Asset Protection in Florida: Practical Tips for Small Business Owners

1. Asset Protection in Florida: Practical Tips for Small Business Owners Part 1: Introduction to Florida Homestead and Other Protected Assets Phillip B. Rarick, Esq. Rarick & Beskin, P.A. 6500 Cowpen Rd., Suite 204 Miami Lakes, FL 33014 www.raricklaw.com (305) 556-5209 prarick@raricklaw.com

2. Introduction • Integrated Estate & Asset Protection Planning • Definition • Why important to integrate Estate Plan with Asset Protection Plan • The “Living Trust Pink Pill Myth” • The Asset Protection Ladder: Not all Entities are Equal • Timing: When the Waters are Quiet

3. Introduction Cont. • Not based upon concealment. In a good plan, you want the creditor to know the estate is structured for maximum protection – this is simply good, prudent business practice, not unlike insuring your property. • If planning is based on concealment, advise client under our modern discovery rules it is doomed for failure.

4. Introduction Cont. • Selecting An Asset Protection Attorney • Established Estate Planner & Asset Protection • On-shore vs. Off-shore Bias • National Asset Protection “Experts” selling “Bullet-proof” plans vs. Florida Attorneys • Whom Not to Mess With: SEC, FTC, and IRS • Regardless of what you think of the SEC

5. Step 1: What is Exposed & What is Protected • What is Protected: General Exemptions from Creditors • Homestead • Unlimited • The “three-headed” homestead Chameleon • Note: The following discussion concerns only the Florida Constitutional protection against forced sale. This “homestead” is often confused with the $50,000 homestead tax exemption and the 3% Save Our Homes cap that applies only to homestead property.

6. The Three Qualifiers for Homestead • Acreage • The acreage is limited to ½ acre of contiguous land within a municipality and 160 acres of contiguous land outside a municipality. • Note: Municipal property exceeding ½ acre can be protected using other entities, such as a 99 year lease to a limited liability limited partnership (LLLP).

7. The Three Qualifiers for Homestead Cont. • Residency • The debtor must be a permanent Florida resident and the homestead property must be his primary place of residence. • Property under construction is not protected until the owner secures a Certificate of Occupancy and in fact occupies the property. • A second home or investment property does not qualify as Florida homestead. • There is no waiting period: the homestead protection attaches the day you first occupy the property with the intent to make it your permanent home.

8. The Three Qualifiers for Homestead Cont. • Ownership • Only “natural persons” qualify for homestead protection, thus eliminating property owned by irrevocable trusts, limited liability companies, corporations, and partnerships. • Property owned by a living trust can be homestead property, as well as property owned by a land trust.

9. Exceptions to Florida’s Homestead Protection • Tax liens, • Mortgages, • Homeowner association assessments, or • Mechanics liens associated with labor or materials to repair or improve the homestead property.

10. Proceeds from Sale of Homestead Property • Proceeds are protected if the homeowner uses the money within a reasonable time to purchase a new homestead. • This protection can be lost if the funds are commingled or not used within a “reasonable time” to purchase a new home. • It appears that 2 years is a “reasonable time.”

11. Take-away Points for Protecting Florida Homestead • Never transfer homestead to a corporation, LLC, or any entity other than a revocable trust. • If you rent & don’t occupy, you loose the protection. • Caution for Medicaid Recipient Clients: Don’t ever rent if you must go to an assisted living facility • You can only have 1 homestead. • If you have more than ½ acre in a municipality, only ½ acre is protected. • A QPRT – a qualified personal residence trust – does not qualify as homestead unless integrated with a 99 year lease. • Non-Citizens can rarely qualify for homestead. • If you sell your homestead, keep proceeds in a separate account.

12. Wage Exemption • Wages cannot be garnished if: • Head of Family: Providing more than ½ the support for a child or other dependent may exempt 100% • Not Head of Family: may exempt 75% • Take-away Points for Protecting Wage Exemption • If you have your own business, make sure you have an arms length employment agreement. • Don’t use business for personal expenses – unless provided for in the employment agreement. • Deposit wages in separate and discrete account denominated as a Wage Account. Do no commingle earnings with other income.

13. Life Insurance • Term Portion • Cash Value • Take-away Points • Use an Irrevocable Life Insurance Trust (ILIT) for maximum protections and estate planning.

14. Annuities & Cash Value (Cash Surrender Value) • Unlimited (outside of bankruptcy)

15. IRA & Qualified Plan Benefits • Key Points • No dollar limitation • Rollover to spouse: Protected • Rollover to non-spouse beneficiary: Does not lose exemption generally unless commingle inherited IRA proceeds with other funds • Take-away Points • Never designate estate as beneficiary • If no beneficiaries are designated, the estate is default • Always have contingent beneficiaries and/or name trust as contingent beneficiary • Avoid dumb “Prohibited Transactions” • Example 1: borrowed from his IRA and lent to his closely held corporation • Example 2: transfers escrow accounts to IRA • Most Important: Have an experienced Retirement Plan Advisor who knows ERISA.