Post a Comment On: CPA at Law

The law has long allowed individuals to establish spendthrift trusts for the benefit of third-party beneficiaries and thereby remove the trust assets from the reach of creditors. However, until relatively recently, the law did not allow individuals to establish spendthrift trusts for their own benefit and successfully remove trust assets from the reach of their own creditors.

Alaska became the first domestic jurisdiction to allow this type of planning by passing an asset protection trust enabling statute in 1997. A Domestic Asset Protection Trust (DAPT) allows an individual to transfer assets to a trust, remain a beneficiary of the trust while removing the assets from the reach of creditors, and also achieve numerous tax planning objectives.

DAPTs offer significant protection for individuals residing in states that have adopted DAPT legislation. Whether a trustor residing in a jurisdiction that has not adopted DAPT legislation can form a trust pursuant to the laws of a foreign DAPT jurisdiction and successfully protect their assets from creditors has not been adequately settled by the courts.

A number of factors must be weighed in determining which jurisdiction a trustor should select as the situs for their DAPT. An excellent resource for comparing the provisions of the various DAPT statutes is David G. Shaftel's Comparison of the Domestic Asset Protection Trust Statutes. Sixteen states have passed DAPT enabling laws, the latest being Mississippi in 2014, and Mr. Shaftel's chart compares and contrasts the applicable laws in each of these jurisdictions.