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Home >> What Is a Domestic Asset Protection Trust?

What Is a Domestic Asset Protection Trust?

January 4, 2019 by Andreas Kulas

Port St. Lucie living trust lawyersAsset protection is an essential estate planning goal for anyone with a moderate to wealthy estate. Fortunately, there are numerous estate planning tools and strategies that can help protect the assets you have acquired over the course of your lifetime. Many asset protection strategies involve the use of an irrevocable trust. The reason for this is that assets transferred to an irrevocable trust become trust property, meaning they are no longer accessible to the Settlor of the trust and are, therefore, out of the reach of creditors and other threats. Most irrevocable trusts, however, are third party trusts which means the Settlor establishes the trust for a third-party beneficiary. One type of irrevocable trust though, a Domestic Asset Protection Trust (DAPT), allows the Settlor of the trust to also be a beneficiary. The Port St. Lucie living trust lawyers at Kulas & Crawford explain how a Domestic Asset Protection Trust works and why you might want to consider including one in your estate plan.

What Is a DAPT?

A Domestic Asset Protection Trust (DAPT) is an irrevocable self-settled trust established under the special laws of one of the limited number of jurisdictions that allow the Settlor (also referred to as the Grantor or Trustor) to be designated a permissible beneficiary with access to the funds in the trust account. As of 2018, only 17 states have DAPT friendly laws. Florida is not one of those states.

A properly drafted and structured DAPT prevents creditors from reaching the trust’s assets. If a DAPT were set up under the laws of a non-DAPT jurisdiction, the general rule is that the Settlor’s creditors can access as much of the trust as can be distributed to the trust Settlor. In addition to providing asset protection, a DAPT offers other benefits, including state income tax savings when situated in a no-income-tax state.

When Does a DAPT Start Protecting Assets?

Each DAPT jurisdiction has a statute of limitations period that determines how long is necessary between the date of transfer to the DAPT and the date on which the transferred asset will be protected from the Settlor’s creditors. The number of years required before the assets are protected varies from state to state. The statute of limitations also differs for preexisting creditors versus non-preexisting creditors. In most jurisdictions, the statute of limitations period tolls for preexisting creditors to protect these creditors.

Are Any Creditors Able to Access Assets Held in a DAPT?

The extent to which a Domestic Asset Protection Trust will protect assets depends on the jurisdiction in which the trust is established. All the states except Nevada, however, have certain “exception creditor” statutes that allow certain classes of creditors to access the trust assets even though most creditors are barred by statute from accessing the DAPT assets. For example, many states provide an exception for divorcing spouses or alimony claims. A number of states also have a statute that makes a child support creditor and/or a pre-existing tort claim creditor an exception creditor.

What Assets Can Be Used to Fund a DAPT?

Like most trusts, you can fund your DAPT with just about any type of asset you want; however, because the goal of this particular type of trust is to protect assets, careful consideration should be paid to which assets you decide to transfer into the trust. In addition, because you should anticipate creditors to try and get past the protection afforded by a DAPT, it is in your best interest to work closely with an experienced trust attorney when deciding in which state to establish your trust and which assets to use to fund your DAPT.  For example, if you wish to protect real estate owned by an LLC or other entity established in another state, care must be taken when considering not just the state where the DAPT is established, but also the state in which the property is located because a local court may try to exercise jurisdiction over the property, notwithstanding the fact that the property is owned by an out of state entity. Often, the best way to protect assets is to create layers of protection. Transferring real estate to an LLC, for instance, and then transferring the entire LLC into a DAPT creates more than one obstacle a creditor must get past when trying to get to assets. Given the personal nature of asset protection, and the differences in state laws where Domestic Asset Protection Trusts are concerned, it is imperative that you work closely with an experienced estate planning attorney to ensure that your assets are properly protected.

Contact Port St. Lucie Living Trust Lawyers

For additional information and assistance, please FREE estate planning worksheet. If you have specific questions about a Domestic Asset Protection Trust, please contact the experienced Port St. Lucie living trust lawyers at Kulas & Crawford by calling (772) 398-0720 to schedule an appointment.

Filed Under: asset protection

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Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family.

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"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
Client Review
August 25, 2020
    

Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
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I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

Leo C.
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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

Mildred W.
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I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
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We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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