If you have significant assets and are looking for ways to protect your hard-earned wealth from exposure to creditors or legal claims, there are various legal options to consider, including establishing a Domestic Asset Protection Trust (DAPT). At its core, DAPTs enable individuals to transfer assets into an irrevocable trust while still retaining some control or beneficial interest. This can shield assets from potential creditors and legal claims, under certain circumstances.
In addition to providing an enhanced level of protection from legal claims, a DAPT can assist individuals in passing on assets to their loved ones while minimizing their tax bill and without spending significant time and resources in probate court. However, it is important to understand that properly creating and funding a DAPT is a complex process, which is why it makes sense to work with a knowledgeable and experienced asset protection attorney. When you work with a seasoned attorney, they can help guide you through the process and provide a detailed assessment of your legal options based upon your specific circumstances.
Asset Protection via DAPT
When you create a DAPT, the assets transferred into the Trust are afforded a level of legal protection. This is because a DAPT, as mentioned earlier, is an Irrevocable Trust.
This means there is a proverbial statutory wall separating the personal property of a Trust and the assets that were transferred into the Irrevocable Trust. The DAPT is a separate legal entity created by a grantor to manage and maintain assets. Once assets are transferred into the DAPT, the trust itself becomes the formal legal owner of the assets. This means, if a lawsuit is filed against the grantor as an individual, the claim would not extend to the trust assets since they are no longer technically owned by the grantor.
Unique Benefits of a DAPT
One of the unique benefits associated with a DAPT is that it can be combined with a Limited Liability Company (LLC) as an estate planning strategy. It is even possible, when carefully drafted, to have the grantor of DAPT designated as a beneficiary of the Trust and receive discretionary distributions via the Trust.
If you are in a relationship, but not yet married, consider creating a DAPT to hold your personal assets. This will help ensure that your assets are not part of the marital estate thereby protecting them from being subject to equitable division, in the event of a divorce. You may also want to consider placing nonexempt assets in a DAPT. In the event you wind up having to declare bankruptcy, the bankruptcy trustee will not be able to lay claim to those assets in order to satisfy creditor liens.
Limitations of a DAPT
Though there are numerous benefits associated with DAPTs, but there are also some notable limitations. For example, the fact that a DAPT is irrevocable presents inherent limits. This is due to the fact that, with any irrevocable trust, once a grantor creates the trust, they cannot undo it. Another limitation is that a grantor cannot create a DAPT to defeat or circumvent an already-filed legal claim. Basically, this means if a judgment is entered against you, creating a DAPT at this point will not offer much in the way of asset protection benefits. In fact, once there is notice of a claim, in many instances establishing an asset protection trust would be considered a fraudulent transfer. This is why it is important to be proactive about planning your estate and protecting your assets.
Another potential limitation associated with DAPTs is the applicable laws in the state in which you reside. They will play a role in assessing whether a DAPT is a worthwhile option since state laws differ greatly when it comes to the creation, and asset protection afforded, via DAPTs. For example, some state laws provide more comprehensive protection via a DAPT than other states. For example, Nevada and South Dakota are considered to have generous DAPT statutes that afford individuals the ability to shield a significant amount of assets from creditors and potential legal claims. Other states, such as Delaware and Alaska, also offer asset protection benefits via DAPTs.
States that recognize DAPTs generally impose a limitations period for asset protection. In other words, transferring assets into a DAPT does not immediately protect those assets from creditors’ claims. The exact number of years you must maintain assets in a DAPT to trigger legal protection varies from state to state and will differ for preexisting or known creditors versus unknown creditors.
Speak to an Asset Protection Attorney Today
If you have additional questions about what is a DAPT or DAPTs in general, contact Skabelund today to schedule a confidential assessment. We take pride in working with our clients to help create bespoke trusts and estate plans intended to meet their unique goals and objectives. Our team of skilled and knowledgeable asset protection attorneys understand the importance of preserving and safeguarding your hard-earned assets.
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