A domestic asset protection trust (DAPT) is an irrevocable trust established under the laws of a state that adopted a DAPT statute. Currently 17 states have passed DAPT statutes. These states are Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming. Unfortunately Arizona does not yet have a DAPT statute.
A DAPT is an irrevocable trust that allows the trust maker to be a discretionary beneficiary and the trust's assets are protected against claims made by the trust maker's creditors. The trustmaker retains access to the trust's assets, but the assets are protected against many types of creditor claims.
A lawyer on a list serve I follow wrote:
“Why do people still push DAPTs? There are so many cases defeating them. And they are part of the bankruptcy estate unless they've been in existence for 10 years. I feel like it's the 1970s again, and everyone is telling each other how stupid seat belts are and that cigarettes are healthy and help with weight loss. Talking about Wyoming vs. South Dakota vs. Alaska vs. Nevada is like discussing which brand cigarette is healthier. None of them are good. And there are much better options that have tons of case law backing them … like special power of appointment trusts.”
The following text was written by Nevada DAPT attorney Steve Oshins in response to the above comment. Steve is a friend and my choice as the best domestic asset protection trust lawyer in the United States.
“I substantially agree with your comments about regular DAPTs for residents of non-DAPT states. However, not for residents of DAPT states where it's 100% certain that they work.
But I disagree with your comment that “There are so many cases defeating them.” That is what the foreign APT proponents often say in order to try to substantiate FAPTs over DAPTs. However, after 23 years, there still isn't even one non-bankruptcy, non-fraudulent transfer case where a regular DAPT did not work. Not even one. So I don't understand how “there are many cases defeating them”. The dicta in the Huber case says that they don't work for a non-resident, although I could go on and on about how the judge misapplied the law. But please list the “many cases” that say it doesn't work. :)
The black letter law says that a regular DAPT works. And after 23 years, there still isn't even one case (other than Huber dicta) that says that it doesn't. Therefore, a regular DAPT certainly isn't horrible, although when done for a non-resident you should always combine it with a charging order protected entity for an extra layer of protection. That, in and of itself, is so scary to a creditor that they simply go away or settle. That's why we see almost no case law. A settlement is a victory. That is not how we do it, but a regular DAPT plus a charging order protected entity is a viable option. Not the best though.
That all being said, the granddaddy of all asset protection techniques in the 21st century is the Hybrid DAPT. Watch the free 7.5-minute Hybrid DAPT slideshow and sales tool at THIS LINK. I agree with you that a Power of Appointment Trust is a great option and better than a regular DAPT (for a non-resident). And it will always be my #2 alternative, although I see no reason to ever use #2. But the reason it falls short of the Hybrid DAPT is that our clients like to maintain as much control as possible. So relying on a power of appointment in the hands of another person rather than retaining the power of appointment and simply running income through your spouse or another person, will always be #2 to the Hybrid DAPT. It works well though because, like a Hybrid DAPT, it's a third-party trust. So no disrespect to it and any comments I'm making aren't intended to disparage it. It's just not #1 to me. :)
Hybrid DAPT = A+; / POA Trust = A / DAPT + LLC = A- / DAPT = B+”