A domestic asset protection trust (DAPT) is an irrevocable self-settled trust in which the grantor is designated a permissible beneficiary and allowed access to the funds in the trust account. If the DAPT is properly structured, the goal is that creditors won’t be able to reach the trust’s assets. In addition to providing asset protection, a DAPT offers other benefits, including state income tax savings when used in a no-income-tax state.
A DAPT is of no benefit until it’s funded with assets. Trust assets typically include: (1) cash, (2) securities, (3) limited liability companies (LLCs), (4) business assets like intellectual property, inventory, and equipment, (5) real estate, and (6) recreational assets such as aircraft and boats. Each asset under consideration for transfer into a DAPT must be evaluated from different vantage points, including its effect on legal protection, taxation, business and growth potential, and future distributions to spouses and heirs. Thus, the asset-transfer planning process is a critical area requiring the assemblage of a range of skills.