Asset Protection Trusts

How to Give Assets to Loved Ones in an Asset Protected Trust

Most of our estate planning clients create a trust because they want to leave assets to children and loved ones in a trust that protects the assets from the child’s or loved one’s creditors and ex-spouses.  When we are hired to prepare an estate plan with a trust we prepare a revocable living trust that contains language that causes the successor trustee to create a beneficiary controlled asset protected trust (a BCAPT) for each child or loved one on the death of the trust maker or death of the second spouse if the trust is a joint trust.   See the contents and prices of our two estate plan packages.

If the future beneficiary of the BCAPT ever got sued the creditor could not touch the assets in the trust.  If the future beneficiary were to marry and get divorced the ex-spouse could not get any of the assets in the trust.  You cannot predict if your child or loved one will ever have a creditor or ex-spouse problem, but it is prudent to protect against these two problems.

It is also possible to create a BCAPT while you are alive if you want to transfer valuable assets to your child or loved one now before you die.  We prepare BCAPTs for people who want to give valuable assets to their children or loved ones now and protect the assets from their future creditors and ex-spouses.  To learn more about the BCAPT see my article called “Beneficiary Controlled Asveset Protected Trusts.”

By |2021-08-21T10:36:05-07:00August 21st, 2021|

Do Domestic Asset Protection Trusts Work?

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+”

By |2020-11-05T04:01:52-08:00November 5th, 2020|

Don’t forget about digital assets in your estate plan

The Globe and Mail:  “If only half of Canadians have a will and only about a third of them are up-to-date, according to a recent poll, it’s likely even fewer Canadians have accounted for the growing number of digital assets in their estate plans. Many Canadians have trouble keeping track of all of their online assets – which includes everything from cryptocurrencies to eBay and PayPal accounts to loyalty reward programs and social-media sites – let alone figuring out how to distribute them among their beneficiaries when they die. Wealth-management experts warn that overlooking digital assets in estate planning can create huge headaches down the road for executors, powers of attorney and beneficiaries, especially given Canadians’ expanding digital footprints.”

By |2018-10-01T14:15:51-07:00October 4th, 2018|

Who’s Going to Get It: Do You Really Know the Beneficiaries of Your Dynasty Trust?

Today many estate plans contain irrevocable dynasty trusts that will continue for the benefit of a spouse’s lifetime and then for the benefit of several generations.  Since these trusts are designed to span multiple decades, it is important that they clearly define who will be included as trust beneficiaries at each generation.

Who Are Your Descendants?

In the past the definition of “descendant” was straightforward:  A person who can be traced back to a specific ancestor through the same blood lines.  But the modern family now encompasses much more than just blood heirs:

  • Adopted beneficiaries.  In your trust, should the definition of “descendant” include a minor child who is legally adopted by your child, grandchild, or great grandchild?  What about an adult who is legally adopted by your child, grandchild, or great grandchild?  What happens if your child, grandchild or great grandchild gives up their naturally born child for adoption, should your blood heir who has been adopted away from your family be included as your descendant?  You should consider specifically including or excluding adopted minor and adult beneficiaries in the definition of “descendant” used in your trust agreement.
  • Stepchildren.  In your trust, should the definition of “descendant” include a stepchild of your child, grandchild, or great grandchild who is never legally adopted by your heir but otherwise treated like one of their own?  While you may have the opportunity to get to know your stepchildren (and even your step grandchildren) and choose to specifically include them or exclude them in the definition of your descendants (in fact, you may want to include some and exclude others), it will be important to decide and communicate whether stepchildren in later generations should be included or excluded as beneficiaries of your trust.
  • Beneficiaries conceived using “assisted reproductive technology.”  In your trust, should the definition of “descendant” include a child, grandchild or great grandchild conceived using artificial insemination?  What about a child, grandchild or great grandchild conceived using a surrogate mother?  What about a child, grandchild or great grandchild conceived using an anonymous sperm or egg donor?  While no one knows what the future definition of “assisted reproductive technology” will encompass, the definition of “descendant” in your trust agreement should specifically include or exclude heirs conceived using assisted reproductive technology.

Carefully Defining Your Trust Beneficiaries Will Keep Your Heirs Out of Court

Who may be your “descendant” twenty, thirty, or even fifty years into the future should be carefully considered when creating a trust that is intended to last for multiple generations.  Clearly defining the class of beneficiaries who will be entitled to receive distributions from your trust will allow for a smooth transition between generations and keep your heirs and trustees out of court.

If you have questions about the definition of “descendant” used in your trust or would like to discuss how you can clearly define your trust beneficiaries, please call our office.

By |2016-12-13T20:33:27-08:00January 16th, 2015|

Why Dahl Doesn’t Support The Viability Of Domestic Asset Protection Trusts

Jay Adkinson:  “If you don’t want to read this whole article, and then just take this quick summary and go on to something else: The 2011 decision in Dahl v. Dahl does not, absolutely not, nope, nada, nein, nyet, nuh-uh, support an argument that DAPTs provide protection to settlor/beneficiaries against third-party creditors who are not a party to the trust document. If you want to know why it doesn’t support this, or why somebody might suggest that it would, then read on.  On May 17, 2013, the U.S. Bankruptcy Court for the Western District of Washington issued an Order in the case of In re Huber, which was the subject of my article, Domestic Asset Protection Trust Blows Up Bigger Than Alaska In Huber Case. The Huber decision, which applied Washington state law to a Domestic Asset Protection Trust (DAPT) formed in Alaska, where the settlor/beneficiary was resident in Washington state, called into very serious question the viability of DAPTs both in bankruptcy and for settlor-beneficiaries who are resident outside a DAPT state.”

By |2013-09-07T10:03:28-07:00September 7th, 2013|
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