In my approximately 15 years practicing trusts and estates, I field many questions about asset protection for clients and their loved ones. Understanding asset protection strategies is increasingly important.
What Is a Domestic Asset Protection Trust (DAPT)?
A DAPT is a specific type of irrevocable trust that's generally "self-settled," meaning the individual (settlor) setting up the trust may also be a beneficiary—different from typical irrevocable trusts.
Historical Background
DAPTs originated offshore in jurisdictions like:
- British Virgin Islands
- Cayman Islands
- Cook Islands
A DAPT provides similar benefits but is located in the United States, making it generally more accessible and cost-effective than foreign asset protection trusts.
State Availability
Currently, approximately 17 states have codified DAPT legislation. Florida is not one of them.
However, Florida residents can still have DAPTs—we just need to find an appropriate jurisdiction and locate a trustee there. Popular DAPT jurisdictions include:
- Nevada
- Delaware
- South Dakota
These states have favorable laws, and we have relationships with trustees in all these jurisdictions.
Key DAPT Feature: Self-Beneficiary Status
Unlike typical irrevocable trusts, with a DAPT, the settlor can be a beneficiary (though not necessarily the only one). This makes DAPTs and foreign asset protection trusts the only trust types someone might set up seeking asset protection for themselves (not just loved ones).
Critical Concept: Fraudulent Transfer
Important: "Fraudulent transfer" or "fraudulent conveyance" has nothing to do with fraud or crime—it's a creditor remedy.
If you have a known creditor, judgment creditor, facing lawsuit, or even reasonably foreseeable creditor when setting up or funding a DAPT, that creditor can "unwind" the transaction through fraudulent transfer remedies.
Example: Fund $2 million into DAPT with known/foreseeable creditor = creditor can pull all $2 million out, nullifying your planning.
The Key to Effective DAPTs
Ensure no known or reasonably foreseeable creditors exist when establishing the DAPT—"the coast must be clear."
Unfortunately, many people inquire about DAPTs too late, when already facing creditor issues.
Important Timing
If this interests you, don't delay. If the coast is clear right now, now is the perfect time to explore whether this might be appropriate for your circumstances.
Complexity Requires Expertise
This is a complex subject requiring an attorney with expertise in this area. If our office can help, please reach out by phone or through our website contact forms.
Do My Spouse and I Each Need a Separate Will?
Your spouse and you both absolutely need separate individual planning. This planning may include basic wills or living trusts with pour-over wills, but there must be separate planning for husband and wife.
Key Point
Spouses can share many things, but an estate plan—while it should work together—is not something that can be shared.
Learn about comprehensive estate planning strategies for married couples.
