If you have spent years acquiring assets and building up your estate’s value, you need to protect what you have built. One way to do that is to include asset protection planning tools and strategies in your estate plan. Toward that end, a Fargo asset protection planning lawyer at German Law Group discusses why you might include a Domestic Asset Protection Trust in your overall estate plan.

DAPT
Basics

A domestic asset-protection
trust (DAPT) is an irrevocable self-settled trust established under the special
laws of one of the limited number of jurisdictions that allow the Settlor (also
referred to as the Grantor or Trustor) is designated a permissible beneficiary
and allowed access to the funds in the trust account. A properly drafted and
structured DAPT prevents creditors from reaching the trust’s assets. If a DAPT
were set up under the laws of a non-DAPT jurisdiction, the general rule is that
the settlor’s creditors can access as much of the trust as can be distributed
to the trust settlor. In addition to providing asset protection, a DAPT offers
other benefits, including state income tax savings when situated in a
no-income-tax state. As of 2020, 18 states allow DAPTs, including Alaska,
Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New
Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah,
Virginia, West Virginia and Wyoming. Note that North Dakota is not among the states that allow DAPTs.

When
Does a DAPT Start Protecting Assets?

Each DAPT jurisdiction has a
statute of limitations period that determines how long is necessary between the
date of transfer to the DAPT and the date on which the transferred asset will
be protected from the Settlor’s creditors. The number of years required before
the assets are protected varies from state to state. The statute of limitations
also differs for preexisting creditors versus non-preexisting creditors. In
most jurisdictions, the statute of limitations period tolls for preexisting
creditors to protect these creditors.

Does
a DAPT Protect Assets from All Creditors?

Again, the extent to which a
Domestic Asset Protection Trust will protect assets depends on the jurisdiction
in which the trust is established. All the states except Nevada, however, have
certain “exception creditor” statutes that allow certain classes of creditors
to access the trust assets even though most creditors are barred by statute
from accessing the DAPT assets.

Funding
a DAPT

Like all trusts, a DAPT must
be funded. Also like all trusts, you can fund your DAPT with just about any
type of asset you want; however, because the goal of this particular type of
trust is to protect assets, careful consideration should be paid to which
assets you decide to transfer into the trust. In addition, because you should
anticipate creditors to try and get past the protection afforded by a DAPT, it
is in your best interest to work closely with an experienced trust attorney
when deciding in which state to establish your trust and which assets to use to
fund your DAPT.  For example, if you wish
to protect real estate owned by an LLC or other entity established in another
state, care must be taken when considering not just the state where the DAPT is
established, but also the state in which the property is located because a
local court may try to exercise jurisdiction over the property, notwithstanding
the fact that the property is owned by an out of state entity. Often, the best
way to protect assets is to create layers of protection. Transferring real
estate to an LLC, for instance, and then transferring the entire LLC into a
DAPT creates more than one obstacle a creditor must get past when trying to get
to assets.

Contact a Fargo Asset Protection Planning Attorney

Please join us for an upcoming FREE seminar. If you have additional questions or concerns about creating a Domestic Asset Protection Trust, or about asset protection planning in general, contacta Fargo asset protection planning attorney at German Law Group by calling 701-738-0060 to schedule an appointment.

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