Asset Protection Planning or Estate Planning - Which has Priority?
Over the past few weeks I've had the opportunity to work with a relatively successful young couple who have accumulated fairly significant assets, but who continue to be very concerned about the direction of the economy. They have expressed a desire to structure their financial affairs in a way that will protect them from potential future sources of liability.
Prior to being referred to me, they worked with a Florida estate planning attorney who provided them with very good estate planning, including the proper design and implementation of a revocable living trust. The buik of their assets are titled to their joint revocable living trust, as is completely proper and appropriate for meeting typical estate planning objectives involving the management of their assets in the event of an incapacity of one or both of them, avoiding probate, and providing for the management and distribution of their assets at death.
As is often the case, their asset protection objectives conflict with their estate planning goals. That means the things that have accomplished through their properly designed estate plan need to be revisited and modified to accomplish their estate planning goals.
The main issues that create inconsistencies between good estate planning and good asset protection planning revolve around the use of statutory exemptions and titling of assets.
Florida Statutes, Chapter 222, provide that certain assets are exempt from creditors claims. Assets that are listed in the statutes are not subject to satisfying a judgment that is obtained against the owner of the assets. Assets that are listed in Chapter 222, include, among other, retirement accounts (including IRAs - both traditional and ROTH, SIMPLE IRAs, SEP IRAs), annuities, the cash value of life insurance (protected from creditors of the owner of the life insurance policy), death benefits of a life insurance policy, a wage account, disability benefits, and certain amounts of personal property.
In addition to the statutory exemptions, Florida recognizes another "super" exemption. The Florida Constitution provides that one's home is not subject to the claims of creditors (other than consenual liens and taxes), without limitation of value. [Note: The federal bankruptcy code does provide for some limitation on the homestead exemption in certain circumstances.]
What do statutory exemptions accomplish in simple terms? If a person has a judgment entered against them as a result of an automobile accident (not otherwise covered by liability insurance), premises liability because of their ownership of real property, professional negligence or malpractice, a deficiency judgment from a mortgage foreclosure, or any other reason, the creditor who owns the judgment can not seize statutorily exempt assets from the judgment debtor. So, for instance, if your mortgage company obtains a judgment against you for a deficiency in your mortgage foreclosure, and all you own is annuities, the mortgage company can not seize your annuities to satisfy the judgment. You get to keep your annuities and can receive the income or principal distribution from the annuity even though the judgment has been obtained and recorded and constitutes a lien on any property you own.
Another area of significance regarding inconsistencies between asset protection planning and estate planning involves titling of assets. Proper estate planning often dictates that assets be owned separately by husband and wife for potentially many reasons. If the couple has a taxable estate (currently an combined estate in excess of $3.5 million), separate ownership is necessary to utilize both spouse's exemptions from estate taxes. In blended families, separate ownership may be necessary to ensure that each spouse's estate, after the death of the 2nd spouse to die, goes to that spouse's heirs (perhaps children from an earlier marriage).
If asset protection is required for whatever reason, the separate ownership of those assets creates the risk that assets may be lost to future judgment creditors. How does that happen?
Florida law recognizes a form of ownership called "tenancy by the entireties." We'll call it TBE. TBE is a special form of ownership that treats the asset as being owned by the marital unit, comprised of the husband and wife, not the individuals who happen to be the husband and wife. That means a judgment creditor of one spouse can not seize the TBE owned assets to satisfy the judgment against one of the spouses. To seize the TBE owned assets, the judgment creditor must have a judgment against both the husband and wife. In the context of asset protection, TBE owned assets are very protected, and therefore very desirable.
In working with physicians and asset protection, TBE is often used to shield assets from potential medical malpractice claimants where one spouse is the physician and the other is not. In that context, if a medical malpractice claimant has a judgment against the physician, the medical malpracitce claimant can not seize the assets that are owned TBE to satisfy the judgment.
TBE is different, and more protected, than owning assets as "joint tenants, with rights of survivorship." A creditor of one of the joint tenants, in that form of ownership, may have the right to seize the judgment debtor owner's "equitable Interest" in the assets owned in that manner. From the asset protection planning perspective, TBE is the form of ownership that provides the most protection from creditors, and it is important that bank accounts, brokerage accounts, and other assets are properly titled to accomplish that result.
