Texas Domestic Asset Protection Trust (DAPT)
Protect your assets from debts and judgments with these unique trusts
Most of us go to great lengths to protect our most valuable personal possessions. We lock the doors when we leave the house, rent safe deposit boxes, purchase insurance, and create complicated passwords for our digital assets.
We do this because we understand how easy it can be for someone to steal in just seconds what took us months, even years, to acquire.
But what if the entity coming after your personal property is a court or creditor, not a crook? The best alarm system in the world can’t protect assets from a judge’s legal ruling. Luckily, there is something that can.
Domestic Asset Protection Trusts (DAPTs) provide powerful protection for certain types of assets.
The knowledgeable estate planning attorneys at Shann M. Chaudhry, Esq. have extensive experience helping clients protect their assets using a variety of legal vehicles, including DAPTs.
What Is a Domestic Asset Protection Trust (DAPT)?
A Domestic Asset Protection Trust, or DAPT, is a type of trust that shields personal assets from creditors or legal action by excluding them from your estate. These trusts are irrevocable, which means the grantor cannot make changes to the trust once it has been created.
DAPTs deliver strong asset protection, but they have characteristics that make them unique. DAPTs:
- Are self-settled, meaning the grantor can also be the beneficiary
- Allow the grantor/beneficiary to maintain a level of control over how the assets are used
- Are not recognized by every state but, under the right circumstances, can be created in a state that is not your primary residence
Asset protection planning can be a high-stakes endeavor. Our firm’s holistic approach to asset protection and estate planning means we work diligently to ensure our clients have confidence in their asset protection strategy.
Advantages of a Domestic Asset Protection Trust
The saying “you can’t have it both ways” is usually frustratingly accurate.
We can’t get stronger and always skip our morning workout, and we probably can’t go on a dream vacation if we spend our paycheck on takeout each week.
When it comes to standard trusts, this adage often holds true. There are few legal vehicles that keep assets out of your estate and therefore protected from creditors while allowing you to maintain control over how asset funds are used and distributed.
Need to control your assets AND keep them out of your estate? A DAPT can offer the best of both worlds.
Assets legally belong to the trust, not the individual, so they are safe from creditors and courts
RETAINED RIGHT OF USE
Unlike other irrevocable trusts, the grantor maintains some level of control over DAPT assets
It is easier and costs less to set up a DAPT than other similar trusts.
SHORTER CHALLENGE WINDOW
Rules vary by state, but the window for challenging asset transfer is shorter than other types of trusts
ADVANTAGEOUS STANDARD OF PROOF
Plaintiffs face a higher burden of proof (“clear and convincing evidence”)
WIDE RANGE OF ELIGIBLE TYPES OF ASSETS
Place of residence (primary or secondary), cash, real estate, intellectual property, investment portfolios, vehicles, life insurance policies, limited liability companies (LLCs), etc.
DAPTs are highly specialized trusts that are relatively new, and case law around them is still being developed. Navigating the nuances of creating and maintaining a DAPT requires significant knowledge and experience. The team at Shann M. Chaudhry, Esq., Attorney at Law PLLC, delivers both.
Find the right plan for your assets. Schedule a consultation with us.
Drawbacks of a Domestic Asset Protection Trust
Domestic Asset Protection Trusts are an excellent estate planning tool, but they aren’t perfect. There are drawbacks and limitations that need to be fully considered before setting up a DAPT.
Variations in DAPT across states
The biggest issue with DAPTs is that only 20 states currently recognize them:
- New Hampshire
- Rhode Island
- South Dakota
- West Virginia
The statutes governing DAPTs vary widely between each state, so it pays to look closely at the details.
Most states have exemptions for certain assets and creditors.
For example, in Delaware and South Dakota, an ex-spouse can make a claim against otherwise exempt assets if you owe them alimony or child support. But if your DAPT is in Nevada, Utah, or West Virginia, they can’t because these states do not allow any exemption from creditors.
Some states may also require assets to be in a DAPT for a certain time period (ranging from 18 months to four years) before they can be protected from creditors. Meanwhile, other states protect assets as soon as the trust is formed.
Right to privacy
The other major concern with DAPTs is that there is no right to privacy. If you’re sued, you may have to disclose to creditors what your assets are, even if they’re protected in the trust. Knowing what assets you have can motivate creditors to push for more advantageous (to them) settlement or keep you tied up in court for years.
Lack of federal protections
DPATs are entirely regulated by state law. As such, there aren’t federal protections for the assets inside them. This increases the need for a well-crafted strategy for DAPTs in order to reduce the risks to the asset holders.
What If I Don’t Live in a DAPT State?
Book a Consultation With Our Texas Asset Protection Lawyers
If you’re ready to create an asset protection plan, or if you have any questions about trusts and estate planning, schedule a consultation with our team of knowledgeable and compassionate lawyers today.