Excerpt from Chapter 6, Estate Planning and Asset Protection in Florida: A Plan to Survive Unexpected Financial Threats by Barry A. Nelson. Available at http://www.jurispub.com/Bookstore/Regions-Jurisdictions/Estate-Planning-and-Asset-Protection-in-Florida.html. Use discount code BAN10 for a 10% discount!

Chapter 6 - Table of Contents

6-1    Introduction/Statutory Protections for Florida Residents

6-2    Wages

6-3    Life Insurance

6-4    Cash Surrender Value of Life Insurance Policies and Proceeds from Annuity Contracts

6-5    Disability Benefits

6-6    Workers Compensation

6-7    Proceeds from Pension and Profit Sharing Plans, Traditional and Inherited IRAs

6-8    Qualified State Tuition Programs

6-9    Medical Savings Accounts

6-10  Hurricane Savings Accounts

6-1              Introduction/Statutory Protections for Florida Residents

Florida Statutes provide a number of techniques for asset protection that are described in this chapter. To benefit from the laws, the debtor must reside in Florida. This chapter discusses Florida’s protection of: (i) wages, (ii) life insurance proceeds, (iii) cash surrender value of life insurance, (iv) annuities, (v) retirement plan benefits including IRAs, and (vi) qualified tuition plans including 529 Plans.

As reflected on Tier 2 of the Pyramid of Asset Protection Techniques, Florida law provides protection of certain types of assets and in many cases without limitations of value. Some Florida exemptions are available only to persons “residing in this state” (Florida Statute § 222.13) or for citizens and resident of Florida (Florida Statute § 222.14). This chapter describes each of the Florida exemptions, how to qualify for such exemptions and whether and to what extent proceeds from disposition of such exempt assets retain asset protection. First we address how to establish residence in Florida to be certain that Florida exemptions are available for purposes of satisfying the residency requirements under the statutes that follow.

6-1.1        Who Should Benefit from Florida’s Statutory Protections of Specific Asset Classes?

Florida residents should be advised that certain asset classes are protected in the event of creditors’ claims. Once a person has knowledge of the law they can make informed business decisions as to whether to invest in assets that Florida protects. For example, a single person can own $1 Million of stocks, bonds, and cash in an account with a financial institution in his or her own name (unprotected), or can own the account in his or her revocable trust (unprotected), or invest a portion of the investments in annuities, IRAs, and life insurance with cash value (all of which are protected as to the account owner). Arming the investor with this information allows the investor to consider the pros and cons of investing in less traditional assets, such as annuities and cash value life insurance, after considering the administrative costs, commissions, and income tax consequences.

6-1.2        What are the Requirements to Benefit from Florida’s Statutory Exemptions? What are the Traps for Professionals?

While an individual may have several residences, he may have only one domicile. Domicile is the intended permanent home of an individual and has been defined through the evolution of common law, as a place to which, when absent, an individual intends to return. Upon establishment of Florida domicile, Florida law will control such matters as Wills and trusts, the disposition of property in the absence of a Will, the legal rights between married people, the rights of minors, the legal rights of property ownership, the legal rights of creditors, and the imposition of various taxes.

Florida does not impose estate, personal income or succession taxes. A major advantage of clearly establishing Florida domicile is to avoid such taxes being imposed by another state, typically a state where a person resided prior to moving to Florida. To be certain Florida’s favorable asset protection statutes are available and to reduce the likelihood of claims by other states to such state’s taxes, he or she will want to take as many of the steps described below as possible to clearly document Florida domicile. In his article, The Importance of Domicile in Asset Preservation Planning, Jerome L. Wolf states, “In Florida, the terms ‘domicile’ and ‘residence’ are synonymous. Under subsection 731.201(13) of the Florida Statutes, ‘domicile’ means a person’s usual place of dwelling; similarly under subsection 731.201(34), ‘residence’ means a person’s place of dwelling. The courts have also construed the terms similarly.”[1]

The following are subjective and objective factors that indicate intent to establish Florida domicile.

A.  SUBJECTIVE INTENT: Subjective intent to establish Florida domicile may be indicated by:

  1. Spending more time at the Florida home than at any others;
  2. Centering the maximum amount of business activities at the Florida home;
  3. Being active in the Florida area (i.e., become active in and/or join local schools, clubs, churches or synagogues, social organizations, and charitable organizations);
  4. Furnishing the Florida home more substantially than any other home, as well as keeping objects of family and sentimental value (i.e., wedding photo albums, expensive art pieces, family mementos, etc.) in the Florida home;
  5. Keeping the principal personal bank and/or securities account in a Florida branch bank/financial institution; and
  6. Maintain log or diary of days spent in Florida.

