The Importance of Asset Protection
By Robert L. Lancaster, Esq. and Rebecca Y. Zung-Clough, Esq.
While it certainly seems to be one of the worst times, it can be a viewed as the best of times. Many people are dealing with significant losses, which often opens the door to creditor concerns. However, for people who have maintained a sizeable net worth, the realities of today should make protecting assets a priority. Present times prove the future is predictably unpredictable. Fortunately, there are creative and effective ways to protect your assets.
One method with which many are familiar is the Florida homestead protection. Individuals who are domiciled in Florida get the benefit of the homestead protection, which precludes its forced sale by most creditors. However, the protection has significant limitations. One is the size limitation. If the homestead is located within a municipality, the exemption extends only up to one-half an acre of contiguous land. Despite this tremendous benefit given to Floridians under state law, the bankruptcy laws substantially limit “last minute” acquisitions of homestead property, including a lengthy ten-year look back period for transfers intended to hinder, delay or defraud creditors. Outside of bankruptcy, the biggest problem using homestead protection as your sole asset protection strategy is that the homeowner/debtor cannot access its equity. One must have another source of wealth that is exempt from creditors to cover any living and other expenses.
Under Florida law, spouses are provided another method of protecting assets, that is, by owning property as “tenants by the entireties.” This form of ownership not only applies to real property, but it can apply to bank accounts and has been recognized for brokerage accounts as well. Property owned in tenancy by the entireties cannot be reached to satisfy the claims of a creditor of one spouse. However, this protection is not available when there is a creditor of both spouses.
In addition to the joint creditor risk, another often overlooked disadvantage to tenancy by the entireties property is the possibility of the death of a spouse or divorce. The protection ceases the moment the marital relationship terminates. Assuming there are no joint creditors, having financial accounts titled as tenants by the entireties may initially overcome the wealth access dilemma posed with homestead, but everything could fall into the clutches of creditors upon an unexpected death or divorce.
Understanding the above limitations is the first step to planning around them. The soundest way to protect assets from future creditors is by establishing an Asset Protection Trust. An Asset Protection Trust must be established in an appropriate jurisdiction and should name a corporate trustee. The beneficiaries of the trust could include a spouse, descendants, and, most importantly, you. If done under appropriate circumstances and at an appropriate time, an Asset Protection Trust serves as a nest egg of wealth. Should you face unforeseen creditor issues in the future, the trustee would have the discretion to make distributions of the benefit of you or the other beneficiaries. It is wise to consider establishing an Asset Protection Trust early, when the future is bright. After all, it wasn’t raining when Noah built the Ark!
Robert L. Lancaster is an attorney with the law firm of Cummings & Lockwood LLC and co-editor of this supplement, and Rebecca Y. Zung, is an attorney with the Law Office of Rebecca Zung-Clough, PLLC in Naples FL.