount permissible to be given to the beneficiary every year. For this reason, a self-settled trust is not a useful tool for asset protection.

A non-self settled irrevocable trust, on the other hand, is an irrevocable trust established by a grantor for the benefit of someone else. The beneficiary can be anyone but the grantor. Even if the trustor is the trustee but he is not the beneficiary, the trust is still considered non-self settled irrevocable trust. Because the grantor in a traditional irrevocable trust loses control over and does not equitably benefit anymore from the trust assets, the irrevocable trust is a useful tool for asset protection. For as long as creditors cannot prove that the transfer to the irrevocable trust was made in a fraudulent conveyance to evade payment of obligations to creditors, the assets in the irrevocable trust cannot be attached by the grantor’s creditors. If the irrevocable trust contains a spendthrift clause, then the beneficiary’s creditors cannot also attach the trust assets or income. Once a distribution is made to the beneficiary, however, this distribution can already be garnished.

Florida Asset Protection Trust

The Florida Asset Protection Trust (FAPT) is a non-self-settled irrevocable trust that provides the grantor a level of control over the trust assets but is still regarded as a useful tool for asset protection from creditors. The FAPT is a product of Florida’s flexible irrevocable trust statutes together with an established body of jurisprudence regarding the validity of Special Limited Power of Appointments.

In a traditional irrevocable trust, the trustor loses power of control over the trust assets. In the FAPT, the grantor transfers the assets to a trustee for a benefit of a third-party beneficiary. The beneficiary could be his wife, his children, or any third person, for as long as the beneficiary is not the grantor. The grantor can be the trustee but he cannot be the beneficiary.

When the grantor is the trustee and makes his wife or child as beneficiary, the grantor is able to control and use the trust assets and income for his own living expenses using him as the trustee and his wife as beneficiary, while still having those trust assets free from attachment from the grantor’s creditors.

When a grantor gets a divorce, however, in a traditional irrevocable trust, he cannot change his ex-spouse as his beneficiary. In FAPT, the grantor can appoint a third person called a trust protector under a Special Limited Power of Appointment to change the beneficiaries or transfer the trust assets to another trust. The grantor can even put himself as a beneficiary in the list of people the trust protector can name as beneficiaries. Under F.S. 736.0103(4) a permissible appointee in a power of appointment is not considered a beneficial interest. The grantor can even stipulate that the trust protector can only change the beneficiaries with the approval of another third person, for example, the grantor’s brother.

As an example, if John, the grantor, creates an irrevocable trust putting his wife, Jean, as beneficiary, John can still control the trust assets by naming himself as trustee. The trust assets, in this case, will be exempt from the creditor’s attachment because John is not listed as a beneficiary. However, John can be faced with an extraordinary situation where his wife would divorce him. In a traditional irrevocable trust, John cannot modify the trust naming his beneficiary as his wife. In FAPT, however, John can appoint a friend, Peter, to be a trust protector under a Special Limited Power of Appointment. As trust protector, Peter can modify the trust by moving the trust assets to another trust or changing the names of the beneficiaries (except to the name of the trust protector) to a group of beneficiaries named by John, which can include John himself upon the occurrence of certain conditions (for example, divorce). So in the case of divorce, Peter can modify the trust by changing the name of the beneficiary from John’s wife, Jean, to John. In fact, another level of protection can even be placed in the FAPT, where Peter can only change the name of the beneficiary from John’s wife, Jean, to John’s child, Sarah, with the consent of another third person, John’s brother. With an intelligent drafting of clauses in the trust, the Florida Asset Protection Trust can provide a grantor with control over his assets and at the same time, exemption of the trust assets from creditors.

A Florida asset protection trust should be drafted properly to ensure that the grantor is given a level of control over the assets, and yet has his trust assets protected from creditors. It is always best to consult with a Florida attorney to ensure the proper drafting of the irrevocable trust to avoid costly mistakes or problems that could arise in the future.

Get in Touch with Us

Should you need to use a trust for asset protection, Medicaid eligibility, or any other reason, we, at the Law Offices of Albert Goodwin, are here for you. Our lawyer, Albert Goodwin, is licensed to practice in Florida and New York. You can call us at 1-800-600-8267 or send us an email at [email protected].

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