As referenced in previous posts, Domestic Asset Protection Trusts (“DAPTs”) are an extremely efficient estate planning and asset protection technique. To recap, a DAPT provides protection from creditors who exist after the creation and funding of the trust, and such creditors cannot attach the assets of the trust so long as the trust terms are consistent with a state’s DAPT Act.
Since only a limited number of states have passed laws which make DAPTs effective, it is common for individuals from other states to establish DAPTs in such jurisdictions. Further, the Grantor of a DAPT need not be a resident of the state in which the DAPT is situated as long as the Trustee is within the jurisdiction. However, there has been much debate as to how/why a DAPT can protect a Grantor who is not a resident of the state in which the DAPT is situated. This question is relevant for Floridians as Florida does not currently have a DAPT statute and therefore residents must seek such trusts in other states.
This debate was further addressed by a very recent case (Toni 1 Trust v. Wacker). This case involved a claim that arose (and was litigated) in Montana. After judgment was entered against the defendant, the defendant attempted to fraudulently convey the assets to a DAPT situated in Alaska. Further, the defendant specifically chose to establish the DAPT in Alaska since the Alaska DAPT statute has a two year statute of limitations on creditors. Simply put, the defendant attempted to hide behind this statute of limitations, because two years had passed since the claim arose. Ultimately, the court ruled that the plaintiff can attach the assets of the Alaska DAPT.
We don’t believe that this case poses a threat to Floridians who wish to establish a DAPT in another state. Specifically, in this case, the defendant clearly engaged in a fraudulent transfer and the sole purpose was to set up a DAPT to hide assets from an existing creditor. Furthermore, this case is consistent with our opinion and understanding that a DAPT will provide the necessary protection from creditors who exist after the creation and funding of the trust.
Please do not hesitate to contact Morris Law Group if you wish to learn more about DAPTs or believe that it is the right planning technique for you.