For
most high net worth individuals, the main estate planning vehicle for an efficient
transfer of wealth upon death is through
use of a revocable trust. However, although efficient from a wealth transfer and
disability planning perspective, a revocable trust does not afford any asset
protection to the grantor.
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.
Once executed, all assets can be
assigned to the DAPT, including financial accounts, real property, interests in
closely held businesses, etc. Additionally, all future accounts should be
titled in the name of the trust. However, it is important to note that the
Trustee of the trust must be a resident (individual or corporation), of the
trust’s jurisdiction.
Please do not hesitate to contact
Morris Law Group if you believe that a DAPT will better accomplish your
combined estate planning and asset protection goals.
