THE DOMESTIC ASSET PROTECTION TRUST

The Domestic Asset Protection Trust (DAPT) is variously known as an Alaska Trust, Delaware Trust, or Nevada Trust, since those states have been in the lead in authoring rather blatantly anti-creditor legislation that allows self-settled spendthrift trusts. I recently read an article (date unknown) about how it is an effective tool to protect your assets from creditors. Bottom line: it isn't. The 2005 changes to the Bankruptcy Code have created a new 10-year limitations period for transfers to self-settled trusts which are meant to hinder, delay or defraud creditors. This effectively means that all transfers to domestic asset protection trusts will be suspect for the 10 years prior to the date that a bankruptcy petition is filed. Because of this, domestic asset protection trusts should not be considered for asset protection planning and, indeed, in most circumstances it might be malpractice per se for an advisor to form a DAPT for his client if asset protection is a concern.This 10-year clawback by itself should be enough to keep people for using DAPTs for asset protection. Of course, this isn't going to stop the trust companies from marketing them. Moreover, if you are a New York resident, and but is not in bankruptcy and you are still considering using one of these out of state trusts, read my July 10 blog.