Exploring the Key Features of Domestic Asset Protection Trusts
An asset protection trust may be worth considering for people with significant monetary assets who are concerned about being hit by lawsuits. A domestic asset protection trust (DAPT) is a special irrevocable trust that offers some protection from future creditors and divorces. DAPTs are also useful for professionals who face malpractice claims. They work well for people in high-risk professions, such as physicians, lawyers, and business owners.
They Are Spendthrift
If you live in a state that allows domestic asset protection trusts (DAPT), you may be interested in protecting your assets. These trusts are a common way for people in high-risk professions or businesses to protect their wealth from future legal claims against them.
A DAPT limits creditors by preventing them from using the beneficiary’s beneficial interest in the trust to satisfy their debts. It also prevents beneficiaries from transferring their current or future rights in the trust to other parties. This type of protection is similar to the protection provided by offshore trusts. However, a domestic DAPT is more convenient and less costly to establish and maintain. It protects against unanticipated debt, such as child support or alimony obligations.
They Are Irrevocable
A domestic asset protection trust must be irrevocable to provide the best protection from creditors. Unlike revocable trusts, which allow the settlor to retain some rights and access to assets, DAPTs require the trustee (or trustees) to have the legal title to all assets in the trust.
This allows the trustee to keep the trust’s assets away from the settlor and any other creditor, as the DAPT technically doesn’t own them anymore. It also reduces estate taxes, as the trust assets are no longer considered part of the settlor’s taxable estate. However, in exchange for this enhanced protection from creditors and lawsuits, the grantor relinquishes control and ownership of all assets they transfer into the DAPT. This may be a deterrent for some individuals.
They Are Self-Settled
A DAPT is an asset protection trust that allows you to keep your assets separate from your creditors. Seventeen states allow this type of trust, including Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and West Virginia.
Once your assets are transferred to a self-settled trust, they become inaccessible to future creditors, except child support or alimony claims and specific “exception creditors,” which vary by state. This allows you to save on state income taxes and protects your personal property from the threat of a lawsuit. However, this protection is only available for a limited time, as creditors can sue to obtain access to the assets in your DAPT.
They Are Tax-Free
A domestic asset protection trust (DAPT) shields assets from creditors, which makes it an attractive estate planning tool for people with liability concerns, including professionals in high-risk occupations. DAPTs are also useful for reducing the size of an estate to obtain Medicaid benefits.
As the popularity of DAPTs continues to rise, estate planners need to be aware of the key features that differentiate these trusts from other irrevocable trusts. By understanding the benefits and limitations of a DAPT, planners can help their clients find the best possible solution to suit their specific needs.
They Are A Form Of Estate Planning.
If you want to add an asset protection trust to your estate plan, consulting with an experienced attorney is a good idea. They can help you decide if an APT is the right choice for your situation, and they can also help you choose the best jurisdiction to establish your domestic APT.
A DAPT is an irrevocable trust that shields the settlor’s assets from claims by creditors. This type of trust can protect real estate, cash investments, LLCs, and securities. However, it’s essential to understand that a DAPT is not a foolproof way to avoid debt. A DAPT can also be an effective way to skip probate, a costly legal process in which an executor collects your assets and pays off any lingering debts.