EXEMPT ASSETS AND FLORIDA TRUSTS

Do you have a trust as part of your estate planning documents? Florida trusts should be reviewed in view of a recent Florida court decision holding that life insurance payable to a trust may lose its exemption from creditors’ claims.

On July 24, 2012 the First District Court of Appeal decided the case of Morey v. Everbank.  Mr. Morey had made his living trust the beneficiary of his life insurance policy.  After his death, his successor trustee asked the trial court for a ruling that the life insurance proceeds were not subject to his creditors’ claims.  However, the District Court held that the life insurance was subject to creditors’ claims, despite the specific exemption of life insurance under the Florida Statutes.  The Court reasoned that although life insurance does not lose its exemption by being transferred to a trust, in this case the trust specifically required trust assets to be used to pay probate claims and expenses before being distributed to beneficiaries, and that therefore the trustor (Mr. Morey) had waived the exemption.

Morey is a “case of first impression”, meaning it is the first time a Florida court has ruled on this issue in a reported decision.  Although its reasoning is questionable in many respects, the ruling appears to be based on the specific language in Mr. Morey’s trust that required the trustee to pay probate claims and expenses.  If you have a trust you should check to see if it contains similar language and if so, amend the trust. In view of this decision it is advisable to add specific language to Florida trusts making it clear that exempt assets, including but not limited to insurance proceeds, will not be used to pay any creditors’ claims.

If you have a living trust you should have it reviewed to make sure that life insurance and other exempt assets transferred or payable to the trust will not be subject to creditors’ claims. Wendy Anderson, P.A. can assist you with this and your other estate planning needs.