In Florida, it is almost impossible to dissociate the terms “trust” and “asset protection” when talking about legal strategies to protect personal property and assets from lawsuits. In this article, you will discover if assets held in a trust are protected against lawsuits.
Florida Trust vs Asset Protection – Understanding the Concept
Before proceeding to the aspect of asset protection, it is essential to understand what a trust is.
In essence, a trust is a legal arrangement in which someone grants the title of a property or asset to a trustee to benefit a third party (beneficiary). The trustee is the person/entity responsible for holding the title of the property held in the trust.
Plus, the trustee has a fiduciary duty to manage the trust in the best interest of the trust maker and beneficiaries. In Florida, trusts have several benefits. For example:
- Allowing the beneficiaries to avoid probate upon the death of the trust maker
- Providing tax benefits
- Safeguarding beneficiaries if the trust maker is rendered incapable by illness or disability
- Allowing flexibility of holding and management (e.g., easy transfer of assets)
Are Assets in a Trust Protected From a Lawsuit? – A Real-World Viewpoint
Indeed, trusts can be used for asset protection. However, it is crucial to notice that different types of trusts grant different levels of protection for specific types of assets.
In the following topics, we provide an overview of the level of asset protection granted by the most common types of Florida trusts.
Revocable Trust vs Asset Protection Against Lawsuits
A revocable trust is a type of trust in which the trust maker (grantor) maintains ownership over the assets held in the trust, being allowed to cancel or alter provisions in the trust document.
Typically, this type of trust remains revocable until the death of the trust maker. At that time, it automatically becomes an irrevocable trust. Once the trust maker passes away, the property and assets held in the trust are distributed among beneficiaries.
In this sense, even though revocable trusts are excellent estate planning tools, they do not offer much in terms of asset protection against lawsuits.
If you want a trust to help your family avoid probate, allowing your loved ones to have quick access to the assets held in the trust upon your death, a revocable trust may be a good choice.
However, if your primary purpose when setting up a trust is to protect your assets against lawsuits, a revocable trust may not be the optimal choice.
Irrevocable Trust vs Asset Protection Against Lawsuits
As the name suggests, an irrevocable trust cannot be altered, modified, or changed in any form once it has been signed by the trust maker.
After signing an irrevocable trust, the trust maker gives up ownership of all assets held in the trust, meaning that such assets are no longer part of the grantor’s estate.
Many individuals in Florida utilize irrevocable trusts to minimize taxation and reduce the taxable estate. In terms of asset protection against lawsuits, irrevocable trusts are a better option when compared to revocable trusts.
When a creditor or other third party enters a lawsuit against assets held in an irrevocable trust, they cannot access it because it is no longer part of the grantor’s personal estate.
Land Trust vs Asset Protection Against Lawsuits
A land trust is a distinct type of trust. In this case, only real property or land-related assets (e.g., mortgages, notes, etc.) can be held by the trustee. Also, the ownership of property held into the trust is granted to its beneficiaries, which are responsible for managing the property.
In a land trust, the identity of the grantor and beneficiaries remains private, as their name is not recorded on public records. Hence, although land trusts are not the pinnacle in terms of asset protection, they can make lawsuits impracticable due to the anonymity aspect.
It is worth noting that Florida law ensures protection for real property held in land trusts when:
- a third party (e.g., creditor) sues a real property owner personally as a beneficiary in a land trust; and
- someone tries to hold a real property owner liable to pay a judgment against property held in a land trust.
We Can Help You to Protect Your Assets Against Lawsuits in Florida
If you want to protect your assets against lawsuits, do not wait until a court freezes part of your estate mid-lawsuit to satisfy a judgment against you.