Domestic Asset Protection Trust
Protecting your financial assets is a fundamental step towards limiting your exposure to legal risks. While people generally associate trusts with succession planning, many trusts can provide legal protection not just for the next generation but during your lifetime as well. An affordable and increasingly popular type of trust for asset protection is a Domestic Asset Protection Trust (DAPT).
DAPTs can provide a legal separation for yourself and designated assets. This allows you to protect your assets from lawsuits, financial claims, and a host of other potential legal events. Even if you believe that you're unlikely to face a major financial event in your life, a DAPT allows you to anticipate unknown risks.
Contrary to popular belief, you don't have to forfeit control over your assets if you form a trust. While the legal arrangements change the nature of your ownership, you can still maintain your ability to use and enjoy your assets with a DAPT.
In many cases, individuals who choose to form DAPTs will use the trust as part of a long-term estate planning strategy. DAPTs can be formed to suit your individual needs and preferences. Whether you're trying to protect a child from future financial exposure or prevent yourself from losing money to aggressive plaintiffs or creditors, DAPTs can be a very effective solution.
At Mile High Estate Planning, we've helped countless clients protect their financial interests with Domestic Asset Protection Trusts (DAPTs). If you're ready to learn more about this unique legal arrangement, we're the perfect resource for you and your loved ones.
What is a Domestic Asset Protection Trust?
A Domestic Asset Protection Trust (DAPT) is a legal structure that allows you to protect your assets from legal threats. In essence, a DAPT is an irrevocable trust in which the beneficiary can be the same person that created the trust, and the trust's assets are shielded by that individual's creditors.
Due to the simplicity and flexibility of Domestic Asset Protection Trusts, they have grown as increasingly popular options for asset protection. While business owners have traditionally been able to protect themselves using limited liability companies or corporate entities, a Domestic Asset Protection Trust allows individuals to protect their personal assets as well as any business or investment assets. This type of trust can help level the playing field when it come to personal exposure to creditors and lawsuits.
It's not just traditional creditors that a DAPT can protect you from. DAPTs also provide protection from legal complaints, malpractice claims, and a host of other financially consequential events.
A Domestic Asset Protection Trusts can allow you to shield yourself from the implications of lawsuits. Not only will this help you protect your financial health if legal action is brought against you, but it can also help you deter lawsuits from being filed in the first place. A creditor might be less likely to seek money from you if they're aware you have legal protections in place.
Below, let's explore a list of assets that can typically be included in a Domestic Asset Protection Trust:
- Bank accounts
- Primary residences
- Other real estate investments
- Stocks, bonds, and other financial securities
- Intellectual Property
- Businesses, LLCs, and other corporations
- Art and antique possessions
- A range of other assets
What States is DAPT Legal In?
One of the primary downsides of DAPTs is that they are not sanctioned by the laws of every state in the country. At present, fewer than half of all U.S. states allow people to setup type of trust in their state. While some states have clear legislation recognizing the protections afforded to this type of trust, other states have laws that imply DAPTs are permitted.
Below, we've compiled a list of eighteen states that have recognize Domestic Asset Protection Trusts in their state statutes. It's important to note that you must seek legal advice, if you want to fully comprehend the protections afforded to any type of trust in your state.
- New Hampshire
- Rhode Island
- South Dakota
- West Virginia
If you're not located in one of the above states, you may be wondering if you can access a Domestic Asset Protection Trust by transferring your assets to another state and forming a trust. While this appears to be a logical way to approach protecting your assets with a DAPT, the lack of case law surrounding the question implies that it might not be the most effective method for shielding yourself from financial risks.
Who is a Good Candidate for a DAPT?
Almost anyone can benefit from the advantages of a Domestic Asset Protection Trust. If you own assets that you want to protect, a Domestic Asset Protection Trust is a suitable legal arrangement for yourself and your family.
Many people make the mistake of assuming a trust is only suitable for someone with an exceptionally large net worth. As long as you have assets or financial interests that you want to protect, a Domestic Asset Protection Trust can be an excellent choice. The reality is that the cost of setting up and maintaining a Domestic Asset Protection Trust is attainable for many middle-class individuals and families.
If you're concerned about your exposure to malpractice claims, creditors, lawsuits, or any other financial risk, a Domestic Asset Protection Trust is an excellent solution.
Advantages/Benefits of a DAPT
If you're considering a Domestic Asset Protection Trust as a form of financial protection, it's critical to understand the benefits of this legal arrangement. We've outlined the primary advantages of DAPTs below.
If you want to protect your assets for future generations, a DAPT is a perfect legal arrangement. Not only will this provide shielding for frivolous lawsuits and other claims, but it will also allow you to put measures in place to protect your heirs' financial health. For example, if you have a relative who is incapable of managing money, you can use a DAPT to temper their future spending.
