Did you know that there are ways to protect your personal assets from creditors, divorce proceedings, and lawsuits? Did you know that protecting your assets can actually be a critical aspect of a sound estate plan?
Whether now or in the future, many people are at risk of lawsuits and adverse court judgements. Business owners, working professionals, and others can protect themselves against adverse legal actions with a Domestic Asset Protection Trust. An added benefit is that the trustmaker, or grantor, may be able to guard wealth that will ultimately transfer to their estate beneficiaries.
A Domestic Asset Protection Trust is an irrevocable trust that is established and operated for the purpose of sheltering assets from judgement creditors in court proceedings. DAPTs are not irrevocable in the traditional sense, however, where they cannot be changed and are managed by third-party trustees. Instead, DAPTs are “self-settled” and “spendthrift,” meaning they allow for trust grantors to be beneficiaries and they prohibit beneficiaries from assigning their interests in trust assets to creditors.
DAPTs were originally created to dissuade people from using Foreign Asset Protections Trusts, also known as offshore trusts. DAPTs are established under state laws and are currently permissible in 17 states. You can still set up a DAPT in a favorable state even if you do not live there. Additional benefits can include:
- Legal stability and ease of access, as opposed to overseas asset protection trusts
- Growing legal recognition in courts and new states
- DAPTs are much cheaper than their foreign alternatives
- State laws typically limit the amount of time creditors can attempt to dislodge DAPT assets
No trust is perfect, and the Domestic Asset Protection Trust is no exception. Drawbacks include the amount of time assets have been placed in trust, and conflicting state laws. Grantors are vulnerable when a short amount of time has elapsed from placing an asset into trust and a creditor’s claim. If too short, creditors could allege a “fraudulent transfer.” Also, if you live in one state, establish the trust in another, and have assets from a third state placed into trust, which laws apply in a dispute? Finding out could get very expensive, though an experienced estate planning attorney can help.
If you or someone you know would like more information, or guidance about a related legal matter, contact a qualified estate planning attorney today. Contact our office today to schedule a meeting with attorney Alan Hougum.