Asset Protection Tools – Domestic Asset Protection Trusts

We’ve written about Asset Protection Trusts before. Since we get so many questions, we thought it would be useful to write an updated post. Domestic asset protection trusts (DAPTs) are also called self-settled asset protection trusts. They can be used to protect real estate, bank accounts, business assets from future creditors – under specific and narrow conditions, most notably, not against your current creditors and only in a limited number of states. In many cases, there are other trust options and practical strategies that may work better. Still, these DAPTs can be useful under the right conditions.

The basics of a domestic asset protection trust

A grantor, the person who creates the trust, permanently agrees though the trust document to transfer his/her assets. The transfer must be irrevocable which means the grantor can’t change the terms of the trust agreement once it is created. Once the assets are transferred, the trust owns the assets.

While the grantor can’t change or technically control the trust, he/she may be able to receive income or principal from the trustee.

While many states don’t authorize these trusts, the following states now have laws approving DAPTs:

• Alaska
• Delaware
• Hawaii
• Mississippi
• Missouri
• Nevada
• New Hampshire
• Ohio
• Rhode Island
• South Dakota
• Tennessee
• Utah
• Virginia
• West Virginia
• Wyoming

A DAPT should be drafted by an experienced asset protection lawyer. The lawyer will generally review:

• The state laws to determine if your state authorizes a domestic asset protection trust and what conditions must be met to satisfy the state laws.
• Which creditors can’t make claims against the trust. Generally, any creditor with a current judgment, lien, or lawsuit can make a claim against the trust. These trusts are designed to protect against future creditors.
• The individual or corporate trustee must generally live in the state where the trust is formed. The grantor can’t appoint himself/herself as trustee.
• Which assets to protect. Once you move assets to the trust, they become property of the trust. So, you need to think about which assets you want to protect and which assts you need to use. Additionally, you may only be able to protect assets that are located in the state where the trust was created.
• Trust receipts. Generally, any distribution is up to the trustee. The trust can name beneficiaries, such a spouse or children, other than the grantor.

Some of the reason to use a DAPT are to protect against potential lawsuits for professional malpractice. Business owners are generally more likely to think of using a DAPT than individuals.

Even when the DAPT is created properly, the assets will likely not be safe from:

• Claims for child support or spousal support
• Tax claims
• Other claims depending on the facts and the law

Another requirement of some DAPTs is that the beneficiaries of the trust can’t assign their interests. DAPTs may also have a window – meaning that creditors can seize or attach the trust assets if the claim is within a window, for example, two years from the date the trust was created – but can’t make claims beyond the two-year window.

Contact an experienced Domestic Asset Protection Trust Lawyer today

There are many different legal documents and strategies for helping individuals and businesses protect their assets from creditors. Each document and strategy requires an understanding of the applicable laws and the arguments creditors will make to contest the protective nature of the document or strategy. To learn how a domestic asset protection trust and other asset protection documents can help you or your business, call the Tempe Arizona asset protection lawyers at Yaser Ali Law at (480)-442-4175 or fill out our contact form to meet with an experienced wealth management lawyer.