Domestic Asset Protection Trusts (DAPTs)

Risks are significant. Unknowns are significant. A self settled domestic asset protection trust might be an important step to protect assets. First state with the basics. Operate any businesses safely. Obtain appropriate insurance coverage. Create entities to separate different assets and business or investment real estate endeavors. With the basics in place you might then consider creating a trust that you are the beneficiary of but which also protects the wealth you safely transfer into the trust. Some use foreign asset protection trusts (“FAPTs”) but you may obtain reasonable protection from a domestic US irrevocable spendthrift trust. This type of trust needs to be created in one of the approximately 20 states that permit these types of trusts. If you live in one of those states this planning may be more assured to succeed then if the state in which you reside does not permit these types of trusts and you have to create the trust in a different state. In such instances the Full Faith and Credit Clause of the Constitution may be invoked by your home state to apply its law instead of the law of the state where the trust is created. Take steps before creating and funding a DAPT to demonstrate that you have no claims against you, that you have adequate resources to support your living expenses, etc. Also, once you create a trust, adhere to its formalities.