Asset Protection in Florida's Revocable Trust
Asset Protection during Settlor’s Life
A settlor is a person, including a testator, who creates or contributes property to a trust. Fla. Stat. § 736.0103(18). In Florida, during the settlor’s lifetime, revocable trust property is subject to the claims of the settlor’s creditors during the settlor’s lifetime to the same extent as property owned directly by the settlor. Fla. Stat. § 736.0505(1)(a).
Asset Protection After Settlor’s Death
In Florida, after the settlor’s death, trust assets are available to pay valid claims of the settlor’s creditors. After the settlor’s death, if the estate has insufficient assets, the personal representative of the settlor’s estate may seek payment from the trustee for claims submitted to the estate according to the probate rules. If a creditor claim is barred in the settlor’s probate proceeding, the revocable trust is not responsible for paying the claim. Fla. Stat. § 736.1014.
Asset Protection Trust Beneficiaries After Settlor’s Death
The interest of a beneficiary of a revocable trust is liable to taken in satisfaction for any debts or obligations of the beneficiary. However, a valid spendthrift provision may be added in the trust agreement to protect the distributions against a beneficiary with creditor issues.
A spendthrift provision restricts both voluntary and involuntary transfer of the beneficiary’s interest. Fla. Stat. § 736.0502. The spendthrift provision restricts the ability of a beneficiary to assign or transfer the beneficiary’s future interest. Once the distribution is made, then the creditors of the beneficiary are allowed to attach to the distribution as other assets of the beneficiary. Spendthrift provisions are unenforceable to a beneficiary facing judgments for unpaid child support, spousal support, or maintenance. Fla. Stat. § 735.0503.