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.
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