B.   OBJECTIVE INTENT: Objective factors to establish Florida domicile may be indicated by:

  1. Executing a new Florida Will and revocable trust reciting the new domicile in Florida;
  2. Obtaining a Florida voter’s registration card and voting in Florida;
  3. Using the Florida address in all documents and records executed, such as automobile registration, Social Security records, passports, credit cards, mailing addresses, mortgages and leases;
  4. Using the Florida address in the filing of all federal and state tax returns and the Florida homestead address for the federal U.S. Individual Income Tax Return, Form 1040;
  5. File for Florida homestead tax exemption with the local county property appraiser’s office. Every person who owns a Florida home on January 1st that serves as a primary residence can file on or before March 1st for an exemption from certain Florida taxes. The Florida homestead exemption provides an exemption from taxation up to approximately $50,000 and limits or caps increases in the assessed value on homestead property to no more than 3% or the CPI, whichever is less, of the prior year assessed value (See Chapter 4);
  6. Notifying all interested parties of a change of domicile including social and religious organizations, banks, employers, family, friends, attorney, and all tax authorities in both the old and new domiciles, credit card companies, etc.;
  7. Holding community positions that are only open to domiciliaries;
  8. Changing driver’s license and automobile registration, whether required by local law or not, to Florida and surrendering the license issued by former domicile;
  9. Filing a Declaration of Domicile (see Appendix II-B) with the Florida clerk of the circuit court in the county for which such person shall reside to provide evidence that the Florida residence is such person’s primary residence and that the Florida residence should qualify as Florida homestead property. Such Declaration of Domicile shall establish that he or she resides in and maintains a place of abode in that county which he or she recognizes and intends to maintain as his or her permanent home (see Florida Statute § 222.17, provided in Appendix III-E);
  10. Notifying the post office to forward all mail to the new domicile (while residing in Florida);
  11. Taking any other affirmative acts to terminate the previous domicile such as canceling voter’s registration, changing license plates, notifying the taxing officers of previous domicile, etc.;
  12. Disposing of any home in the former domicile (or non-domicile state);
  13. Revoking any declaration of domicile made in any other state;
  14. Declaring the new (or established) domicile to a United States census taker;
  15. Filing a final (so marked) resident tax return in the former domicile state (and city, if applicable);
  16. Obtaining non-resident license privileges (e.g., fishing license) in non-domicile states and resigning from, or changing to non-resident status for, clubs, churches, etc. in non-domicile states;
  17. Removing the contents of any safe deposit boxes outside the new domicile, surrender the boxes and move the contents to domicile state;
  18. Changing all documents, subscriptions, passport, social media listings, and professional listings (e.g., Who’s Who) etc. to reflect the new (or established) domicile state;
  19. Move professional relationships (medical, dental, legal, financial) to Florida firms;
  20. Consulting a physician in new domicile state and have medical records sent to the physician;
  21. Insure motor vehicles in Florida;
  22. Place dependent children in Florida schools;
  23. License pets in Florida;
  24. File non-resident income tax returns with prior home state when required;
  25. List Florida address on all applications and documents with third parties;
  26. All insurance policies, life, health, property, auto, boat, umbrella, long term health, disability, etc. should be endorsed to reflect Florida address, and should be written or serviced by Florida agents;
  27. Receive all Social Security, pension, or other periodic benefit payments at Florida residence; and
  28. Maintain all brokerage accounts, bank accounts, money market accounts in Florida or, in the alternative, forward all statements to Florida primary residence.

Florida courts have held that the state of domicile is evidenced by the present intention of an individual of making that residence their permanent home coupled with the actual evidence of positive overt acts. If Florida domicile is not adequately evidenced, as in In re Morad,[2] the debtor will not be entitled to most Florida state exemptions. In In re Morad, the debtor was a Massachusetts attorney who was sued for breach of contract and breach of fiduciary duty. The plaintiffs were awarded money damages. The debtor/attorney filed a petition for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Florida where he claimed a home, four IRA accounts, and two Prudential life insurance policies as exempt from creditors’ claims under Florida law. Plaintiffs objected, on ground that debtor/attorney was not domiciled in Florida for the requisite portion of the 180 days immediately preceding petition date as then required under Bankruptcy Code § 522(b)(2)(A). Although debtor/attorney maintained a residence in Florida for a greater portion of 180 days immediately preceding the bankruptcy petition date, the court found that he was not domiciled in Florida. Debtor/attorney failed to establish that he had abandoned his former domicile and lacked the requisite intent to remain in Florida permanently. Specifically, debtor/attorney continued to own property and actively maintained his law practice in Massachusetts, continued to have a Massachusetts driver’s license (in addition to a Florida driver’s license), maintained bank accounts in Massachusetts and had Massachusetts doctors. The court concluded that debtor/attorney was not a Florida domiciliary and therefore could not claim exemptions under Florida law. See Chapter 2 for additional discussion of establishing Florida domicile.[3]

Footnotes

[1] Jerome L. Wolf, The Importance of Domicile in Asset Preservation Planning, 79 Fla. Bar J. 30 (Nov. 2005).

[2] 323 B.R. 818 (1st Cir. BAP (Mass.) 2005).

[3] Since 2005, 11 U.S.C. § 522(b)(3)(A) requires that to benefit from a state’s exemptions the debtor must reside in the state 730 days immediately preceding the date of filing the bankruptcy petition. See Section 6-1.2 for additional explanation of the residency requirement to benefit from Florida’s exemptions in bankruptcy court.

 

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