Trusts And Creditors In Florida: What Actually Holds Up And What Doesn’t
You have probably heard that putting your assets into a trust will shield them from creditors. It is one of the most common assumptions in estate planning, and like a lot of common assumptions, it is only true some of the time. The real answer in Florida depends heavily on what kind of trust you create, who controls it, and whose creditors are knocking.
Let’s start with the trust most people are familiar with: the revocable living trust. These are popular for avoiding probate and keeping family matters private, and they are genuinely useful tools. But if you are hoping a revocable trust will keep creditors away from your assets while you are alive, that hope does not match Florida law. Under Florida Statute 736.0505(1)(a), the property in a revocable trust remains subject to your creditors’ claims during your lifetime, to the same extent it would be if you owned the property outright. The trust simply does not change that exposure.
Irrevocable trusts are a different story, but only to a point. If you create an irrevocable trust and name yourself as a beneficiary, Florida law still allows your creditors to reach the maximum amount that could be distributed to you. This is sometimes called a self-settled trust limitation, and it exists because lawmakers did not want people shielding their own assets from their own debts simply by writing a clever document.
When Does a Trust Actually Protect Against Creditors?
The protection most people are picturing usually comes from a third-party trust, meaning someone else created the trust and you are simply a beneficiary. If that trust includes a properly drafted spendthrift provision, your creditors generally cannot reach your interest in the trust before it is distributed to you. This is a meaningful distinction. The protection belongs to the beneficiary of someone else’s trust, not to the person who funded the trust for their own benefit.
A few other points worth understanding:
- Spendthrift language only works when the settlor and the beneficiary are different people
- Discretionary trusts, where the trustee decides if and when to make distributions, can offer beneficiaries additional protection
- Federal tax debts are a different animal entirely, and the IRS can sometimes reach trust assets that ordinary creditors cannot
This is exactly why trust planning is not a do-it-yourself project, especially if creditor protection is one of your goals. The wrong structure can leave you with all of the complexity of a trust and none of the protection you were hoping for.
What This Means for Your Planning
If you are building an estate plan in Daytona Beach or anywhere in Volusia County and creditor protection matters to you, whether because of a profession with liability exposure, a pending lawsuit concern, or simply wanting to protect what you have built, the structure of your trust needs to match that goal specifically. A trust built only for probate avoidance will not do double duty as an asset protection plan unless it is designed that way from the start.
Are you unsure whether your current estate plan actually protects what you think it does? That uncertainty is common, and it is also fixable. Our Daytona Beach estate planning lawyers at Bundza & Rodriguez, P.A. work with Volusia County residents to design trusts that reflect what they actually need, not just a generic template. Contact our office today to talk through your goals and find out what kind of protection your situation calls for.
Source:
flsenate.gov/Laws/Statutes/2024/736.0505
