Domestic Asset Protection Trusts (DAPTs)

OUR BOCA RATON ESTATE PLANNING LAWYERS EXPLAIN DOMESTIC ASSET PROTECTION TRUSTS (“DAPTS”) 

Generally, and under the laws of most states, asset protection is not afforded to an individual who places assets into a trust of which he or she is a beneficiary. These are known as “self-settled trusts”. However, there are exceptions, and a number of states recognize the validity of such trusts coining the term Domestic Asset Protection Trusts (“DAPTs”). If you live in Florida, forming a DAPT under the laws of one of these states can offer significant benefits for you and your family both during and after your lifetime.

At Ellis Law Group, our Boca Raton estate planning attorneys have significant experience helping Florida residents use DAPTs to protect their wealth. We can help you decide if a DAPT is a good option for your personal circumstances; and, if it is, we can help you incorporate a DAPT into your broader estate planning and asset protection strategy. If you have spent years, decades or your entire life saving for your and your family’s future, you deserve to know that your assets are secure. Our attorneys can give you the confidence and peace of mind you desire.

WHAT IS A DOMESTIC ASSET PROTECTION TRUST (“DAPT”)?

A Domestic Asset Protection Trust is an irrevocable trust established under the laws of a jurisdiction that allows the settlor of the trust to be a discretionary beneficiary while still offering protection against claims from the settlor’s creditors. With an appropriately-established DAPT, the settlor retains access to the assets placed into the trust, but the assets are protected against many types of creditor claims.

Domestic Asset Protection Trust statutes differ greatly between states, with some offering much more comprehensive protection than others. Nevada and South Dakota are generally recognized as allowing debtors the greatest ability to shield assets from creditors’ claims through the establishment of DAPTs, while Delaware and Alaska offer certain asset protection benefits as well.

Every state that recognizes DAPTs has a limitations period for asset protection. In other words, placing assets into a DAPT does not immediately protect those assets from creditors’ claims; and, generally speaking, a DAPT cannot be used to avoid liability for a claim that is already outstanding at the time that the DAPT is established. The number of years required to achieve protection varies from state to state and differs for preexisting or known creditors versus unknown creditors.

With the exception of Nevada, all of the states that have enacted legislation allowing DAPTs have included provisions in their statutes that permit certain exception creditors to pierce the trust, notwithstanding the fact that the applicable limitations period has already expired. The exception creditor provisions found in the DAPT statutes of Alaska, Delaware and South Dakota generally take the form of carve-outs for property settlements of divorcing spouses, alimony, child support and preexisting tort creditors. However, this list is not necessarily exclusive; and, prior to establishing a DAPT, it is important to ensure that your trust, if established, will serve its intended asset protection function.

WHAT ARE THE UNIQUE BENEFITS OF NEVADA’S DOMESTIC ASSET PROTECTION TRUSTS FOR FLORIDA RESIDENTS?

Among the states that have DAPT statutes, Nevada offers the greatest level of asset protection to DAPT settlors in most cases. In addition to offering a very short limitations period and not recognizing any types of exception creditors, Nevada’s DAPT law also requires that a creditor prove “by clear and convincing evidence” that the transfer of property to a DAPT was fraudulent or “violates a legal obligation owed to the creditor under a contract or a valid court order that is legally enforceable by that creditor.” This is an important protection, as it establishes a higher standard than normal for proving that a settlor has used a fraudulent conveyance to avoid contractual or judgment liability.

Additionally, while a Nevada DAPT must, technically, be irrevocable, Nevada’s asset protection laws permit settlors to retain broad powers and rights. For example, Nevada law allows the settlor to be the investment trustee, so the settlor can retain full authority to make investment decisions on behalf of the trust. However, even under Nevada law, the grantor cannot have any powers to make distributions. Nonetheless, the grantor can retain the power to change trustees at any time, so if an issue arises with regard to securing distributions this issue will often be fairly straightforward to overcome.

WILL A DAPT BE BENEFICIAL AS PART OF YOUR ESTATE PLAN OR ASSET PROTECTION STRATEGY?

Given these benefits, should you form a DAPT as part of your estate plan or asset protection strategy? As always, the answer to this type of question is, “Maybe.” While establishing a DAPT can offer significant benefits, it will not be right for everyone; and, depending on the liability you are trying to protect against, a DAPT may or may not be effective. Our attorneys can help you decide if forming a DAPT makes sense for you, and we encourage you to contact us to discuss your legal needs in confidence.

CONTACT US TO DISCUSS YOUR ESTATE PLANNING AND ASSET PROTECTION NEEDS IN FLORIDA

Regardless of your net worth, what you do for work and what your estate planning goals may be, protecting your assets is important. At Ellis Law Group, we can help secure your financial stability and provide certainty for the future through comprehensive and effective estate planning and asset protection strategies. To learn more, please contact us to arrange a confidential initial consultation. To speak with a top trust attorney, call 561-475-3848 or tell us how we can help online today.

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