Domestic Asset Protection

Domestic Security Trust (DST)

The Domestic Security Trust is an irrevocable trust used for the purposes of basic asset protection, estate planning, and estate tax and gift tax considerations that is domiciled within the United States. The goal in using a DST, as with any other irrevocable asset protection trust, is to remove ownership over your assets. Whoever owns asset“A” can lose asset “A” to a creditor. By establishing a DST, the Settlor removes ownership by creating a legally recognized“ultimate owner” (the DST). This means that the trust can own assets, and no individual or entity can own the trust. The DST stands alone.

Since the DST stands alone and cannot create liability, a judgment cannot be attached to the trust itself and certainly is protected from your personal creditors. The only way for a creditor to attack the trust is to claim fraudulent conveyance. Of course, this can be easily avoided if a trust is established before a Settlor has any known creditors or judgments against him.
Because no one wants to lose control over their assets, another entity, such as an LLC, FLP, or Corporation, is often used in conjunction with a DST so that the Settlor can have a legal right to control the assets transferred into the trust. This way, the Settlor can legally remove ownership over the asset without losing control of that asset. This type of structure removes ownership from the Settlor and renders the assets lawsuit proof.

Master Protection Trust (MPT)

The Master Protection Trust is very similar to the Domestic Security Trust, with a primary distinction. The MPT has provisions that allow it to decant to an offshore jurisdiction at a future date. This trust is ideal for someone who wants the additional protections, under U.S. law, of an Offshore Asset Protection Trust, but is unable to establish one at the present time due to timing or budgetary constraints. The MPT can be established in the United States and later transferred to an offshore jurisdiction such as the Isle of Man, Gibraltar, Nevis or the Cook Islands.

Domestic Asset Protection Trust (DAPT)

The Domestic Asset Protection Trust is a self-settled spendthrift trust that allows the Settlor to be the Primary Beneficiary during his or her lifetime. This is the only type of domestic irrevocable trust that allows for this, and it is modeled after the Offshore Asset Protection Trust. This is very new law; legislation recently passed and is currently available in eleven states. Our law firm favors Nevada because Nevada has traditionally supported business owners’ rights to privacy and lawsuit protection for many of their business entities through its legislation. Therefore and most importantly, the judiciary (the court that would be making the decisions about your case) is predisposed to and experienced in accepting these rights that other jurisdiction courts are not experienced with. Also, the Nevada Domestic Asset Protection Trust law has a two year statute of limitations on attacking the transfer to the trust, whereas most other states have a four year statute of limitations. This is a very important and powerful plus of using Nevada for these trusts.

Some advantages to using a Domestic Asset Protection Trust are the shorter statute of limitations for fraudulent conveyance and the Settlor/Beneficiary structure. We also recommend that clients have us draft these with the decanting provisions that allow the trust to move offshore in the future if it is appropriate for the client.

Statute of Limitations: If assets are transferred to the trust prior tohaving a known, existing creditor, there is a two year statute of limitations on filing a claim against the transfer. That is, the creditor must make a claim against the transfer within those two years. If a creditor does not file a claim prior to when the statute of limitations runs out, the creditor is too late, and will not be successful in accessing the assets owned by the Domestic Asset Protection Trust. The statute of limitations is different if assets are transferred after the Settlor has a claim against him. That is why it is important that an asset protection strategy be put in place before you have any known, existing creditors.

Settlor/Beneficiary structure: With the Domestic Asset Protection Trust, the Settlor can also be the Primary Beneficiary. This is not the case with traditional lawsuit proof trusts in the United States. Distributions can be made to the Settlor/Beneficiary by a Special Trustee to keep the integrity of the irrevocable trust as necessary. The Settlor can still legally control all assets through any underlying entities.

Decanting provision: The decanting provision states that the assets in the Domestic Asset Protection Trust can be transferred to a Family Trust in an offshore jurisdiction in the future. This gives the Settlor an opportunity for stronger asset protection down the line when it is financially feasible.

The Domestic Asset Protection Trust is a budget friendly alternative to the Offshore Asset Protection Trust (OAPT), and it mirrors the more favorable provisions and laws of the offshore trust like the two year statute of limitations and the Settlor/Beneficiary structure.

While the Domestic Asset Protection Trust does somewhat mimic the Offshore Asset Protection Trust, it does not afford the same level of protection as the offshore version. As any professional that is an expert in this arena will tell you that the two most pronounced drawbacks to the DAPT are:

(1) that the U.S. court still has jurisdiction over your trust (whereas under U.S. law, the U.S. courts no longer have jurisdiction over an offshore trust), and
(2) that the Domestic Asset Protection Trusts are so new (and only eleven states have legislated) that there is no court precedent that would give you certainty that they would be upheld.

These points do not diminish their utility, but are significant and material issues to consider when deciding to use a Domestic Asset Protection Trust for your circumstances. The Offshore Asset Protection Trust is the strongest asset protection tool available, and should not be overlooked simply because there is a domestic alternative.

