Asset protection during a grantor’s lifetime is often accomplished through complex entity structures (multi-member LLC’s or LLLPs) or through irrevocable trusts. However, clients are often apprehensive to transfer too much wealth to an irrevocable trust since they lose all benefit to the transferred assets, and the transfer will most likely require a gift tax return and result in a reduction the grantor’s estate tax exemption amount.
However, there is a type of irrevocable trust that 1) protects the assets during the lifetime of the grantor; 2) provides for the efficient transfer of wealth; and 3) permits the grantor to be an active beneficiary. This specific estate planning technique is through the use of a Domestic Asset Protection Trust (DAPT).
A DAPT is an irrevocable trust established under the laws of one of the limited number of jurisdictions that permit a grantor of a trust to be a discretionary beneficiary and still protect the trust assets from the grantor’s creditors. We generally recommend the formation of a DAPT pursuant to Nevada law since it offers enhanced privacy and it is the only state that does not have any special classes of creditors that can pierce through a DAPT.
Domestic Asset Protection Trusts offer many of the same benefits that offshore trusts provide but without subjecting the assets to the risks associated with offshore trusts. According to the Steve Leimburg’s Asset Protection Planning Newsletter “after 22 years, there still hasn’t been even one non-bankruptcy, non-fraudulent transfer case where a creditor got a judgement or settlement, and then successfully accessed assets owned by a DAPT.” Interested in learning more about DAPT’s? Contact the experienced attorneys of Morris Law Group.