In the realm of trusts and estates, one topic that often piques the interest of clients is asset protection—both for themselves and their loved ones. To shed light on this subject, let’s delve into the world of Domestic Asset Protection Trusts, commonly referred to as DAPTs.
A DAPT is a specialized type of irrevocable trust. What sets it apart from the standard irrevocable trust is its self-settled nature. In simpler terms, the individual establishing the trust, known as the settlor, can also be a beneficiary of the trust. This is a key distinction that makes DAPTs particularly appealing.
Originally, DAPTs emerged in offshore jurisdictions like the British Virgin Islands, the Cayman Islands, and the Cook Islands. These trusts offered a form of foreign asset protection. However, DAPTs differ in that they are situated right here in the United States. Consequently, they are often more accessible and cost-effective compared to their offshore counterparts.
It’s worth noting that not every U.S. state allows for the creation of DAPTs. Presently, approximately 17 states have codified legislation governing DAPTs, and Florida is not among them. However, this doesn’t mean that Florida residents cannot establish DAPTs. It simply means that, in such cases, a suitable jurisdiction may need to be identified, and a trustee in that jurisdiction located to oversee the trust.
Popular choices for setting up DAPTs within the U.S. include Nevada, Delaware, and South Dakota due to their favorable legal frameworks and established relationships with trustees.
One noteworthy feature of DAPTs is the potential for the settlor to be a beneficiary. While they may not be the sole beneficiary, this distinction sets DAPTs and foreign asset protection trusts apart. These trusts primarily serve as a means of safeguarding assets, both for oneself and future generations.
Now, let’s address a critical concept associated with DAPTs: fraudulent transfer or fraudulent conveyance. Contrary to its name, this term isn’t about fraud or criminal activities. Instead, it represents a legal remedy available to creditors.
When establishing a DAPT or transferring assets into it, it’s essential to consider existing or potential creditors. If there is a known creditor, such as one with a judgment against you, or if you anticipate facing a lawsuit or foreseeable credit issues in the future, they may have the legal means to undo the transaction. This could result in the reversal of asset protection measures, effectively nullifying the trust’s purpose.
The key to an effective DAPT lies in ensuring there are no known or reasonably foreseeable creditors at the time of trust creation. In essence, you want the coast to be clear. Unfortunately, many individuals seek guidance on DAPTs when they are already embroiled in creditor-related issues. The takeaway here is that if DAPTs align with your financial goals and objectives, it’s crucial to act proactively.
Given the intricacies of DAPTs and asset protection, it is highly advisable to collaborate with one of our attorneys. Our guidance can be helpful in navigating the complexities of DAPTs and ensuring you make well-informed decisions.
If you are interested in exploring DAPTs further and want to understand how they might fit your unique circumstances, don’t hesitate to reach out to our office. Whether by phone or through our website’s contact forms, we are here to assist you in safeguarding your assets and securing your financial future. We look forward to hearing from you.