About Domestic Asset Protection Trusts

8:38 am Uncategorized

For well over a century, individuals in the U.S. have utilized foreign self settled trusts to protect their assets.  Many offshore jurisdictions have either trust enabling legislation or favorable court decisions that provide creditor protection for self settled trusts.  Because of this protection, several offshore jurisdictions have a very substantial trust industry with respect to Foreign Asset Protection Trusts.

Recently, several U.S. states have adopted legislation similar to various offshore jurisdictions.  These statutory provisions provide various degrees of Asset Protection for a settlor’s interest as a beneficiary in a self settled Trust.

Eleven states have now passed legislation providing for creditor protection to a settlor/beneficiary of an Asset Protection Trust.  This phenomenon of Domestic Asset Protection Trust legislation indicates a strong U.S. trend for providing Asset Protection for individuals setting up self settled Trusts.

In our opinion, the four states that have the best statutory structures are Alaska, Delaware, Nevada and South Dakota:

Alaska – Alaska was the first state to enact Domestic Asset Protection Trust legislation, which protects debtors in ways that are very similar to offshore trusts.  In addition, Alaska has an extremely low life insurance premium tax rate, making it attractive for those who wish to purchase life insurance as part of their Domestic Asset Protection Trust.

Delaware – Long considered a tax haven for corporations, Delaware has also enacted legislation that makes it an attractive choice for establishing a Domestic Asset Protection Trust. For example, a Dynasty Delaware Trust is exempt from future estate, gift and generation-skipping taxes so long as the assets remain in trust.  A statutory Delaware Trust allows an individual to enjoy income for himself while directing another portion of the trust to investments for future heirs.  A Delaware Total Returns Trust is structured to allow a mandatory payout trust to utilize both income and principal to provide a greater payout.

Nevada – Nevada has a very favorable statute of limitations which provides that a creditor may only bring an action against the Trust within two years after the transfer to the Trust or six months after the creditor discovers or reasonably should have discovered the transfer, whichever is later.

South Dakota – South Dakota was one of the first states to enact legislation that allows a trust to endure perpetually, and has no state taxation on trust assets.  The state also enacted a self-settled trust statute in 2005, which protects all assets held in trust from creditors.

Other states with self-settled trust statutes include Missouri, Rhode Island, Utah, Tennessee, Wyoming, Oklahoma and New Hampshire.

Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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