• Bruce W. Akerly

What is a Domestic Asset Protection Trust (DAPT)?

If you have debt issues and/or have been sued to collect a debt and you have any sizable estate involving non-exempt assets, you should consider asset protection strategies with your attorney. One such strategy involves formation of a DAPT.

In most states, a DAPT is a trust that, among other things:

  • Is irrevocable.

  • Prohibits the trust maker from controlling the trust assets. In other words, you cannot be the sole trustee of the trust.

  • Requires that whomever you designate as a trustee be a trust company or a resident in the state where the trust is located and that at least some of the trust assets also be located there.

  • Requires that distributions from the trust be made at the discretion of the trustee. In other words, you cannot demand that any distributions be made to yourself or to anyone else.

  • Prohibits fraudulent transfers into the trust.

  • Limits the amount of time your creditors have to challenge any transfers you make to the trust.

  • Requires you to swear under penalty of perjury that you are currently solvent (able to pay your debts as they become due).

Caution should be had with respect to any asset protection strategy to be sure that the particular course of action does not run afoul of fraudulent transfer laws and other potential pitfalls involving transfer to hinder, delay or avoid creditors.