Experienced Asset Protection Attorney Explains Why The Domestic Asset Protection Trust (DAPT) Should Not Be Used For Asset Protection

Boca Raton, Florida (PRWEB) June 16, 2016

The domestic asset protection trust ("DAPT") is an irrevocable trust that allows the settlor (or creator) of a trust to be a discretionary beneficiary. While this trust has some advantages, it should not be used for asset protection as recent litigation has highlighted concerns about the domestic asset protection trust.

1. Know how to Spot The Domestic Asset Protection Trust

The domestic asset protection trust is often referred to as a "self-settled trust" because the settlor is also one of the beneficiaries. Self-settled trusts allow the trustee to have discretion of whether to make distributions to the settlor, while simultaneously protecting the assets from the settlor's creditors.

2. Only Twelve Jurisdictions Recognize the Domestic Asset Protection Trust and therefore the DAPT is not the Best Choice for Asset Protection

The DAPT's major downfall is that it is only recognized in twelve states in the United States. Domestic asset protection trust statutes may not protect the trust's settlor against judgments in federal courts or by federal administrative agencies. Since the DAPT is only recognized in a few states, the trust is only valid if the settlor and beneficiaries as well as all of the trust assets are in the DAPT state. With how easy it is to move around, counting on everyone to be in the same state over a long period of time is not practical. Two states in particular do not recognize the DAPT (Florida and New York). On the other hand, Alaska, Delaware, Utah, and Nevada have favorable domestic asset protection trust laws. 

3. Use the Limited Liability Company instead of the Domestic Asset Protection Trust

As an alternative, the limited liability company ("LLC") is a far more adequate entity for asset protection planning. Not only is the limited liability company recognized throughout all of the United States, it also has inherent protective features. The limited liability company is a hybrid entity and it features both the limited liability advantage of the corporation with the advantages of the partnership. More importantly, a member's interest in the limited liability company is protected. The member's creditor has only the charging order remedy against the LLC member.

4. Use the Limited Partnership Instead of the DAPT in Planning

A limited partnership has one or more general partners, and one or more limited partners.  The limited partnership's general partner(s) have the same rights and liabilities as partners in a general partnership – namely the right to manage the partnership. They also have unlimited personal liability for partnership debts. Limited partners, on the other hand, have no managerial authority. Their personal liability is limited to their investment in the partnership. This makes the limited partnership a great tool for protecting assets.

5. Advice for Individuals who currently have a Domestic Asset Protection Trust in Place

The best advice that can be offered to any person who has a domestic asset protection trust is to have their plans reviewed by a knowledgeable and experienced asset protection attorney. Such professional will be able to determine whether a plan will be effective in a particular state and/or what can be done to adjust future planning so that it does. Even if all are certain that the planning has been effective, it is advisable to obtain a second opinion.

The Presser Law Firm P.A., Asset Protection Attorneys, represents individuals and businesses in connection with the establishment of comprehensive Asset Protection plans that incorporate both domestic and international components.
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"For every 60 minutes you spend making money, spend 60 seconds thinking about how to protect it!" states attorney Hillel L. Presser, Esq., MBA regarding the importance of protecting your assets proactively.

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