Whether you have a significant amount of wealth to your name or not as much, protecting your assets against lawsuits, creditors, ex-spouses, and other risk factors is important. Otherwise, you leave them open to seizure as you invite lawsuits. However, with adequate asset protection strategies in place, lawsuits against you will be less viable, therefore allowing for easier settlement of claims.
Domestic asset protection trusts, or DAPTs, are one way to protect your assets. They are trusts that are specifically designated to protect your assets from the claims of others. Properly constructed, they can be effective in securing your wealth against the efforts of creditors and other parties to take it away.
However, setting up a DAPT must be done proactively in order to work. Also, to make sure your asset protection strategies pay off, you will need to involve an attorney. Hart & David offers those in the Chicago-Metro area the skilled legal advising, document drafting, representation, and trust structuring services needed to protect their assets with a DAPT.
Benefits of a DAPT
A domestic asset protection trust is fairly simple to set up, and it can help those who are not quite comfortable using international asset protection methods. Put simply, a trust works by legally removing your attachment to assets you own. While in the trust, they are not technically considered to be yours, and can therefore no longer be subject to seizure by creditors.
Often, trusts can also protect assets from taxation, making them a valuable part of an estate planning strategy.
The laws regarding domestic asset protection trusts are not consistent throughout the U.S. Therefore, some issues with jurisdiction may arise if forming the trust is not carefully handled. In many cases, creditors may view a DAPT as an attempt to fraudulently transfer assets, and thus it should be formed and managed with a great deal of care.
As with any asset protection strategy, forming a DAPT should occur long before any allegations are brought against you. If you wait until you are facing a lawsuit, it will very likely backfire, costing you thousands. Skilled legal advising is therefore key to identifying the structure and timing for forming a DAPT.
Structuring a DAPT
In order to be effective in protecting assets (rather than inviting litigation), a DAPT must meet a number of criteria. These include the following:
- The trust must be irrevocable. In other words, the grantor (you) can’t be allowed to withdraw assets or make changes to the trust.
- Must have a trustee within the jurisdiction where the trust is formed.
- Must have a trustee to administer the trust.
- The trust must include a spendthrift clause. This limits what can be done with the assets in the trust before it is distributed to its beneficiaries.
Proper structuring of a DAPT is crucial to its success. Otherwise, it is an invitation for trouble. Thus, if you are considering implementing a DAPT in your asset protection plan, you need to involve an attorney. Contact Hart & David now in order to determine your options, set up your trust, and secure your assets.