Spousal QTIP Trusts For Florida Asset Protection

In July of 2010, Florida asset protection planning became a whole lot easier for married couples in the Sunshine State due to a new statute. Florida Statutes section 736.0505(3) clarifies a previously unresolved issue: Whether assets contributed by one spouse (“settlor”) to an inter vivos Qualified Terminable Interest Property trust (“QTIP trust”) for the benefit of the other spouse (“beneficiary”) are protected from claims of creditors if the beneficiary spouse dies first and the assets revert to the trust creator.

Florida Asset Protection Planning

The relatively new Florida statute clarifies the issue nicely. Now, if the beneficiary predeceases the settlor, assets contributed to the trust shall “be deemed to have been contributed by the settlor’s spouse and not by the settlor.” The effect of this new statute is that as a matter of law, a QTIP trust won’t be considered a self-settled trust for purposes of Florida asset protection planning, in the event that the beneficiary dies before the spouse who created the trust.

Rather, when the beneficiary dies first, the trust assets can be disposed according to the testamentary power of the beneficiary (usually exercised in the last will), or the trust can be structured so that the QTIP trust automatically converts into an asset-protected spendthrift trust in favor of the settlor. This is a very strong form of Florida asset protection. Essentially, by creating a QTIP trust in Florida, you can guarantee that assets contributed to the trust will be protected from creditors, no matter which spouse dies first.

One interesting aspect to this asset protection planning device is the estate planning advantages it creates for married couples, especially when either spouse has children from a previous marriage. While married couples can achieve some degree of protection from creditors by holding assets as tenants by the entirety, that form of ownership does have weaknesses. Revocable trusts were the most widely used alternative, but those trusts leave marital assets exposed to the claims of future creditors.

Section 736.0505(3) combines the asset protection component of holding assets as tenants by the entirety with the estate planning  and tax advantages of revocable trusts (as used between spouses), making the inter vivos QTIP trust an extremely attractive tool in the arsenal of married couples with exposed assets. As is the case with all asset protection planning tools, laws regarding fraudulent transfers apply to the creation of QTIP trusts, so you should make use of this planning before you think the planning is actually needed. Finally, QTIP trusts cannot be reciprocal between spouses. See 26 C.F.R. §25.2523 (f)(1)(f), Ex. 11. Some states (e.g. Arizona) have enacted laws stating that certain types of trusts between spouses are not reciprocal as a matter of state law. If Florida enacts such a law, QTIP planning could prove even more effective than domestic asset protection trusts.

While the new Florida asset protection law resolves some estate tax and asset protection issues for married couples in Florida, it does leave some issues unresolved. For example, how should inter vivos QTIP trusts will be treated in the event of divorce? Despite this uncertainty, section 736.0505(3) is an effective and desirable Florida asset protection tool because (i) it helps married couples effectively deal with estate taxes, (ii) it protects trust assets from claims made against either spouse, and (iii) it allows the trust creator to retain control over the distribution of trust assets.

Click here to learn more about QTIP trusts.

Call A Florida Asset Protection Attorney

If you would like to speak with a Florida Asset Protection Attorney, please call the Law Offices of MWPatton at (850) 803-1166. Mention this article, and we will waive our customary fee of $279 and conduct your personal asset protection analysis for free.