As domestic self-settled spendthrift trusts (AKA Domestic Asset Protection Trusts, or DAPTs) become more popular as asset protection structures for those with increased assets or exposure to liability generally, more states are hopping on the band wagon and enacting legislation allowing these types of trusts to be established in their respective jurisdictions. Nineteen such states have now enacted such legislation, with the latest being Connecticut.
The DAPT essentially allows an individual to transfer assets to an irrevocable trust and therefore transfers legal ownership to the trustee of said trust so that future potential creditors have great difficulty accessing the assets of the trust to satisfy a judgment against the creator of the trust. To put that in a more simple way, the creator of the trust simply does not own those assets anymore, and if you don’t own the assets, they’re not available to one’s creditors. Equally as important, the creator of the trust, or the “trustor,” can actually remain as beneficiary of this trust if he or she needs to request that the trust make future distributions of assets.
In other states that do not allow self-settled spendthrift trusts, such as California, an individual can only transfer assets to an irrevocable trust for the benefit of a third party and cannot remain as a beneficiary of said trust. This means that if the trustor ever needed the assets back in the future, he or she would simply be out of luck.
In the world of self-settled spendthrift trusts/DAPTs, some state jurisdictions are simply better than others when it comes to what types of assets can be protected, and often more importantly, what the statue of limitations is for a fraudulent conveyance action. While beyond the scope of this particular blog, Nevada is a great DAPT state to check out, and these considerations are worth discussing further with an Asset Protection or Estate Planning Attorney if one is looking to shield assets from litigious potential future creditors.
Feel free to reach out to Moses Estate Planning with any questions regarding this blog or if you’d like to setup a free consultation to discuss your matter with an experience Asset Protection Attorney.