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.
