Fraudulent Transfers By Disclaimer To Estate Planning Trust

An attorney wrote to me with an interesting asset protection question involving a typical estate planning tool. A homestead property was owned by husband and wife as tenants by entireties. The husband died. The couple had established a typical living trust which included a credit shelter trust that became irrevocable after the first death. The surviving spouse and children were the beneficiaries of the credit trust. The husband died. The wife disclaimed her survivorship interest in the jointly titled homestead so that the house automatically passed to and was titled in the husband’s credit shelter trust. The question was whether the disclaimer jeopardized the homestead protection from creditors. I think the protection would remain intact for the wife’s benefit during her lifetime.

There are many Florida cases which hold that a debtor’s primary residence is protected from forced sale if the debtor has either a legal or an equitable interest in the property. In this case, the surviving wife has an equitable interest in the homestead because she is the beneficiary of the credit shelter trust which trust holds the legal title.

The result may be different if the wife disclaimed an entireties asset other than the homestead. The entireties title ends upon the husbands death and the entireties asset automatically pass to the wife. If the wife had creditors at the time of her husband’s death the creditors could go after what has become the wife’s individual assets. If the wife tried to avoid ownership by disclaiming the non-homestead entireties asset to a credit shelter trust the disclaimer could be reversed as a fraudulent transfer. There are cases holding that estate planning disclaimers are transfers for the purpose of Florida’s fraudulent transfer statutes.

posted by Jonathan Alper, asset protection and estate planning attorney, Orlando, Florida