What is Domestic Asset Protection Trust (DAPT)?

Many people believe a revocable living trust offers all the asset protection necessary. Although it is the most common type of living trust, a revocable trust is a “self-settled” trust. You control the assets but your creditors are subject to claim the assets even after your death.

There are exceptions when this type of living trust may offer some protection if it is formed under the Domestic Asset Protection Trust or DAPT laws. These are commonly referred to as Delaware Trusts, Alaska Trusts, or Nevada Trusts as they are only enacted in these three states. Procedures may vary from state to state. A trust will be formed for you benefit and your assets will be protected as well. This type of trusts is also considered a “self-settled spendthrift trust”. It is shielding your assets from any of your creditors.

DAPT laws can provide asset protection, but there is still risk involved. DAPT laws are still new, insufficient testing done, and are limited to Nevada, Alaska, and Delaware. Concern arises when a DAPT trustee is sued in a state not covered by the trust. This occurs if a trustee lives outside the three states or if the asset(s) itself is located in a different state.

This is a rare instance, but must be taken into consideration. If a trust was formed in Nevada, but the assets are located in Iowa, the suit would be held in Iowa and Iowa laws would take precedence. Additional questions are raised if the suit is submitted to Federal Court. It becomes complicated if the assets are in a DAPT state, but the creditors are in a different one.

Although there are risks, a domestic asset protection trust will in most cases shield your assets from creditors. If you were to opt for a DAPT, just be cautious. Some DAPT situations may or may work so well.

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