However, if an asset is capable of producing liability, you would not want to own it as TBE. For example, the ownership of rental real estate, from an asset protection perspective, should not be titled TBE. Titling real property, that can create premises liability, as TBE, subjects all of the individual assets of each spouse, as well as all of the jointly owned assets (including TBE) of the spouses, to the satisfaction of a judgment that arises out of the ownership of that real property. In fact, from an asset protection perspective, rental real estate, whether commercial or residential, should never be owned by individuals. You should always consider using a legal entity, such as a limited liability company, as the owner of real property that is being rented, or used in a manner that members of the public come upon the property.
When working with clients who are concerned with asset protection as least as much as pure estate planning, it is necessary to help the clients understand that there are trade offs between the two sets of objectives. To obtain maximum asset protection may require different actions than seeking maximum estate planning goals. TBE ownership is good for asset protection planning, but not so good for estate planning (including estate tax planning). The ownership of annuities and life insurance is good for asset protection planning, but may not be as good for pure estate planning. In each case, the individual needs of the client should be carefully examined, and all of the advantages and disadvantages of each alternative should be evaluated from both the asset protection perspective and the estate planning perspective. Only after fully understanding the positive and negative implications associated with each type of asset and the nuances involved with different titling of assets can a client make an informed decision about the proper structuring of their own assets and planning objectives.
Prior to being referred to me, they worked with a Florida estate planning attorney who provided them with very good estate planning, including the proper design and implementation of a revocable living trust. The buik of their assets are titled to their joint revocable living trust, as is completely proper and appropriate for meeting typical estate planning objectives involving the management of their assets in the event of an incapacity of one or both of them, avoiding probate, and providing for the management and distribution of their assets at death.
As is often the case, their asset protection objectives conflict with their estate planning goals. That means the things that have accomplished through their properly designed estate plan need to be revisited and modified to accomplish their estate planning goals.
The main issues that create inconsistencies between good estate planning and good asset protection planning revolve around the use of statutory exemptions and titling of assets.
Florida Statutes, Chapter 222, provide that certain assets are exempt from creditors claims. Assets that are listed in the statutes are not subject to satisfying a judgment that is obtained against the owner of the assets. Assets that are listed in Chapter 222, include, among other, retirement accounts (including IRAs - both traditional and ROTH, SIMPLE IRAs, SEP IRAs), annuities, the cash value of life insurance (protected from creditors of the owner of the life insurance policy), death benefits of a life insurance policy, a wage account, disability benefits, and certain amounts of personal property.
In addition to the statutory exemptions, Florida recognizes another "super" exemption. The Florida Constitution provides that one's home is not subject to the claims of creditors (other than consenual liens and taxes), without limitation of value. [Note: The federal bankruptcy code does provide for some limitation on the homestead exemption in certain circumstances.]
What do statutory exemptions accomplish in simple terms? If a person has a judgment entered against them as a result of an automobile accident (not otherwise covered by liability insurance), premises liability because of their ownership of real property, professional negligence or malpractice, a deficiency judgment from a mortgage foreclosure, or any other reason, the creditor who owns the judgment can not seize statutorily exempt assets from the judgment debtor. So, for instance, if your mortgage company obtains a judgment against you for a deficiency in your mortgage foreclosure, and all you own is annuities, the mortgage company can not seize your annuities to satisfy the judgment. You get to keep your annuities and can receive the income or principal distribution from the annuity even though the judgment has been obtained and recorded and constitutes a lien on any property you own.
Another area of significance regarding inconsistencies between asset protection planning and estate planning involves titling of assets. Proper estate planning often dictates that assets be owned separately by husband and wife for potentially many reasons. If the couple has a taxable estate (currently an combined estate in excess of $3.5 million), separate ownership is necessary to utilize both spouse's exemptions from estate taxes. In blended families, separate ownership may be necessary to ensure that each spouse's estate, after the death of the 2nd spouse to die, goes to that spouse's heirs (perhaps children from an earlier marriage).
If asset protection is required for whatever reason, the separate ownership of those assets creates the risk that assets may be lost to future judgment creditors. How does that happen?
