Self-Settled Spendthrift Trust Legislation Shot Down
Self-Settled spendthrift trusts have been hotly debated over the last few years and for good reason.
Florida recently considered enacting legislation that would allow a settlor to setup an irrevocable trust, include a spendthrift provision that protects settlor assets in the trust from creditors, AND the settlor could receive the same beneficiary protection as third party beneficiaries from subsequent creditors.
The common law only allowed a settlor to setup this type of trust for the benefit of third parties and creditors could not reach the trust assets until the funds were distributed to the beneficiary.
However, as to date, 13 states have reversed the common law and enacted laws that would allow the settlor to include himself as a beneficiary of the irrevocale trust and receive the same asset protection from creditors with certain exceptions.
Before a settlor could setup this type of trust, Florida's proposed law required the settlor to sign an affidavit indicating that settlor is not trying to hinder, delay or defraud any creditor. Also, any creditor of the settlor that existed prior to the transfer of assets into the irrevocable trust could not be affected.
These are key clauses that would protect preexisting creditor rights and protect against fraud, but the law again has not been codified. Only time will tell if this mindset will change and new law will come into effect. For more information, visit Executive Summary.
For more information about irrevocable trusts and spendthrift clauses, contact our Jacksonville estate planning law firm.
