Best Places to Establish a Domestic Asset Protection Trust

You may wish to protect your property from divorces, civil judgments, and creditors. One possible way to accomplish this is to use a Domestic Asset Protection Trust. However, only a handful of states allow this type of trust, and their laws vary. It’s important to research the best places to establish a Domestic Asset Protection Trust before setting one up.

Domestic Asset Protection Trust

Trusts are sometimes used to safeguard the trust maker’s property. This type of trust – the Domestic Asset Protection Trust or DAPT – is an irrevocable asset protection trust. A close cousin to the DAPT is the foreign asset protection trust or offshore trust.

Not Welcome Everywhere

The word “domestic” refers to the fact that the trust will be established in the United States. However, only 17 states allow the formation of Domestic Asset Protection Trusts:

  • Alaska
  • Delaware
  • Hawaii
  • Michigan
  • Mississippi
  • Missouri
  • Nevada
  • New Hampshire
  • Ohio
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • West Virginia
  • Wyoming

Variations in Protection

Nevada is generally considered to be favorable to the formation of DAPTs. Some states allow DAPT funds to be tapped for certain kinds of debt: child support and alimony. Nevada DAPTs protect against this type of debt. South Dakota allows this type of debt only if the debt was in place at the time assets were transferred to the DAPT.

Some states levy state income tax against DAPTs under certain conditions. For example, Delaware and some other states only tax DAPTs owned by their own residents.

Nevada and South Dakota also are considered easy to use because an Affidavit of Solvency is not required for every transfer. Many other states do require this affidavit.

Tangwall v. Wacker, 2018 WL 1125033 (2018)

Previously, Alaska was considered to be a good state for DAPTs. The Alaska Supreme Court recently ruled on a case that involved a DAPT set up in Alaska by Montana residents.

A lawsuit and countersuit were filed in Montana. Shortly before the counter-plaintiffs (the Wackers) won, the other family (the Tangwalls) transferred property to an Alaska asset protection trust. The Wackers filed and won a lawsuit in Montana against the Tangwalls for fraudulent transfer. The Tangwalls then filed a lawsuit in Alaska to block attempts to use funds from their Alaskan DAPT to pay their Montana judgment.

The main point in the court order is that one state (Alaska) cannot limit the jurisdiction of the court of another state (Montana). Because of this and similar rulings by other courts, DAPTs established in a state other than the settlor’s home state may be vulnerable.

Use the Asset Protection Strategy That’s Right for You.

A Domestic Asset Protection Trust is not your only option. In fact, a DAPT may not be your best option. Asset protection trusts established in foreign countries typically offer better protection. Before establishing any trust, talk to an experienced attorney.

ADDITIONAL RESOURCES:

Revocable Vs. Irrevocable Trusts

What Are The Key Differences Between A Revocable And Irrevocable Trusts?

Disadvantages Of Using An Irrevocable Trust

Does A Revocable Living Trust Really Protect The Settlor’s Assets? The Answer May Surprise You

Is There A Way To Modify Or Terminate An Irrevocable Trust?

5 Reasons To Have Your Revocable Living Trust Regularly Reviewed

What Happens To A Trust After Death?

Do You Need A Trust Protector?

How To Choose The Right Trust

Understanding Domestic Asset Protection Trusts

Benefits To Establishing A Florida Land Trust

Building Your Legacy Through A Charitable Remainder Trust

Will A GRAT Help Fund Your Retirement?

Advanced Estate Planning: Is It Right For You?

At Law Offices of John Mangan, P.A., we help clients choose strategies that meet their needs. Please contact us at 772-324-9050 to schedule an appointment or fill out our Contact Form. We are located in Palm City, Florida, and serve clients in surrounding communities like Stuart, Hobe Sound, Port St. Lucie, and Jupiter, too.

Written by John Mangan, Esq.

John Mangan, Esq.

I’m an attorney in Palm City, FL, and I serve clients throughout Martin County, including Stuart, Palm City, Hobe Sound, and Indiantown, as well as those in St. Lucie County, the Treasure Coast, Palm Beach County, and other parts of Florida. The Law Offices of John Mangan, P.A., is an innovative firm providing estate planning services to clients in Florida. We focus primarily on wills, trusts, asset protection, guardianship, and probate administration.