Florida Asset Protection Blog

Article on Florida Homestead

The November issue of the Florida Bar Journal includes an excellent article onFlorida's homestead protection in light of the new bankruptcy law. Link: Bar Journal Article. Most of the points in the article were made at one time or another in posts to this blog. The article is a comprehensive summary of these issues and is important for anyone considering investing in homestead as part of asset protection planning

Random Homestead Questions

A few homestead questions I received this week which may be of interest to people considering moving to Florida. One reader asked whether the purchase of a house for an imminent move to Florida locks in Florida residency and homestead protection of that property. The answer is no. As I have written many times on this blog, you must actually occupy a house as a primary residence to achieve Florida homestead protection.

Another reader asked whether he had homestead protection of a residence he owned jointly with another family member. The answer is yes. Whatever interest you have in your homestead, legal or equitable, full or partial ownership, is protected from creditors. This reader had legal ownership up to 50% of the house’s value, and that ownership interest was under homestead protection.

Last, a reader wanted to know whether he can sell his homestead and reinvest sale proceeds in a protected annuity. This is a more complicated question. Once you sell your Florida homestead the proceeds are protected if you plan to reinvest money in a new Florida home in a reasonable time. If you deposit the proceeds in a non-exempt financial account with no intent to reinvest in a new Florida home, the proceeds are likely not exempt from creditors as soon as they are deposited. If a debtor with foreseeable legal problems deposited homestead proceeds into a non-exempt account, and the same funds were later used to purchase an annuity a creditor would have a strong argument of a fraudulent conveyance. I think the debtor would have a better defense if the annuity were identified prior to the sale closing, and the debtor purchased the annuity directly from closing assigning funds due seller to the insurance company.

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

Can an Irrevocable Trust Own Homestead Property?

I received an email asking whether the homestead provisions of the Florida Constitution would protect a residence owned by an irrevocable trust where the debtor had deeded a house into the trust and remained the trustee and one of the beneficiaries. The Constitution protects residences owned by natural persons. Previous blog posts discussed whether a homestead can be owned by a revocable living trust, or whether conveyance to a living trust forfeits homestead protection. Although there is a case which denies homestead protection to a property owned by a living trust, most courts have protected a residence in a living trust.

A living trust is closer to a “natural person” than is an irrevocable trust. One key factor which makes a living trust created for estate planning equal to ownership by a natural person is the settlor’s retained rights to revoke or amend the trust. Transfer to a living trust is not deemed to be a completed gift to the trust beneficiaries whether they be the settlor himself or other family members. A irrevocable trust, by its name and nature, is a completed gift to beneficiaries; the trust can not be undone and the settlor, for the most part, cannot amend the trust agreement. Even where the settlor resides in the trust property and is the sole beneficiary of the irrevocable trust, property ownership by an irrevocable trust is more easily distinguishable from ownership by a natural person than is property ownership in a revocable living trust.

In my opinion, owning a residence by a living trust should not undermine homestead protection. I suspect that a court would not afford homestead protection to an irrevocable trust, even if the settlor lives in the property and is the sole trust beneficiary.

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

Means Testing and Business Debts

The new bankruptcy law imposes a “means test” to determine if certain debtors are eligible to file Chapter 7 bankruptcy. Only debtors who, according to the means test formula, lack the ability to repay substantial portion of their debts may file Chapter 7.

Most people do not yet understand that the means test applies only to consumers. Consumers for bankruptcy purposes are people whose debts are primarily consumer related. People who incur most of their debts from business are not subject to the means test, and they may file for Chapter 7 without application of the means test formula. People who find themselves insolvent because they borrowed money on credit cards to support a business or an investment, or people who seek bankruptcy protection from personal liability on business related debt can file Chapter 7 under the new bankruptcy law regardless of means test standards.

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

Can Federal Agency Freeze Exempt Assets?

I have previously written on this blog that Florida asset protection planning is often less effective against actions by Federal agencies such as the IRS, FTC etc. Federal agencies often have statutory authority to take preemptive collection actions against targets of their regulatory actions beyond the powers afforded commercial creditors in Florida state courts.

I received an inquiry from a reader who was involved in a legal dispute with the Commodities Future Trading Commission (CFTC) before a federal court in a state other than Florida. The reader stated that prior to their getting a court judgment the CFTC had frozen financial accounts in Florida owned by the reader and his wife as tenants by entireties (TE). The reader’s wife was not a party to the CFTC action. TE assets are immune from civil judgments against either spouse individually under Florida common law. The reader questioned how the CFTC could freeze his protected TE account in Florida before the CFTC even had a final judgment in the CFTC proceeding.

