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Protecting Your Family With a Domestic Asset Protection Trust

On behalf of Sayer Regan & Thayer of Sayer Regan & Thayer, LLP posted on Thursday, May 19, 2022.

By Marcia Boyd, Esq.
Sayer, Regan & Thayer, LLP

A domestic asset-protection trust (DAPT) is an irrevocable trust whereby the grantor can name a beneficiary and is allowed access to the funds held within the trust account. When the DAPT has been properly structured, creditors can’t reach the trust’s assets. On top of asset protection, a DAPT offers many other benefits, including state income tax savings.

A DAPT must be funded with assets for it to be of any benefit. Trust assets include:

• Cash
• Limited liability companies (LLCs)
• Business assets such as intellectual property, equipment and inventory
• Real estate
• Recreational assets such as boats and aircraft

Each asset transferred into a DAPT must first be evaluated from a variety of vantage points, including the impact on taxation, legal protection, growth potential, and future distributions to heirs and spouses. As you may imagine, the asset-transfer planning process requires the careful oversight of an attorney skilled in probate, trust and estate administration.

Protect Your Family From Lawsuits

There are many threats that could put your property at risk of loss to creditors, from lawsuits, to divorces to bankruptcies. These threats can make you feel vulnerable and frustrated. But there are ways to protect your property from these threats affordably and relatively easy. That’s where the DAPT comes in.

This is essentially a legal structure where you as the grantor or trust maker can transfer your accounts and property (home, stocks, cash, or other investments) where it will be legally protected from any future lawsuits, bankruptcies, creditors, or divorcing spouses. One your assets have been transferred into the DAPT, you can continue to use and benefit from your property with little limitation.

In essence, the way DAPTs work is based on the theory that no one can take something away from you that you no longer own. After transferring ownership of your property to a trust such as the DAPT, you are basically gifting those assets to the trustee on behalf of the irrevocable trust. The trustee must then use that property for your benefit, and for anyone else you have named in the trust.

When creating a DAPT, you have to sign a trust document that permanently gifts some or all of your property into that trust. Because it is irrevocable, you can’t change the trust agreement.

States With DAPT Laws

Although not all states have DAPT laws, Rhode Island and Connecticut are two states that do. DAPT laws vary by state, particularly with concern to residency requirements. This is why it’s so important to speak with an experienced trust and estate attorney when creating your DAPT. There are many differences by state that can affect the DAPT’s effectiveness, such as:

• How it is set up
• Who may serve as the trustee
• How much property you can place in the trust
• Which creditors will not be able to access the trust
• What additional powers you have over the trust
• The amount of time that must pass before the DAPT is protected against creditors

Who Needs a DAPT?

• Doctors
• Lawyers
• Accountants
• Real estate developers
• Architects
• Builders
• Business executives
• Business owners

How Do You Know if a DAPT is Right For You?

First, it’s important to obtain legal advice before making a decision of this scope. Alongside your qualified estate planning attorney, take these factors into consideration:

• How much of your assets do you want to put in the DAPT?
• What kind of access will you want in the future?
• Who will be your independent trustee (the one who will make distributions to you?
• Who will be the beneficiary (in addition to you)?
• In which state will you create the DAPT?
• What kinds of creditors are you concerned about?
• Do your state’s DAPT laws protect you against those kinds of creditors?

Creating a DAPT as part of your estate plan is a wise idea for any number of reasons. Talking with a lawyer who knows about DAPT creation and protection is critical.

Contact Sayer Regan & Thayer for Estate Planning

Our attorneys can help you understand how to protect your family with a domestic asset protection trust. Please contact us for your free, no-obligation consultation today. We are well-versed in all aspects of probate, trust and estate administration.

These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.

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