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20-Year Anniversary of Domestic Asset Protection Trusts

Posted on: May 10th, 2017
Alaska first enacted statutes for Domestic Asset Protection Trusts (DAPTs) in 1997. Other states have passed similar legislation since then. Protections vary by jurisdiction, but one fact has remained constant: As of this writing, no creditor has collected a judgment or settlement against a debtor.

Strong Asset Protection History

Attorney Steve Oshins points out this detail in the LISI Asset Protection Planning Newsletter #341 (April 3, 2017). Oshins prepares a handful of annual state ranking charts on various trusts and statutory matters pertaining to trusts. In his recent newsletter, he points out the minimal case law relating to DAPTs and stresses the point that in the past two decades, even with a growing number of jurisdictions implementing DAPTs, no case has involved a creditor’s successful collection against a debtor. (Creditors have been successful in cases involving bankruptcy and/or fraudulent conveyance.) Oshins states that the powers of DAPTs are becoming so widely recognized, that some lenders have amended loans to plan for the possibility of DAPTs.

DAPTs Safeguard Assets

DAPTs offer wide protection. Depending on the state in which the trust is established, protections may include preservation from income tax claims, statutes of limitations up to 4 years for existing creditors (and up to 6 years for future creditors, in some circumstances), spousal and child support claims, and preexisting torts. 

Types of DAPTs

As with many asset protection tools, different variations of trusts are possible. For DAPTs, the types include hybrid DAPTs and regular DAPTs. Hybrid DAPTs may be more favorable in the few states that have adopted the Uniform Voidable Transactions Act. The UVTA offers additional creditor protections “in transactions by a debtor that are unfair to the debtor’s creditors.” Hybrid DAPTs are third-party trusts that provide for appointment of a trust protector. The trust protector can have power to add or remove the settlor and beneficiaries, which allows for the opportunity to remove the settlor and add them as beneficiary.

More States Expanding Legislation

Subscribe to our trust law blog for updates about case law, legislative changes, and planning opportunities. Our posts include alerts when lawmakers propose statutes for DAPTs in new states, information on trust modification options, and trust protectors.
 
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