Florida Asset Protection Blog

Not All Retirement Plans Are Protected

Retirement plans that are established under a body of federal law referred to as ERISA ( Employee Reitement Security Act of 1974) are protected from creditors pursuant to Florida Statute 222.21. These protected plans include most profit sharing plans, money purchase plans, 401(k) plans, 403(b) plans to which employers make contributions and defined benefit plans. Traditional IRAs and Roth IRAs are asset protected. However, retirement plans that only cover owner-employees are generally not protected from creditors by Florida statutes. Additionally, church plans, government plans, and many deferred comp plans may not be protected.

Supercharged Creditors

There are some creditors against whom asset protection is extremely difficult. These creditors include government agencies such as the IRS, SEC, and FTC, and your spouse. Government creditors are provided by Congress with extraordinary collection remedies. A federal agency can often lien property or freeze accounts without warning and without posting a bond if they suspect you of wrongdoing. Essentially government creditors can attack suspected wrongdoers like the mob in an old western movie, "lets hang 'em and then we'll try 'em." Even the most sophisticated offshore planning and moving cash to offshore accounts is not a foolproof asset protection against the government. The other creditor with powers far beyond those of mortal civil creditors is your spouse. Marital courts are have powers of equity, which means in this context, the judge can give whatever property you have to your spouse as part of a separation decree even if the asset is otherwise protected from civil judgment creditors.

In addition there are some severe federal penalties for people including attorneys who assist someone protecting assets from federal government creditors or for assisting people in hiding assets from the government.

College 529 Plans

529 Plans are named under the section of the IRS code that creates and regulates them. These plans provide for a way for a parent or grandparent to invest and save for a child's education. Protection of these plans under Florida law depends on where the money is placed. If you invest in a 529 Plan located in Florida the fund is probably protected under Florida Statute 222.22 pertaining to prepaid college trust funds. There are no definite court decisions interpreting this exemption. However, if your 529 Plan is created under the laws of a different state, such as a plan qualifying as a Georgia 529 Plan, your plan may not protect you as a Florida resident against your creditors. Each state's 529 Plans have different rules and investment options. You may choose a plan which is better for investment purposes under the laws of a different state and by doing so forfeit asset protection of plan proceeds. Be careful to weigh investment opporunties of plans in a different state with the asset protection benefits of a 529 Plan created under Florida laws.

Can Parent's Gift to Child Be Protected From Child's Creditors?

I recently saw a question concerning a parent who wanted to give money to a child, but where the child had judgment creditors due to the child's failed business. The parent wanted suggestions how to give money to help the child without the gift being seized by the child's creditors.

A few suggestions come to mind. First, the parent could fund an annuity for the child. The child's interest in the annuity is exempt from creditors under Florida statutes. The annuity could be purchase from an insurance company or the parent could create a private annuity. Both are protected. Second, the parent could create and fund a trust for the child's benefit with an independent trustee. The trust agreement could provide that money be distributed to the child or for his benefit, but specifically prohibit any distribution to the child's creditors. If the trust agreement were otherwise properly drafted, the money should be protected from the child's creditors.

Beware Offshore Tax Scams

An Utah man will spend 10 years in federal prison for scamming more than 50 investors out of nearly 15 million dollars. Kirk Koskella was sentenced earlier this month in Utah for his role in setting up honey "offshore trusts" in the 90's to reduce tax liability for investors in several states. Koskella is the first of eight people charged in the Ponzi-type scheme to be sentenced.

The story illustrates, once again, the offshore trust planning should not be used to hide money from the IRS or as part of any attempt to reduce income tax liability.

Physicians Dropping Ins. Article

Another article about doctors dropping malpractice insurance in today's (March 23, 2004) Wall Street Journal in the Personal Business Section. Article says doctors are trying to get patients to waive their right to file "frivolous lawsuits". Also, physicians have threatened to file counter-claims against any patient who files lawsuit against them in order to intimidate patient and to delay the plaintiff's progress through the courts. Once again, Florida was identified as one of the problem states.

Debtor Defeats Fraudulent Transfer Claims

It is possible to successfully defend allegations that you fraudulently conveyed assets to avoid creditors. Take the case, for example, of Thomas J. Meyer who filed bankruptcy in the case of In re Meyer, 2004 WL 527860 (Bkr. N.D. Ill). The bankruptcy trustee alleged Meyer conveyed assets to his wife within one year of filing bankruptcy to evade creditors and the bankruptcy trustee. Mr. Meyer said the transfers were part of estate planning and were done on the advice of his estate planning attorney. The court found in Mr. Meyer’s favor. The court said that the bankruptcy trustee had to prove that Mr. Meyer intended to make transfers to defeat creditors. As matter of fact, the court was convinced that the reason Mr. Meyer transferred assets to his wife was because his wife had just lost her job and had become pregnant; the transfers were designed to protect his wife financially by putting sufficient assets in her name. The judge also accepted Mr. Meyer’s explanation that the transfers were made in part upon the advice of his estate planning attorney who suggested balancing the ownership of assets between Meyer and his wife. Also, the court noted that all transfers were fully disclosed on the debtor’s bankruptcy schedules which showed good faith. The court did not find sufficient evidence that Mr. Meyer’s transfers of non-exempt assets were designed to hinder, delay or defraud his creditors.

Supreme Ct: no liability for fraudulent transfer

In May, 2003, The Eleventh Circuit Court of Appeals certified to the Florida Supreme Court the question of whether under Florida's Uniform Fraudulent Transfer Act or FUFTA there is a cause of action for aiding and abetting a fraudulent transfer when the alleged aider-abettor is not a transferee. The Supreme Court's unanimous answer in Lewis B. Freemen, etc., et al., vs. First Union National Bank ( decided January 29, 2004 ) was an unqualified “No.”

After considering legislative intent, the Supreme Court stated that, There is simply no language in FUFTA that suggests the creation of a distinct cause of action for aiding-abetting claims against non-transferees. Rather, it appears that FUFTA was intended to codify an existing but imprecise system whereby transfers that were intended to defraud creditors were to be set aside. The Court further stated, “Consistent with this analysis we conclude that FUFTA was not intended to serve as a vehicle by which a creditor may bring a suit against a non-transferee party (like First Union in this case) for monetary damages arising from the non-transferee party=s alleged aiding and abetting of a fraudulent money transfer.

This unanimous decision impacts all lawyers, accountants, bankers, and any other person who provide services to people transferring their assets. While Freeman v. First Union involved a banking institution, its legal principles apply to any situation where a client=s asset transfers elicit a claim under Florida's Uniform Fraudulent Transfer Act. Lawyers, accountants and others whose client is, or may become, a debtor cannot be held liable for simply aiding and abetting their clients’ asset transfers found to be reversible under the FUFTA. Freeman v. First Union is another milestone in the ongoing balancing of creditor remedies and debtor rights under Florida law

Newsweek Cover Story on Asset Protection

In December, 2003, Newsweek Magazine ran a cover story on the lawsuit epidemic in the United States. The fear of lawsuits demonstrated in this article underlines the need for asset protection planning. The following is a quote from the introduction in this article.

“Americans will sue each other at the slightest provocation. These are the sorts of stories that fill schoolteachers and doctors and Little League coaches with dread that the slightest mistake—or offense to an angry or addled parent or patient—will drag them into litigation hell, months or years of mounting legal fees and acrimony and uncertainty, with the remote but scary risk of losing everything. And while lawsuits can be a force for good, they are also changing and complicating the lives of millions of American professionals in ways that confound common sense and cast a shadow over a system that can, at its best, offer people relief and redress from legitimate grievances “

People concerned about asset protection should read this article; you are not alone.