Asset protection is a crucial aspect for individuals who set up trusts to protect their estate against probate proceedings, judgments, liens, etc. This includes domestic asset protection trust in Florida.

However, trusts are not necessarily the most suitable choice for all situations, both in terms of the level of asset protection and the costs associated with setting up and maintaining the legal agreement. 

Many Florida residents choose domestic asset protection trusts as a way to protect their assets. However, would it be the best choice? In this article, you will discover all you need to know about domestic asset protection trust in Florida. 

What Is a Trust in Florida? – Back to Basics 

A trust is a legal arrangement in which the trust marker (trustor) gives the ownership title of a property or assets to a trustee for the benefit of a third party (beneficiary). 

Typically, a trust is created to provide legal protection for the trustor’s assets, ensuring the trustor’s assets will be distributed as he/she wishes upon their death, and avoiding probate proceedings.

There are two main types of trusts in Florida – revocable trusts and irrevocable trusts. The most common type is the revocable trust, in which provisions can be canceled or altered up until its trustor’s death. As its name suggests, irrevocable trusts cannot be revoked. 

Domestic Asset Protection Trust – Explaining the Concept 

Domestic asset protection trusts (DAPTs) are basically trusts established in states other than Florida that have legal protection over debtor’s assets held in a self-settled trust. In layman’s terms, DAPTs are a US-based version of offshore trusts.

Currently, the states that permit the creation of self-settled trusts are:

  • Alaska
  • Delaware
  • Hawaii
  • Michigan
  • Mississippi
  • Missouri
  • Nevada
  • New Hampshire
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • West Virginia
  • Wyoming

A self-settled trust is a complex type of trust used by many individuals to shield personal assets against creditors. Such arrangements are commonly used to protect real estate, but they can also cover personal property, bank accounts, businesses, and other assets. 

Typically, domestic asset protection trusts are irrevocable trusts. Once the trustor transfers his/her assets into the trust, these assets are no longer considered personal property, making them unreachable by creditors.

However, this type of trust has plenty of limitations. Domestic asset protection trusts do not grant asset protection in all circumstances, especially for past creditors seeking a judgment against unsettled debts. 

Are Domestic Asset Protection Trusts Effective for Florida Residents? 

So far, there are no actual cases of a court in Florida dealing with a creditor seeking to collect the assets of a Florida resident held in a DAPT established in another state. 

Hence, many individuals in Florida – especially defaulters – think they can utilize DAPTs as a way to have full asset protection, given that no Florida court has invaded a DAPT established in another state by a Florida debtor. 

However, it is not certain that there is no possibility of a court placing a judgment in a property held into an out-of-state DAPT. There are cases in which courts in other states have questioned the effectiveness of a DAPT formed outside of the state where the debtor is domiciled. 

What Is the Actual Effectiveness of Domestic Asset Protection Trust in Florida? 

Florida residents need to be careful when setting up DAPTs. 

In essence, the legal issue in setting up a DAPT out of Florida is that Florida law expresses a public policy against debtors’ using self-settled trusts to protect their assets from past or current creditors. 

The main question is – in case of a judgment against a debtor, will Florida courts apply the same legal standard in the DAPT state where the trust is established or have an opposing approach by applying Florida legal standards, which are against self-settled trust protection?

Settling this type of conflict between the legislation of distinct states is not an easy task, so courts tend to apply a multi-step analysis to assess each situation individually, looking at each debtor’s history and each DAPT’s arrangement. 

Regardless, the best way to avoid an unpleasant outcome is to seek guidance from an expert estate planning attorney to assess the situation in detail and find the best strategy in terms of asset protection for each case. 

We Can Help You Protect Your Assets the Right Way 

As shown, Florida law limits the level of asset protection provided by self-settled trusts, meaning they will not protect your assets in all situations. 

Attorney Romy B. Jurado Esq., is an experienced estate planning lawyer to assess your case and find the best strategy to protect your assets. Call us today at (305) 921-0976 or email us at [email protected] to schedule a consultation.