Understanding Domestic Asset Protection Trusts
DAPTs in Delaware and Alaska
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.
Comparable Protective Trusts in Other States
Alaska and Delaware trusts are highly publicized, but several other states have comparable trust laws, including Rhode Island, Colorado, and Nevada. Your estate planning attorney might check the benefits of a Nevada, Alaska, or Delaware trust.
The Nevada trust may be the most protective domestic trust, by comparing laws from these competing trust jurisdictions. 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.
Domestic Asset Protection Trusts Offer Little Creditor 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.
The trust laws from these DAPT states may give you estate planning advantages, but not enough creditor protection. 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!