A domestic asset protection trust (DAPT) is a self-settled irrevocable trust in which a third-party trustee manages and controls the assets. The trustee then makes distributions to beneficiaries. Unlike a will, a Domestic Asset Protection Trust is self-settled, meaning its creator funds it with assets. The creator of the trust is usually also the beneficiary of the trust.
Self-Settled
A self-settled domestic asset protection trust can be a helpful tool for asset protection planning. These trusts can remove assets from an estate and apply rules to protect them from creditors and state income taxes. They can also help protect an individual’s interests in the event of a divorce or death.
Self-settled domestic asset protection trusts are not available in all states. Wyoming, for example, does not have the same laws as some of the other fifteen states. However, it has a favorable statute that allows you to set up and use a self-settled domestic asset protection trust.
Irrevocable
An irrevocable domestic asset protection trust (IDAPT) is a legal instrument often used for asset protection. It is an arrangement where a third-party trustee oversees the distribution of trust assets. In some cases, the grantor may be the beneficiary of the DAPT and grant powers to amend the trust assets.
An IDAPT can help protect your assets against creditors and limit exposure to taxes. To protect your assets, you must have a trustee, preferably an independent one. In some cases, the asset owner can be named the beneficiary, provided there are no known creditors at the time of the trust creation. It is also important to include a “spendthrift clause,” which prevents a beneficiary from transferring any interest before the distribution of the trust assets.
State Laws
A domestic asset protection trust is a type of irrevocable trust. They are created easily and cost very little to maintain. They are administered by a trustee who charges a reasonable annual fee. The settlor, or creator, dictates how the assets are held, and the trustee administers the trust. They are recognized in 18 states.
These types of trusts are also called spendthrift trusts. They allow beneficiaries to protect their assets while still being able to control the distribution of those assets. In Florida, courts have consistently ruled to protect the interests of beneficiaries in such trusts. However, the laws for establishing domestic asset protection trusts vary.
While each state has laws regarding these types of trusts, some common elements are similar. Essentially, domestic asset protection trusts are designed to shield assets from creditors. The trust’s trustee must be a resident of the state where the assets are held. In addition, the transfer of assets into the trust must be made without fraudulent intent.
Funding
One way to protect assets is by funding a DAPT, or domestic asset protection trust. While not available in every state, DAPTs are a viable option for many people. Some states even allow DAPTs for non-residents. In these cases, the trust must be set up as a third-party trust with beneficiaries, including the trustor’s spouse or children.
In more extreme situations, the trustor’s assets may also be included in the trust.
Funding a domestic asset protection trust is easier than you might think. Creating a trust is less expensive than setting up an offshore one. However, there are some potential pitfalls. For instance, if you don’t understand legal terminology, it may be challenging to determine the benefits of each option. For this reason, it is wise to consult an asset protection attorney. They can help you set up the legal framework and select a trustee for the trust. This trustee may be a trusted individual or an institution.
Another benefit of domestic asset protection trusts is that they can save your estate tax. This may be a good option if you have a high net worth. If you create a domestic asset protection trust, consult with a tax professional to determine whether DAPTs are the right choice for your situation.