Domestic Security Trust (DST)

The Domestic Security Trust is an irrevocable trust used for the purposes of basic asset protection, estate planning, and estate tax and gift tax considerations that is domiciled within the United States. The goal in using a DST, as with any other irrevocable asset protection trust, is to remove ownership over your assets. Whoever owns asset“A” can lose asset “A” to a creditor. By establishing a DST, the Settlor removes ownership by creating a legally recognized“ultimate owner” (the DST). This means that the trust can own assets, and no individual or entity can own the trust. The DST stands alone.

Since the DST stands alone and cannot create liability, a judgment cannot be attached to the trust itself and certainly is protected from your personal creditors. The only way for a creditor to attack the trust is to claim fraudulent conveyance. Of course, this can be easily avoided if a trust is established before a Settlor has any known creditors or judgments against him.
Because no one wants to lose control over their assets, another entity, such as an LLC, FLP, or Corporation, is often used in conjunction with a DST so that the Settlor can have a legal right to control the assets transferred into the trust. This way, the Settlor can legally remove ownership over the asset without losing control of that asset. This type of structure removes ownership from the Settlor and renders the assets lawsuit proof.

Master Protection Trust (MPT)

The Master Protection Trust is very similar to the Domestic Security Trust, with a primary distinction. The MPT has provisions that allow it to decant to an offshore jurisdiction at a future date. This trust is ideal for someone who wants the additional protections, under U.S. law, of an Offshore Asset Protection Trust, but is unable to establish one at the present time due to timing or budgetary constraints. The MPT can be established in the United States and later transferred to an offshore jurisdiction such as the Isle of Man, Gibraltar, Nevis or the Cook Islands.

Domestic Asset Protection Trust (DAPT)

The Domestic Asset Protection Trust is a self-settled spendthrift trust that allows the Settlor to be the Primary Beneficiary during his or her lifetime. This is the only type of domestic irrevocable trust that allows for this, and it is modeled after the Offshore Asset Protection Trust. This is very new law; legislation recently passed and is currently available in eleven states. Our law firm favors Nevada because Nevada has traditionally supported business owners’ rights to privacy and lawsuit protection for many of their business entities through its legislation. Therefore and most importantly, the judiciary (the court that would be making the decisions about your case) is predisposed to and experienced in accepting these rights that other jurisdiction courts are not experienced with. Also, the Nevada Domestic Asset Protection Trust law has a two year statute of limitations on attacking the transfer to the trust, whereas most other states have a four year statute of limitations. This is a very important and powerful plus of using Nevada for these trusts.

Some advantages to using a Domestic Asset Protection Trust are the shorter statute of limitations for fraudulent conveyance and the Settlor/Beneficiary structure. We also recommend that clients have us draft these with the decanting provisions that allow the trust to move offshore in the future if it is appropriate for the client.

Statute of Limitations: If assets are transferred to the trust prior tohaving a known, existing creditor, there is a two year statute of limitations on filing a claim against the transfer. That is, the creditor must make a claim against the transfer within those two years. If a creditor does not file a claim prior to when the statute of limitations runs out, the creditor is too late, and will not be successful in accessing the assets owned by the Domestic Asset Protection Trust. The statute of limitations is different if assets are transferred after the Settlor has a claim against him. That is why it is important that an asset protection strategy be put in place before you have any known, existing creditors.

Settlor/Beneficiary structure: With the Domestic Asset Protection Trust, the Settlor can also be the Primary Beneficiary. This is not the case with traditional lawsuit proof trusts in the United States. Distributions can be made to the Settlor/Beneficiary by a Special Trustee to keep the integrity of the irrevocable trust as necessary. The Settlor can still legally control all assets through any underlying entities.

Decanting provision: The decanting provision states that the assets in the Domestic Asset Protection Trust can be transferred to a Family Trust in an offshore jurisdiction in the future. This gives the Settlor an opportunity for stronger asset protection down the line when it is financially feasible.

 

The Domestic Asset Protection Trust is a budget friendly alternative to the Offshore Asset Protection Trust (OAPT), and it mirrors the more favorable provisions and laws of the offshore trust like the two year statute of limitations and the Settlor/Beneficiary structure.

While the Domestic Asset Protection Trust does somewhat mimic the Offshore Asset Protection Trust, it does not afford the same level of protection as the offshore version. As any professional that is an expert in this arena will tell you that the two most pronounced drawbacks to the DAPT are:

(1) that the U.S. court still has jurisdiction over your trust (whereas under U.S. law, the U.S. courts no longer have jurisdiction over an offshore trust), and
(2) that the Domestic Asset Protection Trusts are so new (and only eleven states have legislated) that there is no court precedent that would give you certainty that they would be upheld.

These points do not diminish their utility, but are significant and material issues to consider when deciding to use a Domestic Asset Protection Trust for your circumstances. The Offshore Asset Protection Trust is the strongest asset protection tool available, and should not be overlooked simply because there is a domestic alternative.