Which States Allow Domestic Asset Protection Trusts?

Estate Planning Lawyer

Asset protection trusts are financial tools used to prevent assets from being seized to pay creditors in court proceedings. There are both domestic and international trusts. Domestic trusts are established in the United States, but only some states allow them.

Which States Allow Domestic Asset Protection Trusts?

Alaska and Delaware became the first states to recognize Domestic Asset Protection Trusts in 1997. Since then, 16 more states have enacted laws concerning DAPTs. The states currently recognizing DAPTs are Alaska, Hawaii, Delaware, Mississippi, Michigan, Nevada, Missouri, Ohio, New Hampshire, Rhode Island, Oklahoma, Tennessee, South Dakota, Virginia, West Virginia, Utah, and Wyoming. 

What Is a Domestic Asset Protection Trust?

A DAPT is a type of self-settled trust. It works similarly to a spendthrift trust. The purpose of the DAPT is to shield specific assets, such as cash, securities, real estate, and business interests, from being seized by creditors or the courts due to lawsuits. A DAPT has several distinguishing characteristics:

  • Must be irrevocable and spendthrift
  • Administration of the trust must be conducted in the state it was formed in
  • At least one resident trustee must be appointed
  • The settlor and trustee must be two different people

Who Uses DAPTs?

Anyone can form a DAPT, but not everyone needs to. People who work in professions that place them at a high risk of being sued, such as doctors and lawyers, are good candidates. Additionally, people who have a lot of assets, such as CEOs and celebrities may benefit from DAPT protection.

When Should You Set Up a DAPT?

Each state that recognizes DAPTs has a specific waiting period before your assets become protected. These waiting periods can be several years, so it is important to set up your DAPT well before you think you may need it. If you believe you or your business is at a high risk of being sued, it is better to set up your DAPT as soon as possible.

Are Assets in a DAPT Protected From All Creditors?

The states that recognize DAPTs don’t all exempt the same creditors, but all of them recognize some pre-existing and exception creditors who can still seize assets in a DAPT. Common exception creditors include ex-spouses with alimony or child-support claims.

Domestic Asset Protection Trusts are a useful vehicle for people with high-value estates or who are at high risk of being sued to protect some of their assets.