Florida Asset Protection Blog

Blog Vacation

This Blog will be on vacation until October 2, 2005

Tenants By Entireties Under New Bankruptcy Law

The new bankruptcy law effective October 17, 2005, makes it much harder for people to move to Florida and proceed immediately to file bankruptcy. Under the new law a person has to be resident of Florida for two years to take advantage of Florida’s liberal bankruptcy exemptions. There is no waiting period for protection against civil judgments outside of bankruptcy court. There is an important exception to the two year waiting period for Florida exemption protection in bankruptcy, and that exception is the protection afforded to assets owned jointly by husband and wife as tenants by entireties when just one spouse files bankruptcy

Florida common law, established over the years by consistent court decisions, holds that property owned by spouses jointly as tenants by entireties is protected from the creditor of just one of the spouses. Tenancy by entireties is not a statutory protection from creditors; it is a common law protection that is based on how Florida courts define marital property. The two year waiting period for bankruptcy exemptions under the new bankruptcy law applies to Florida’s statutory exemptions, but the waiting period does not apply to how Florida or any other state defines property interest and the consequences of property concepts for creditor collection. Therefore, as soon as a person becomes a Florida resident his property interest are defined under Florida law. Bankruptcy law respects the property laws of individual states. Therefore, even under the new bankruptcy law, a married debtor who moves to Florida and purchases jointly owned property with his spouse should have such joint entireties property protected in bankruptcy regardless of when he files for bankruptcy protection.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Does Moving to Nursing Home Forfeit Homestead Protection?

Does an elderly person lose homestead protection when they move out of their house and in to a nursing home? I received a phone call from a lady whose father had moved into a nursing home when there already was a judgment for unpaid alimony owed to his ex-wife. The daughter asked if the father’s home was still protected from the judgment, and if not, could the father deed the home to the daughter and her brother.

A Florida resident does not lose homestead protection when he moves out of his residence as long as he intends to return to the house. When a person moves to a nursing home or assisted living facility the move is usually permanent, but not necessarily permanent. Whether the person intends to return to his former home is an issue of fact. It is difficult to show the debtor’s intent to return when the debtor suffers from incapacity sufficient to warrant full time care. At some point soon after the move into the nursing facility the former home will in most cases lose homestead protection. Whereas younger adults often relocate for jobs or for education in locations far away from Florida on a temporary basis, moving to a full time care facility is usually irreversible.

In this type of fact situation, if the parent deeds the home to his children while it is homestead property the deed would not be a fraudulent conveyance, even if intended for creditor protection, because the homestead already is exempt property. The transfer of exempt property to a third party cannot be a fraudulent conveyance. If a person deeded the house to children shortly after moving to a nursing facility the transfer may survive if the family could show that at time of the transfer the debtor/ parent had not yet decided to remain permanently in the nursing home (assuming he is capable of explaining his intentions). Each week of residency outside the house in a full time care facility makes defense of the homestead more difficult and increases the likelihood that a deed to other family members will be reversed.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Is Money Reserved To Repair or Improve Future Homestead Protected?

A reader sent me an email asking if proceeds from the sale of a homestead property would be protected in a bank account if the money were being saved to repair and improve a new property that the reader intended to occupy as homestead when repaired. The property presently was not in liveable condition

I don’t know of any cases on this point. Proceeds from the sale of a homestead retain homestead character and their creditor protection if the proceeds are deposited in a financial institution and are earmarked for the purchase of a replacement homestead in a reasonable time. When a replacement homestead is purchased a large lump sum of the sale proceeds are applied at one time to obtain the new residence. Remaining proceeds from the sale of the prior property would then lose their protection after the purchase. The repair and improvement of new property can be an extended process ; there is no “closing” as there is with a home purchase. A debtor could always argue that cash on hand is reserved to repair or improve his homestead. Because the repair and improvement process is indefinite compared to a purchase I think a court would not extend homestead protection to cover funds reserved to repairs and improvements. Secondly, in the hypothetical fact situation there was not homestead suitable for occupancy when the sale proceeds were deposited. Court have not extended homestead protection to properties not yet ready for occupancy, then money reserved to purchase or build such future homesteads is not protected by homestead law. Although courts liberally interpret homestead protection I think that more likely than not money set aside to repair a property to the point where it would be ready for occupancy would be subject to creditor claims.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Trust Protector For A Living Trust

I read a living trust agreement which attempted to use a “trust protector” in addition to a trustee for reasons including asset protection. Trust protectors are common in offshore trust planning designed primarily for asset protection. Trust protectors are less common in living trusts designed usually for estate planning and probate avoidance. This particular trust agreement included a trust protector whose stated powers included transfer of assets owned by the living trust to any other trust created for the benefit of the living trust beneficiaries regardless of who created the other trust. For example, if the trustmaker’s parents or grandparents had themselves created an irrevocable or testamentary trust for the benefit of the settlor of the living trust, which other trust included asset protection provisions such as a spendthrift clause, the trust protector had the power to transfer all living trust assets to the other asset protection trust. Presumably, the maker of the living trust would argue that there was no fraudulent conveyance because the transfer was done by the trust protector without the consent or participation of the trustmaker.

I don’t know of any case which determined whether a conveyance by a trust protector of a living trust could be a fraudulent conveyance. In my opinion, this plan would not survive a creditor attack on the conveyance. The principal reason is that the office of trust protector and the appointment of the protector was made by the maker of the living trust for his own benefit. The trust protector is in a sense an agent of the trustmaker, and the actions of the trust protector would be deemed to be acts of the trustmaker. The plan might have a better chance if the trust protector’s conveyance to another trust was adverse to the interest of the trustmaker. However, most people would not have in a living trust a trust protector who had the ability to take actions with respect to the trust and trust property which were not in the interest of the trustmaker . In any event, the use of a trust protector in a living trust is a creative tool some asset protection to give a living trust which otherwise has no asset protection benefits.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Charitable Bankruptcy

Many people will be filing bankruptcy between now and October 17, and some of these debtors will go into bankruptcy knowing they have some non-exempt property which will be taken by the trustee for the benefit of their creditors. One such prospective bankruptcy filer told me last week that he had over $1,000 of liquid assets which he was prepared to surrender to his creditors in bankruptcy. The person asked me if it was permissible for him to sell his assets (in this case, stock) and donate the proceeds to the Katrina victims.

I advised the client that the donation could be seen as a fraudulent conveyance which, in theory, could be overturned or could be used to challenge his bankruptcy discharge. However, I further advised that, in practice, I do not think his donation would be challenged. A bankruptcy trustee is unlikely to sue the Red Cross to return this type of donation. Also, I suspect a bankruptcy court would find it difficult to punish a person for this type of selfless act. In general, a debtor is free to spend non-exempt money on personal consumption provided he does not purchase non-exempt assets. Florida courts have held that a debtor may gamble money rather than give it to his creditors. A donation of money that would be forfeited in bankruptcy is a creative way to apply the funds for someone else’s benefit, even if that someone is a stranger rather than a creditor.

For those rushing to file bankruptcy prior to October 17, you can consider liquidating non-exempt property and donating that property to the hurricane victims.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida