Previously, we discussed what a Domestic Asset Protection Trust (DAPT) is, what its limitations are and if DAPTs are not recognized in California.
Diving deeper, it’s important to understand why the State does not recognize DAPTs in California estate plans — and which states do.
Why Doesn’t California Recognize Domestic Asset Protection Trusts?
A DAPT is a type of irrevocable trust that is established with the intention of affording asset protection to the assets held within. Unlike other trusts, however, these often have the same grantor and discretionary beneficiary — providing asset protection after a certain period to individuals who are both placing their assets into the trust and benefiting from it.
California does not allow the establishment of irrevocable self-settled trusts where the same individual is benefiting from a trust that their own assets are being fed into. In fact, most states don’t. The only states that do are: Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
DAPTs afford asset protection that is generally reserved for trusts where the grantor is giving up control of an asset rather than retaining control and benefiting from it.
Where Should I Establish a Domestic Asset Protection Trust?
As noted, you won’t be able to establish a DAPT in California. So, where should you? Public policy of the state where you reside governs whether you can set one up. However, some states will refuse to enforce a judgment from California if that judgment goes against the policy within that state.
You would want to establish your trust in a state that recognizes DAPTs and that is more likely than not to uphold the asset protection status afforded to you by the establishment of a DAPT. Alaska, Delaware, Nevada, South Dakota and Wyoming provide the most extensive asset protection for those who establish DAPTs.
Protect Your Legacy with Dahl Law Group
Our team of experienced estate planning professionals is prepared to apply the most efficient and effective tools in your estate plan. We use all the available options and resources to guide our clients toward the right choices for their specific circumstances. When you’re ready to get your estate plan done right, contact Dahl Law Group for personalized legal counsel and ask if a Domestic Asset Protection Trust is right for you.
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