How to Protect Your Assets with a Domestic Asset Protection Trust

There are a lot of different estate planning and asset protection planning trusts out there: revocable living trusts, Medicaid asset protection trusts, and life insurance trusts are just a few of them. One type of trust that savvy trust lawyers find to be useful, though sometimes only in narrow circumstances, is a domestic asset protection trust, often known as a “DAPT”.

What is a domestic asset protection trust?
A domestic asset protection trust is used to protect financial assets, real estate, personal property, and business assets from future creditors. Like most other trusts, once these assets are transferred into a self-settled trust, they’re legally owned by the trust and not by you. A domestic asset protection trust is an irrevocable trust, which is the key feature in making sure that future creditors cannot reach the assets that are in the trust.

What are the limitations of a domestic asset protection trust?
As mentioned earlier, there are a few limitations to these trusts. The biggest limitation is the fact that they cannot protect assets from past creditors, so any debts incurred before the trust is created are still liable to be paid out from trust assets. Domestic asset protection trusts are also not allowed in a number of states, as many lawmakers were worried that these trusts could be used to wrongfully avoid creditors. Currently, DAPTs are authorized in the following states:

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

How do I create a domestic asset protection trust?
Even if you do not live in a state that recognizes a DAPT, you can still take advantage of this powerful planning tool by creating it in a state that does. Your first step should be to speak with an attorney who has experience with drafting DAPTs as not all attorneys have experience utilizing these sophisticated planning tools. Not only does our office have experience counseling our clients on the use of DAPTs, we can also share additional asset protection strategies that may be beneficial to you. Here is some of the information we would need to help you get started:

  • The creditors from whom you want to protect your assets. Many people choose self-settled trusts if they worry about possible accidents or injuries, work in high-risk professions with liabilities, or own a business.
  • The trustee of the trust. You cannot act as the trustee of your own self-settled trust, since that defeats the purpose of the assets no longer being in your control. You’ll need to choose someone you trust or a corporate trustee who can fulfill those duties. Our office has relationships with several professional trustees in a number of the top DAPT states, including Nevada. So if you do not have a trustee in mind, our office can help you find one.
     
  • The assets that will go into the trust. Typically, people will put financial assets and real estate property into their self-settled trust, but everyone’s individual situation is different. You should bring a list of all your assets when you meet with us so you can better determine what assets will go into the trust.

If you’d like to learn more about how a domestic asset protection trust may be used to protect your assets for yourself and your family, or if you currently have a domestic asset protection trust and would like to have it reviewed by one of our experienced trust attorneys, please contact us at (888) 719-5589 to set up a consultation.

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