A domestic asset-protection trust or DAPT is an irrevocable trust designed to protect a person’s assets from creditors. A person can use a domestic asset-protection trust for themselves, their family, or others. To create a DAPT, the person must assign an independent trustee to it. This is a person who will distribute the assets to beneficiaries as dictated by the settlor or creator of the trust.
Why Do People Use Domestic Trusts?
The point of a domestic trust is to shelter assets from creditors. This can be especially important if a person works in an occupation where lawsuits are common. For instance, doctors and financial advisors may have a higher risk of civil litigation due to the nature of their occupation. With these risks, asset protection is necessary. In an asset protection trust, the assets belong to the trust, rather than the creator. This is how they remain safe from creditors.
Where Can You Have a Domestic Trust?
DAPTs are not allowed in all 50 states. The states that do allow the formation of domestic asset-protection trusts include:
- Alaska
- Delaware
- Hawaii
- Mississippi
- Missouri
- Nevada
- New Hampshire
- Ohio
- Oklahoma
- Rhode Island
- South Dakota
- Tennessee
- Utah
- Virginia
- West Virginia
- Wyoming
Every state has its own rules and conditions regarding DAPTs. If you live in a state where these trusts are allowed, it makes sense to have your assets in a trust in that state.
Can a Creditor Access the Assets?
The short answer is that creditors cannot usually access the assets in your trust. There is a statute of limitations on the trusts, where a creditor can bring litigation to force you to take the assets out of the trust. Most states have a statute of limitations. In the majority of these states, if an asset has been in the trust for at least four years, then no creditors can touch it. When it comes to bankruptcy, there are also some cons. For instance, if a person did not have the assets in a trust for 10 years and then filed bankruptcy, he or she may lose assets.
A domestic asset-protection trust can be extremely beneficial. This is especially true for those who have a high risk of civil litigation. When a person works in the medical or financial field, he or she is more likely to face lawsuits and hence needs better asset protection. For those who require asset protection, consult with a lawyer, like an estate planning lawyer in Melbourne, FL from the Law Offices of Arcadier, Biggie, & Wood, as soon as possible.