Domestic Asset Protection Trusts

The Michigan attorneys at Weisman, Young & Ruemenapp, P.C. have assisted many clients with the establishment of domestic asset protection trusts (a "DAPT"). Our attorneys utilize out-of-sate jurisdictions such as Delaware where local trust law allows individuals to both establish and be a beneficiary of a trust that is protected from his or her future creditors.

A DAPT is a self-settled spendthrift trust created with the primary goal of protecting the assets of the client (who will be the Grantor of the trust) from future creditors. A typical DAPT is an irrevocable trust that utilizes a financial institution as the independent Trustee of the trust. The trust may provide that the Trustee is authorized to make distributions from the trust to a class of beneficiaries who are designated in the trust document by the client and which may include the client and his or her spouse. Of course, it is the ability of the client to establish a self-settled spendthrift trust with the client designated as one of the beneficiaries that presents the opportunity for asset protection planning. While virtually all states allow spendthrift trusts that prohibit (i) a beneficiary, for example, a child or spouse, from voluntary dissipating the assets or (ii) a creditor of the beneficiary from reaching the trust assets, until 1996 a person could not create a spendthrift trust for his or her own protection.

Many clients are realistically concerned that due to the nature of their business or other actions they engage in, they may be exposed to lawsuits that could wipe them out financially. A variety of clients may benefit from a DAPT, including high risk professionals who are exposed to personal liability relating to their practice (such as doctors and attorneys), real estate developers with personal guarantees, business owners, investors and individuals who wish to protect an inheritance from future creditors. A client may also consider utilizing a DAPT in connection with marital planning, but some state statutes provide exceptions for child support and for alimony if the assets were transferred to the trust after the client was married. A DAPT is not appropriate for anyone who wants to avoid the claims of current creditors, and a client transferring assets to a DAPT must be prepared to demonstrate that the transfer is not fraudulent (i.e. is not made in an attempt to defraud current or foreseeable creditors). Most DAPT statutes impose limitations regarding the period of time in which creditors can challenge a transfer to the trust as being fraudulent.

Please contact Weisman, Young & Ruemenapp, P.C. at 248.258.2700 for additional information and to discuss how a DAPT can benefit you and protect your assets from creditors.