DAPTs can do much more than protect your financial security; they can also protect the privacy of your family. If you want to shield ownership of particular assets from prying eyes, using a DAPT will ensure that you're not subject to public scrutiny. Regardless of why you require privacy, this is a valuable benefit.
Protection from Creditors, Claims, Lawsuits, and Other Financial Threats
Regardless of your financial and legal history, you're always open to attack by aggressive creditors and unjust lawsuits. If you have never experienced a legal threat, you might not realize how quickly an innocent party can pay the price even if they were never at fault. The primary advantage of a DAPT is that it helps you protect your personal assets from the reach of creditors and lawsuits – it acts as an insurance policy against legal threats.
Disadvantages/Risks of a DAPT
While Domestic Asset Protection Trusts offer a range of obvious advantages, it's essential to understand there are also a few drawbacks. We've outlined them in further detail below.
Limited Regional Protection
As discussed, one of the significant limitations of a Domestic Asset Protection Trust is its lack of recognition in many states. As of 2020, there are only eighteen states that currently recognize this form of trust. If you live or get sued in a state that does not offer explicit protections to DAPTs there is a risk the courts may not be sympathetic to the protections of an out-of-state DAPT.
Legal Grey Zone on Trusts Across State Borders
If you live in a state that does not explicitly allow the protections of a DAPT, you might be considering forming a trust in another state to take advantage of the available financial protections. While this arrangement has become a popular choice with many Americans, recent case law suggests this type of arrangement can be susceptible to unfavorable court rulings.
As there is minimal case law to follow regarding out-of-state residents using DAPTs, you might not be protected from your creditors if you live in a state that does not allow DAPTs and form one in another state.
Exposure to Federal Rulings
Lastly, it's important to note that the small amount of case law surrounding DAPTs means there is little evidence this type of trust will hold up against federal judgments. As Domestic Asset Protection Trusts are not recognized in many parts of the country, you might have exposure to federal rulings.
Structuring a DAPT
Domestic Asset Protection Trusts are highly customizable. If you're hoping to build a trust that is suitable for you and your family's interests, it's important to consult an experienced attorney to assist with its formation and funding. At Mile High Estate Planning, we can help you develop DAPTs that are tailor-made to your specific needs and requests.
We're highly skilled at creating trusts that withstand legal pressures. If you need assistance with this type of asset protection, don't hesitate to contact our attorneys for legal assistance. The sooner you protect your assets from outside threats, the quicker you can rest assured that you are protected from unexpected legal threats.
We receive many questions about DAPTs and their uses and benefits. If you would like more information about this type of trust, make sure to explore the questions and answers listed below.
A Domestic Asset Protection Trust is a trust that allows individuals to protect themselves from creditors and other financial repercussions. As an irrevocable trust, this is a legal arrangement that ensures your assets are protected from lawsuits and other frivolous actions. Unlike other trusts, DAPTs allow the individual who is forming the trust to appoint themselves as a beneficiary.
While this trust is often associated with personal asset protection, it's also used by individuals who want to protect assets for future generations. Trusts can be formed with strict instructions in place, which means that DAPTs can be used to protect future generations from spending money unnecessarily.
DAPTs also provide privacy measures that allow you to shield the ownership of assets. This is particularly beneficial to privacy-minded individuals.
This will largely depend on your individual situation and how the trust is set up. Generally, an irrevocable trust can be its own tax entity or the tax liabilities can continue to flow to the grantor. At Mile High Estate Planning, we are happy to work with your existing accountant or tax professional or to use our in-house Certified Public Accountant to help determine the ideal tax structure for your situation.
By transferring your assets into an irrevocable trust, many state courts view the trust assets as no longer held under your control. In doing so, you can remove these assets from exposure to litigation and other claims directed at you as an individual. This also provides you with privacy of ownership and peace of mind.
One of the most common questions we receive is regarding the distinction between a DAPT and a revocable trust. With a revocable trust, you can benefit from many of the privacy features found in a DAPT, but you won't benefit from any legal protection in the face of plaintiffs or creditors. Assets held in a revocable trust are still considered owned by the grantor or the original owner, a court can order the assets of the trust to be forfeited to pay creditors or satisfy a judgment.
Contact Mile High Estate Planning for More Information
If you're considering DAPTs or other forms of asset protection, it's essential to speak to a law firm that understands what your legal needs are and how to best achieve them. At Mile High Estate Planning, we have considerable experience helping our clients set up Domestic Asset Protection Trusts and other forms of asset protection structures. In doing so, we help our clients shield their economic interests.
Our skilled attorneys are the perfect partner if you're searching for qualified legal professionals that can help you develop strong asset protection solutions for you and your family. If you would like to discuss what kind of asset protection is right for your situation, please contact Mile High Estate Planning to schedule a free, no-obligation consultation.