Understanding Domestic Asset Protection Trusts (DAPTs) A Domestic Asset Protection Trust (DAPT) is often referred to as a “self-settled trust” because the person creating the trust, the settlor, is also one of its beneficiaries. This type of trust allows the trustee to decide whether to make distributions to the settlor while shielding the assets from creditors.

Goals of a DAPT The primary purpose of a DAPT is to protect the settlor’s assets from creditors. Additionally, a DAPT can enable a settlor to transfer assets into the trust, potentially excluding these assets from their gross estate for estate tax purposes.

Limitations and Risks of DAPTs While DAPTs offer certain advantages, they also come with significant drawbacks:

1. Vulnerability to Litigation: DAPTs are more susceptible to fraudulent transfer claims, where creditors argue that the trust was created to defraud them. This can lead to litigation aimed at breaking the trust and accessing the debtor’s assets.
2. Jurisdictional Issues: The effectiveness of a DAPT depends on the laws of the state where it is formed. If the settlor, beneficiaries, or trust assets are not in that state, the trust’s protections may not apply. Only twelve states recognize DAPTs, leading to a lack of uniformity across the country.
3. Federal Limitations: DAPT statutes might not protect against federal court judgments or actions by federal agencies, as state laws are not always upheld in federal jurisdictions due to the Supremacy Clause of the U.S. Constitution.
4. Extended Statute of Limitations: Creditors have a longer period to challenge a DAPT compared to other asset protection tools, increasing the risk of successful claims against the trust.

For comprehensive asset protection advice, contact Elevate Legal Services LLC online or call (561) 770-3335. Our domestic asset protection trust attorneys can help you understand the best strategies for safeguarding your wealth.

Considerations for Effective Asset Protection Given the potential risks associated with DAPTs, it is crucial to explore other, more reliable asset protection tools:

• Limited Liability Companies (LLCs)
• Limited Partnerships (LPs)

These entities often provide stronger and more reliable protection for your assets compared to DAPTs.

Seek Professional Guidance For more information on the most effective ways to protect your assets, reach out to Elevate Legal Services LLC. Contact us online or call (561) 770-3335 to consult with our experienced asset protection attorneys. Let us help you secure your wealth with the right legal strategies.