What is a Domestic Asset Protection Trust?

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 heavens for people to put their stuff safely out of reach of creditors.

While they can be useful in some instances, 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 breakthrough any Nevada law obstacles. 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.

Many clients want to move their assets when the proverbial you-know-what has already hit the fan. It is often a futile exercise to set up an asset protection device once you are on notice of claim against you, and even more precarious if you have already been sued. While devices like a DAPT may create hurdles, they will rarely act as an impenetrable wall once you have been sued.

The DAPT is simply a trust like any other trust…you are the grantor, you put assets in, you appoint a (hopefully neutral) trustee, and you follow the reporting rules. If created, and your assets moved officially into the trust before you are on notice of an attack or potential attack, then the state laws where the DAPT exists will insulate it from later creditors. You can use it as a grantor trust, where you retain the taxable income, or you can set it up so that it is its own taxable entity. The decision there requires you to discuss with your tax advisor.

My state, Florida, does not have the DAPT, but in the right circumstances, it is a useful tool for my clients if they are willing to put their assets in the state where the trust is formed…..and when they are not already under attack!

For more on DAPT’s and other asset protective tools, please call for an appointment at (561) 220-2528