Wishful Thinking and The DAPT

Why The Domestic Asset Protection Trust May Not Be The Answer To Your Debt Woes

DAPT refers to a ‘DOMESTIC ASSET PROTECTION TRUST’. While it can be used as a generic term, there are several states whose laws specifically allow for their creation and define their structure. Those states include Nevada, Alaska, and …among others. They are by definition supposed to enable the creation of havens for people to put their stuff safely out of reach of creditors.

These are not all they are cracked up to be, so be careful if you are being sold on this as the perfect asset protection device. The state laws where the DAPT trust is set up, if different from your state, may not be available to you. If you are sued in Florida, and live here, and try to use your Nevada DAPT to insulate your assets, your creditors might successfully use Florida collection laws and standards to break through any Nevada law obstacles.

Many clients want to move their assets when the proverbial you-know-what has already hit the fan. Do not expect that any state’s DAPT law will protect you from the long reach of the fraudulent transfer laws that govern you in your state of residence. Remember, the United States Constitution requires that each state give full faith and credit to the laws of the other states. When it comes to competing laws, the courts will generally turn to the law that best serves the interests of public policy and fairness. If a court has rendered a judgment against you, thinking that a DAPT in another state allows that state to disregard the laws where you reside is wishful and dangerous thinking.