What is a Domestic Asset Protection Trust, and In What States Can You Set Them Up?

At Dahl Law Group, our experienced team of attorneys works closely with Northern and Southern California business owners and their families to ensure they’re empowered to make sound financial decisions. A key element of this is proper estate and succession planning. Exploring all available options to avoid unnecessary tax liabilities while protecting your legacy and all that you’ve worked for is crucial for California families.

One option available through a thorough estate plan is a Domestic Asset Protection Trust (DAPT). Many self-titled trusts have the same beneficiary and grantor but aren’t given the same asset protection available through a DAPT. Where things get complex for Californians is that our state does not allow you to establish these trusts locally.

What is a Domestic Asset Protection Trust?

A Domestic Asset Protection Trust (DAPT) is an irrevocable trust established with the intention of affording asset protection to assets placed within the trust. As noted above, it differs from most trusts as the grantor and discretionary beneficiary are able to be the same individual(s) while also obtaining asset protection after a certain period of time.

When properly established, a DAPT allows the grantor to retain access to the assets placed into the trust while providing protection against many types of creditor claims. The statutes governing DAPTs vary significantly between states, with some jurisdictions offering more comprehensive protections than others (while many states don’t recognize them).

Which States Allow You to Establish Domestic Asset Protection Trusts?

Seventeen states currently allow the establishment of DAPTs: Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. Unfortunately, California is not one of these states, meaning you cannot set up a DAPT within the state. However, California does recognize DAPTs established in other states which is something we’ll expand on in upcoming articles.

Nevada and South Dakota are generally recognized as providing the most extensive asset protection through DAPTs. Delaware and Alaska also offer considerable asset protection benefits, making them popular choices for establishing these trusts.

What are the Limitations of Asset Protection in a DAPT?

Establishing a DAPT involves understanding the limitations and requirements that vary by state. One crucial aspect is the grace period that follows the establishment of a DAPT before asset protection is honored. During this period, which differs from state to state, the trust does not immediately protect against creditor claims. Any ongoing claim at the time the DAPT is set up will continue.

This is why consulting an experienced estate planning attorney is essential to navigate these requirements effectively. At Dahl Law Group, we can help you understand the nuances of setting up a DAPT and guide you in making informed decisions about protecting your assets. Contact Dahl Law Group to make the right choices surrounding your hard-earned assets.

The following two tabs change content below.

Dahl Law Group

At Dahl Law Group, we’re not just a law firm. We’re your trusted advisor for your business and family from beginning to end. As your family and business grow, we will be there by your side. Our passion is providing you with peace of mind and protection through personalized estate and business planning.

Latest posts by Dahl Law Group (see all)