Why the Domestic Asset Protection Trust Fails For
The Domestic Asset Protection Trust (“DAPT”) is an irrevocable
trust that allows the settler (or creator) of a trust to be a discretionary
beneficiary. While this trust has some advantages, it should not be used
for Asset Protection as recent litigation has highlighted concerns about
the Domestic Asset Protection Trust, as it is often an inadequate entity
to protect assets.
The Domestic Asset Protection Trust is often referred to as a “self-settled
trust” because the settlor is one of the beneficiaries. Self-settled
trusts allow the trustee to have discretion of whether to make distributions
to the settlor, while simultaneously protecting the assets from the settler’s
The main advantage of The Domestic Asset Protection Trust is that it protects
the assets of the settler from their creditors.
The major disadvantages of using the Domestic Asset Protection Trust as
a personal asset protector are as follows:
- You are more susceptible to litigation on your trust (fraudulent transfer
claim) with the Domestic Asset Protection Trust.
The Domestic Asset Protection Trust is only valid if the settlor and beneficiaries
as well as the trust assets are
all in the DAPT state.
- Only twelve jurisdictions recognize the Domestic Asset Protection Trust
– so there is little uniformity across the United States.
- Domestic Asset Protection Trust statutes may not protect the settler against
judgments in federal courts or by federal administrative agencies.
- The Domestic Asset Protection Trust generally has a longer statute of limitations
for creditors to sue on than most other Asset Protection tools.
As an alternative, the limited liability company (LLC) and limited partnership
(LP) are far more adequate entities for Asset Protection planning.
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YES, YOU CAN LOSE EVERYTHING!
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But don't delude yourself and accept reality — for every 60
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