DAPT Drawbacks

DAPT Drawbacks vs. Offshore Equivalents

Domestic asset protection trusts have recently begun to enter the parlance of estate planning advisors. They are often brought up in discussions with high net worth clients. They are trusts which are meant to protect assets from creditors and are seen as being more palatable than their offshore counterparts. They have similar structures and purposes, but fewer drawbacks. However, there are still a few things for people to be aware of before making the leap.

Due to the many uncertainties surrounding DAPT's, often times creditors will be forced to spend significant amounts of money to litigate in territory which is unchartered. This means litigation will be expensive and risky with an uncertain outcome. Not everyone can afford a qualified asset protection attorney , or knows how to fight a well formulated asset protection strategy . This often provides ample deterrence and this is exactly why you're purchasing the trust. It's to send a signal to creditors that they are going to have to fight for their money and maybe even spend more than they'll ever recover.

This gives you the advantage. Alaska was the first state which allowed such trusts, anti-creditor to be specific. Since then the number of other states including Nevada Delaware and Wyoming have a enacted identical legislation. This legislation allows people to form a trust for their own benefit to protect against creditors. This is something no other states allow. These trusts create a shortened. Where in creditors may challenge the transfer and makes a much more difficult for them to prove the transfer was fraudulent. The structures are easy to set up but must meet certain criteria to be valid.

A DA PT must be:

-Have  A Trustee
-Trustee Must be a resident in the trust’s jurisdiction
-Contain a spendthrift clause

  1. Conflicting Laws
    Each state in the US has its own set of laws. This creates a difficulty because the creditor and assets and parties involved come from different states. Courts cannot always decide which states law should control the case. Given only a quarter of states have friendly statutes there is a possibility the law will be settled in the state without such statutes. It's difficult to imagine but not impossible that a judge from a state with non-DA PT laws would strike down the DAPT
  2. Faith & Credit Clause
    after resolving the conflict of law issue the creditor would then have to get a judgment. Securing this judgment however will be difficult.
  3. Exceptions to Statutes
    assuming the above two issues are resolved, and that the defendant has won, there still exist a number of exceptions to what the trust may may not protect. The trusts do not always protect against child support tax evasion alimony or tort claims. This is why we advertise our domestic asset protection trusts to be most useful against businesses and other creditors, not the IRS.
  4. Legal Standards
    courts apply a variety of legal standards when making determinations about asset protection trusts. The largest difference between states or the look back period's and the requirements for proving a transfer was fraudulent.
  5. Determined by U.S.A. Law
    the largest difference between onshore and offshore trusts than offshore trusts exist in a separate jurisdiction. Onshore trust is still determined by the vagaries of US law. This ultimately creates the greatest uncertainty.
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Cloud Peak Law Group, P.C.

203 S Main St #3000 Sheridan, WY 82801


1901 Energy Court #319 Gillette, Wyoming 82718