A Domestic Asset Protection Trust, or DAPT, is just that: an asset protection technique. The appeal of the DAPT for estate planning purposes is it permits the creation of a trust where a trustee has absolute discretion to make distributions to a class of beneficiaries that includes the grantor. Usually, such a trust would not receive spendthrift protections. The settlor’s creditors could get to the assets. This changes with the DAPT. By taking advantage of the laws of such states as South Dakota, a properly structured DAPT can allow an individual to isolate their assets from creditors without completely alienating the benefits of those assets. Domestic Asset Protection Trusts are not available in every state. Of the states that do permit them, South Dakota is particularly appealing because it allows a trust to continue perpetually and there is no state income tax. Additionally, South Dakota joins Nevada in have among the shortest waiting periods after the transfer of the property to the DAPT before the property becomes immune to creditors.
With more states enacting DAPT statutes and awareness growing, the question of whether a DAPT will work for a non-resident becomes more relevant. There is no clear guidance on the issue, and the two lower level cases that have addressed the issue have come out upon opposite sides regarding their validity. A more pertinent take away, however, is that countless numbers of these trusts have been formed over the last 20 years and there is almost no case law, seeming to indicate that most people are settling or walking away. And this is a DAPTs greatest attributed, deterrence.