Spending a lifetime amassing assets doesn’t do much good if you don’t then protect those assets from potential threats. Fortunately, there are a number of estate planning tools that can be used to protect assets, including a Domestic Asset Protection Trust (DAPT). To help you better understand, an Indianapolis asset protection planning attorney at Frank & Kraft explains how a DAPT helps protect your assets.
DAPT Basics
A domestic asset-protectiontrust (DAPT) is an irrevocable self-settled trust established under the speciallaws of one of the limited number of jurisdictions that allow the Settlor (alsoreferred to as the Grantor or Trustor) is designated a permissible beneficiaryand allowed access to the funds in the trust account. A properly drafted andstructured DAPT prevents creditors from reaching the trust’s assets. If a DAPTwere set up under the laws of a non-DAPT jurisdiction, the general rule is thatthe settlor’s creditors can access as much of the trust as can be distributedto the trust settlor. In addition to providing asset protection, a DAPT offersother benefits, including state income tax savings when situated in ano-income-tax state. As of July 1, 2019, Indiana became the 18thstate to enact legislation that enables the creation of DAPTs.
When Does a DAPT Start Protecting Assets?
Each DAPT jurisdiction has astatute of limitations period that determines how long is necessary between thedate of transfer to the DAPT and the date on which the transferred asset willbe protected from the Settlor’s creditors. The number of years required beforethe assets are protected varies from state to state. The statute of limitationsalso differs for preexisting creditors versus non-preexisting creditors. Inmost jurisdictions, the statute of limitations period tolls for preexistingcreditors to protect these creditors.
Does a DAPT Protect Assets from All Creditors?
Again, the extent to which aDomestic Asset Protection Trust will protect assets depends on the jurisdictionin which the trust is established. All the states except Nevada, however, havecertain “exception creditor” statutes that allow certain classes of creditorsto access the trust assets even though most creditors are barred by statutefrom accessing the DAPT assets. In Indiana, only claims by the followingcreditors can be enforced against assets held in a DAPT:
- Fraudulenttransfer claims under the Indiana Uniform Fraudulent Transfer Act,
- Child supportobligations, and
- Maritalobligations incurred in a divorce (when the transfer of assets to the trustoccurs after the marriage or within 30 days of the marriage).
Funding a DAPT
Like all trusts, a DAPT mustbe funded. Also like all trusts, you can fund your DAPT with just about anytype of asset you want; however, because the goal of this particular type oftrust is to protect assets, careful consideration should be paid to which assetsyou decide to transfer into the trust. In addition, because you shouldanticipate creditors to try and get past the protection afforded by a DAPT, itis in your best interest to work closely with an experienced trust attorneywhen deciding in which state to establish your trust and which assets to use tofund your DAPT. For example, if you wishto protect real estate owned by an LLC or other entity established in anotherstate, care must be taken when considering not just the state where the DAPT isestablished, but also the state in which the property is located because alocal court may try to exercise jurisdiction over the property, notwithstandingthe fact that the property is owned by an out of state entity. Often, the bestway to protect assets is to create layers of protection. Transferring realestate to an LLC, for instance, and then transferring the entire LLC into aDAPT creates more than one obstacle a creditor must get past when trying to getto assets.
Contact an Indianapolis Asset Protection Planning Attorney
For more information, please download our FREE estate planning worksheet. If you have additional questions orconcerns about a Domestic Asset Protection Trust, contact anexperienced Indianapolis asset protection planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule anappointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
- Will Medicaid Pay a Family Member to Care for Me in Indiana? - September 26, 2023
- Challenging a Will in Indiana Based on Lack of Testamentary Capacity - September 21, 2023
- The Spendthrift Beneficiary: Protecting Assets from Reckless Spending - September 19, 2023
