FAPT Exemptions

12:08 pm Uncategorized

Homestead Exemptions

Generally, homestead exemptions vary from state to state. Florida, Texas, Kansas and Minnesota have very favorable and generous homestead exemptions. The Texas homestead exemption includes an unlimited amount on up to 200 acres of land if the residence is not in town or up to 1 acre of land if the residence is in town. In Florida, the exemption includes an unlimited amount up to 160 acres if the residence is not in town or up to one-half acre if the residence is in town.

In California, the homestead exemption is $50,000 for a single person, $75,000 for families and $125,000 if over 65 or disabled. In California, a creditor can force the property to be sold to satisfy his debt with the debtor being awarded the homestead exemption amount out of the sale proceeds.

It may be then that asset protection planning includes changing domicile to a more favorable homestead exemption state. In a reasonably recent Florida Supreme Court Case, the Court held that the debtor’s residence is protected under Florida’s homestead exemption even if the debtor purchased the residence with the intent to protect the value of the residence from his pre-existing creditor. See Havoco v. Hill 790 So. 2nd 1018 (Fla. 2001).

Other Exemptions

Florida law exempts the entire cash value of the life insurance policy and most annuities from creditor’s claims. California, on the other hand, has a very limited life insurance and annuity exemption.

The Bankruptcy Code specifically excludes from the bankruptcy estate property that is deemed to be subject to a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non bankruptcy law. In this regard, the anti alienation provisions required by ERISA in retirement plans is such a restriction on transfer.

Moreover, since federal law preempts state law, where state law might otherwise subject an ERISA retirement plan to creditor’s claims in a state court judgment enforcement proceeding, the protection afforded by ERISA supersedes state law and, arguably, the ERISA retirement plan assets are protected. The plan must be within the purview of ERISA, however, and its anti alienation provisions.

For more information on California asset protection, contact our California estate planning law firm.

Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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