One of the most important goals found in many estate plans is asset protection. After all, if you have spent a lifetime amassing assets to provide for your yourself and your family you certainly want to protect them from potential threats. Fortunately, there are a number of tools in the estate planning arsenal that can be used to protect assets, including a Domestic Asset Protection Trust (DAPT). For those who are unfamiliar with the concept of a Domestic Asset Protection Trust, a Beverly asset protection planning attorney at DeBruyckere Law Offices explains how a DAPT works.
What Is a DAPT?
A Domestic Asset Protection Trust (DAPT) is an irrevocable self-settled trust established under the special laws of one of the limited number of jurisdictions that allow the Settlor (also referred to as the Grantor or Trustor) to be designated a permissible beneficiary with access to the funds in the trust account. As of 2018, only 17 states have DAPT friendly laws with New Hampshire being one of those states. Massachusetts, on the other hand, is not a DAPT friendly jurisdiction.
A properly drafted and structured DAPT prevents creditors from reaching the trust’s assets. If a DAPT were set up under the laws of a non-DAPT jurisdiction, the general rule is that the Settlor’s creditors can access as much of the trust as can be distributed to the trust Settlor. Because state laws govern most trust issues, it is imperative that you consult with an attorney before deciding to set up a DAPT in another state to ensure that your state of residency will honor the protections afforded by the DAPT state.
A DAPT Only Works As a Preventative Measure
If you are already in trouble with creditors, a DAPT won’t help you because even in DAPT friendly jurisdictions, assets transferred into the trust are not usually protected immediately. Each DAPT jurisdiction has a statute of limitations period that determines how long is necessary between the date of transfer to the DAPT and the date on which the transferred asset will be protected from the Settlor’s creditors. The number of years required before the assets are protected varies from state to state as well as distinguishing between preexisting creditors versus non-preexisting creditors. In fact, in many jurisdictions a preexisting creditor can still access assets in the trust indefinitely, meaning assets are only safe from creditors that develop a legal claim to the assets after they become trust assets.
In New Hampshire, the Qualified Dispositions in Trust Act (QDTA) governs Domestic Asset Protection Trusts. Pursuant to the QDTA, for claims arising before the date of a qualified distribution, the claim must be initiated within four years or, if later, within one year after the disposition was or could reasonably have been discovered by the creditor. If the claim arises at the same time or later than the disposition, the limitations period is four years.
Does a DAPT Protect Assets from All Creditors?
Another important caveat to consider when creating a DAPT is exception creditors. Once again, the jurisdiction in which the trust is established will determine any exceptions to the general protection afforded by a DAPT. With the Exception of Nevada, all states that recognize DAPTs also recognize certain classes of exception creditors that can access the trust assets. In New Hampshire, the QDTA recognizes two classes of creditors that are exempted from the provisions protecting trust assets. Child support obligations and those stemming from alimony or spousal support are outside of the statute’s protections. Importantly, the statute defines “spouse” or “former spouse” as a person to whom the transferor was married at or before the time of the qualified distribution. Thus, dispositions in trust made before marriage are protected by the statute. The second class of exempted creditors are those who suffered death, personal injury, or property damage on or before the date of the qualified disposition if the transferor’s act or omission was a cause of the death, injury, or damage.
Contact a Beverly Asset Protection Planning Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions about asset protection planning, or you want to discuss incorporating a Domestic Asset Protection Trust into your estate plan, contact a Beverly asset protection planning attorney at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.