The reader said his CFTC attorney told him the agency had authority to freeze bank accounts. The issue is whether this or any other Federal agency can freeze an account preemptively which account under Florida law is not owned by the defendant and is immune from civil process. The reader did not retain me to research the issue so I don’t know if there are cases on this point, and therefore, I cannot offer now a definitive answer.

The point of this post is to illustrate to enforcement and collection power of federal agencies. Compared to creditors in typical civil disputes federal agencies have more remedies, more powers, and are usually more aggressive in pursuing defendants’ assets even before they prevail in their federal litigation. Florida civil courts rarely freeze defendant assets prior to judgment, and even then, the Florida courts would respect Florida exemption law (except in some cases of obvious fraudulent conveyance). Federal agency litigation poses more serious and immediate threat to otherwise exempt assets.

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

Florida Bar News Article on Law Blogs

The Florida Bar News is a professional publication which is mailed to all lawyers in Florida. This month's issue featured on the front page an article about legal blogs titled "Lawyers in Blogland."Link: The Florida Bar News - Current Issue.

The Florida Asset Protection Blog is one of the blogs featured in this article. The article discusses a wide variety legal topics covered by specialized law blogs in Florida and in other states around the country.

Florida Judge Upholds Homestead Cap

A prior blog post reported that an Arizona bankruptcy judge had ruled that because of a glitch in drafting the new bankruptcy law the $125,000 cap on homestead protection under the new law applied only in two states: Texas and Minnesota. Under the rationale of the Arizona decision bankruptcy debtors in states such as Arizona and Florida continued to enjoy unlimited homestead exemption in bankruptcy courts.

In an oral ruling late September a judge in the Southern District of Florida reached a contrary decision. The judge concluded that no rational person could reasonably believe that the Arizona decision reflected the intent of Congress in drafting the new bankruptcy law. The Florida judge refused to follow the reasoning of the Arizona bankruptcy court, and he upheld the new law’s $125,000 homestead limit. Other bankruptcy judges in Florida have heard argument on this issue in different cases; their future rulings should clarify the law in Florida.

In re Elona Caplan, Case No 05-14491-RAM

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

Hurricane Savings Accounts

Florida’s most important statutory exemptions, such as salary for head of household, annuities, and retirement funds, have been in place for a long time. From time to time the legislature adds additional, relatively small, categories of protected assets. A recent addition to Florida’s list of assets protected from creditors are “hurricane savings accounts” now protected under Florida statute 222.22 4 (b). The statute defines a hurricane savings account as an account owned by the owner of homestead property up to twice the amount of an insurance deductible or other uninsured portion of the risk of loss from a hurricane, windstorm, or flood. The statutory protection is available only when the federal government provides tax-exempt or tax-deferred status to such accounts.

Avoiding Documentary Tax on Real Estate Transfers

Previous posts in this Blog discussed the recent Florida Supreme Court decision on the documentary stamp tax in the Crescent case. Documentary stamp tax (“doc stamps”) are important for Florida asset protection planning because this tax is potentially assessed whenever a person conveys property titled in his individual name into an asset protection entity wholly owned by the same transferor. The Supreme Court held that no doc stamps are chargeable on the transfer of real estate owned free and clear to a wholly owned transferee with no monetary consideration. Where the property transferred is subject to a mortgage loan, doc stamps must be paid on the amount of the mortgage balance at time of transfer.

An article in the October issue of the Florida Bar Journal suggests a broader application of Crescent case holding. The article states that not only can doc stamps be avoided in liability protection transfers, but it is also possible to structure a sale for full value to an unrelated third party so that doc stamps are not imposed. Again, the plan assumes no mortgage on the property.

Here is the hypothetical plan suggested in the Journal article. Assume a seller and buyer enter into a sales contract to sell a property for $5 million. To avoid doc stamps, the parties structure the deal as follows: (1) Seller contributes the property to a wholly owned, single member limited liability company (no doc stamps under the Crescent ruling); (2) Seller sells all LLC membership interest to the buyer for $5 million (no doc stamps because its not a sale of real property; (3) Buyer dissolves his LLC and takes title to the property in his own name (again, no property transfers subject to doc stamps). The authors suggest that the Florida legislature may consider laws to close the tax loophole created by the Florida Supreme Court. Until that time, if ever, real estate owners and asset protection planners should keep in mind the Crescent decision and the suggestions in this article to minimize costs of real property transfers.

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

Who Can Claim Statutory Car Exemption?

A husband and wife who were jointly liable to a creditor emailed the following question: where a family owns one car free and clear in the name of one spouse, can both spouses claim $1,000 car exemption allowed by Florida statutes for motor vehicles. The couple was trying to exempt a total of $2,000 of their car equity from their joint creditor.

The statutory car exemption is only available to car owners. The spouse of an owner has no right to the exemption. In this case, the couple can exempt only $1,000 exempt equity in the car.