Parents in Florida may create a trust to protect their child’s inheritance from their spouse in the event of a divorce. However, there is uncertainty about whether a former spouse can still access the trust assets for certain types of judgments. This is a complex issue that may need clarification in Florida laws. In this example, Mark is a successful homebuilder who used to be able to pay alimony to his ex-wife. But because of the real estate market crashing, he lost all his money and can’t make a living anymore. His wealthy father, Jack, wants to make sure that Mark’s ex-wife can’t get the money he leaves for Mark in his will. Jack asks if a special type of trust can protect the money from Mark’s ex-wife. He learns that a discretionary trust would be best because it would keep the money safe for Mark, while a spendthrift trust wouldn’t. A spendthrift trust is created to protect a beneficiary’s assets from their own bad decisions or from creditors. The beneficiary cannot transfer or give away their interest in the trust, and creditors cannot access the trust’s assets until the beneficiary receives them. However, in Florida, there are exceptions for certain creditors like a beneficiary’s child or ex-spouse seeking support.
On the other hand, a discretionary trust gives the trustee (the person in charge of the trust) the power to decide whether to give the beneficiary any money or assets. In this type of trust, creditors cannot force the trustee to make a distribution to the beneficiary and the beneficiary cannot force the trustee to give them anything.
In a case called Bacardi, the Florida Supreme Court ruled that in certain situations, assets from a spendthrift trust can be used to pay court-ordered alimony and attorneys’ fees for a beneficiary. This exception was later included in the Florida Trust Code, but it’s not clear if the same rule applies to discretionary trusts. In Florida, an attorney might think that creating a discretionary trust can protect assets from creditors. But it’s unclear whether a spouse with a support judgment can force a distribution from a discretionary trust or garnish the beneficiary’s interest in the trust. So, it’s not guaranteed that a discretionary trust will fully protect assets from creditors. These laws suggest that a trust created for someone like Mark would protect his money from creditors, at least until he actually gets the money from the trust. But it’s not totally clear if a creditor could still take the money once the trustee decides to give it to Mark. A discretionary trust may be subject to a writ of garnishment, which means that a court can order the trustee of the trust to make payments to a beneficiary who owes money to someone else. If the trustee decides to make a payment to the beneficiary, that payment can be taken by the creditor. This is different from a spendthrift trust, where the creditor cannot access the trust assets. Some states have laws that specifically prohibit creditors from reaching assets in a discretionary trust. Members of the Florida Trust Code Committee have different opinions on whether a creditor can garnish a beneficiary’s interest in a discretionary trust. Some believe that the law was intended to prevent this, while others think that creditors may still be able to access the trust funds in certain situations. It seems like there may be some confusion about how the law applies to trusts. The statutes mentioned do not seem to change the rule set in the Bacardi case. The statutes allow a court to stop future distributions from a trust to a beneficiary, but they don’t change the rule that a creditor cannot force the trustee to make a distribution from the trust. It also seems like the law for discretionary trusts may be different from the law in other types of trusts, and there may be a need to clarify the rules to make sure they are consistent. In 2006, a lawyer found a document that talked about a law called Scrivenerâs Summary, which is important for understanding the history of the FTC. The document said that a new rule was added to the law to make it easier for certain creditors to get money from a trust. However, the lawyer doesnât think this new rule should override a previous case called Bacardi. After looking at the law in Florida, the lawyer realized that there is no need to change the law because it already says that regular creditors canât take money from a trust. This means there is no legal problem to worry about. This is about how different types of creditors can go after money in a trust. The law says that certain preferred creditors, like a child or a spouse, can use a writ of garnishment to get the money. This means they can take the money when it’s actually given to the beneficiary. Other creditors can’t touch that money until it’s in the hands of the beneficiary. This is to make sure that the preferred creditors get paid first. It’s safer to create a discretionary trust in a state that clearly addresses exception creditors. In some states, exception creditors can’t get the money from a discretionary trust, which means the beneficiary’s former spouse can’t take the money. In Florida, it’s not clear if exception creditors can get money from a discretionary trust, so it’s safer to consider other states like Nevada or South Dakota. Both South Dakota and Nevada have laws that protect assets in trusts from creditors. In South Dakota, a creditor can’t “reach” assets in a discretionary trust, and the trustee can use trust funds to pay for the beneficiary’s expenses without being liable to the creditor. In Nevada, a trust is only for the beneficiary’s benefit and cannot be accessed by creditors, and the trustee’s discretion in a trust can only be reviewed if they act with dishonesty or improper motive. Overall, both states have strong protections for trusts against creditors. Jack created a trust in Nevada to protect his assets from creditors, such as his ex-spouse or child support payments. Florida law is not as clear on protecting trust assets from these types of creditors. It is suggested that people in Florida may want to consider using trusts in states like Nevada or South Dakota if they are worried about potential judgments from divorce or support payments. In Florida, there are laws that protect the money in a trust from being taken by creditors, but there are some exceptions. For example, if someone owes child support or alimony, a court may be able to make the trustee of the trust give them some of the money. This is because Florida wants to make sure child support and alimony payments are enforced, even if it means taking money from a trust. This is different in South Dakota, where the laws are a little bit different. Some states have laws to protect debtors from certain creditors. In a recent case in Delaware, a court decided that the debtors’ choice of where to sue outweighed the creditors’ argument that the case should be heard in Utah. The court considered a lot of factors in making its decision. Barry A. Nelson is a lawyer who specializes in taxation and wills, trusts, and estates. He founded a school for children with autism and is involved in various legal organizations.
Source: https://www.floridabar.org/the-florida-bar-journal/bacardi-on-the-rocks/
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