Domestic Asset Protection Trusts
Many books and articles on asset protection have hyped Alaska and Delaware
trusts. Alaska and Delaware have legislation to encourage special trusts
in their jurisdictions. Their trusts promise estate planning and asset
protection benefits, and you should explore their estate tax advantages
if your state has an inheritance tax. Alaska and Delaware primarily promote
their trusts as an alternative to the international trust. Undoubtedly,
many Americans are more comfortable with a U.S.-based trust, rather than
a foreign trust. This is the selling point of the Domestic Asset protection
Trust or DAPT.
Alaska and Delaware trusts are highly publicized, but several other states
have comparable trust laws including Rhode Island, Colorado, and Nevada.
The Nevada trust may be the most protective domestic trust, by comparing
laws from these competing trust jurisdictions. For example, Nevada trusts
have the shortest statute of limitations for a creditor to file suit.
The settlor of a Nevada trust can also be a beneficiary and retain more
control without reducing their protection. Still, a key question to answer
before you form any domestic asset protection trust in any state is whether
their trust laws will give you significantly greater protection than the
protection you would get from a comparable trust in your own state.
No domestic trust won't give you adequate protection against a fraudulent
transfer claim (even when the DAPT is more protective than an irrevocable
trust in your own state). The trust laws from these DAPT states may give
you estate planning advantages, but not enough creditor protection. For
estate planning, your estate planning attorney might check the benefits
of a Nevada, Alaska, or Delaware trust. Since no trust from any of these
protective states will protect you against a present creditor, they certainly
will be less protective than an international trust. Alaska, Delaware,
Nevada, and all other states must constitutionally recognize and enforce
the judgments and court orders from other states. For example, if you
fraudulently transfer assets into a trust set up in another state, it
can eventually be recovered by your creditor. Other states will promote
trust legislation. Yet, the number of trusts set up for protection purposes
in these more protective jurisdictions has not grown dramatically. Conversely,
the number of international trusts continues to rise because they create
a far more formidable barrier against lawsuits and creditors.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to
protect it!