Florida law recognizes a form of ownership called "tenancy by the entireties." We'll call it TBE. TBE is a special form of ownership that treats the asset as being owned by the marital unit, comprised of the husband and wife, not the individuals who happen to be the husband and wife. That means a judgment creditor of one spouse can not seize the TBE owned assets to satisfy the judgment against one of the spouses. To seize the TBE owned assets, the judgment creditor must have a judgment against both the husband and wife. In the context of asset protection, TBE owned assets are very protected, and therefore very desirable.
In working with physicians and asset protection, TBE is often used to shield assets from potential medical malpractice claimants where one spouse is the physician and the other is not. In that context, if a medical malpractice claimant has a judgment against the physician, the medical malpracitce claimant can not seize the assets that are owned TBE to satisfy the judgment.
TBE is different, and more protected, than owning assets as "joint tenants, with rights of survivorship." A creditor of one of the joint tenants, in that form of ownership, may have the right to seize the judgment debtor owner's "equitable Interest" in the assets owned in that manner. From the asset protection planning perspective, TBE is the form of ownership that provides the most protection from creditors, and it is important that bank accounts, brokerage accounts, and other assets are properly titled to accomplish that result.
However, if an asset is capable of producing liability, you would not want to own it as TBE. For example, the ownership of rental real estate, from an asset protection perspective, should not be titled TBE. Titling real property, that can create premises liability, as TBE, subjects all of the individual assets of each spouse, as well as all of the jointly owned assets (including TBE) of the spouses, to the satisfaction of a judgment that arises out of the ownership of that real property. In fact, from an asset protection perspective, rental real estate, whether commercial or residential, should never be owned by individuals. You should always consider using a legal entity, such as a limited liability company, as the owner of real property that is being rented, or used in a manner that members of the public come upon the property.
When working with clients who are concerned with asset protection as least as much as pure estate planning, it is necessary to help the clients understand that there are trade offs between the two sets of objectives. To obtain maximum asset protection may require different actions than seeking maximum estate planning goals. TBE ownership is good for asset protection planning, but not so good for estate planning (including estate tax planning). The ownership of annuities and life insurance is good for asset protection planning, but may not be as good for pure estate planning. In each case, the individual needs of the client should be carefully examined, and all of the advantages and disadvantages of each alternative should be evaluated from both the asset protection perspective and the estate planning perspective. Only after fully understanding the positive and negative implications associated with each type of asset and the nuances involved with different titling of assets can a client make an informed decision about the proper structuring of their own assets and planning objectives.
Posted by Randy Coleman at 10/30/2009 6:28 AM 
Categories: Homestead Protection, Asset Protection, Exemption Planning, Premises Liability, Estate Planning, Tenancy by the Entireties, Probate, Physicians and Asset Protection, Wills and Probate, Revocable Living Trusts, Titling of Assets, Retirement Accounts
Tags: Florida probate revocable living trust Florida homestead exemption beneficiary designation fraudulent transfer fraudulent conveyance asset protection attorney Jacksonville estate planning attorney estate planning Florida asset protection attorney Florida estate planning attorney asset protection planning asset protection Jacksonville asset protection attorney wills and trusts probate fraudulent conversion tenancy by the entireties tenants by the entireties
Categories: Homestead Protection, Asset Protection, Exemption Planning, Premises Liability, Estate Planning, Tenancy by the Entireties, Probate, Physicians and Asset Protection, Wills and Probate, Revocable Living Trusts, Titling of Assets, Retirement Accounts
Tags: Florida probate revocable living trust Florida homestead exemption beneficiary designation fraudulent transfer fraudulent conveyance asset protection attorney Jacksonville estate planning attorney estate planning Florida asset protection attorney Florida estate planning attorney asset protection planning asset protection Jacksonville asset protection attorney wills and trusts probate fraudulent conversion tenancy by the entireties tenants by the entireties
My husband and I have an Ohio Revocable Trust inwhich two of the beneficiaries(from two of our marriages) have a 20% interest in our estate assets when we are both deceased. Does the State of Florida have the legal right to any monies or real estate assets bequeathed to these beneficiaries based on the fact that they were (and are) both on State and Federal assistance programs?
Thank you.
barbara Snyder
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