The asset protection attorneys at the Dilendorf Law Firm are highly experienced in setting up asset protection trusts and can offer guidance on which state’s trust fits best with a client’s interests. The Delaware Domestic Asset Protection Trust (DAPT) is considered one of the most desirable asset protection strategies, and like other state-specific trusts it is available to individuals from every other state and territory of the United States.
In coordination with financial and estate planning advisors, the Dilendorf Law Firm can provide valuable insight and professional counsel to establish a Delaware asset protection trust. When using a trust to protect assets, it is important that the funds being transferred into it are not needed for everyday living expenses, as distributions can only be made at the discretion of the trustee. A good rule of thumb is to limit the assets being transferred to one-third of an individual’s total assets.
What is a Delaware DAPT?
High net-worth individuals and those with high incomes are often looking for ways to shelter their wealth from certain categories of future creditors, while preserving a legacy for future generations. Once the Delaware trust is established and assets are transferred into it, the grantor and beneficiaries must wait for the four-year statute of limitations to pass before they are protected. However, there are some limitations to the type of creditor protection allowed by law. These include spousal support, child support, taxes, and some tort creditors.
Setting up a Delaware domestic asset protection trust
An individual may establish a DAPT in the state of Delaware even if they live elsewhere, provided one of the fund’s trustees resides in the state, or is a Delaware trust company. However, it is possible to avoid the expense of a Delaware trust company by hiring a qualified trustee who resides in Delaware and is appointed with all the powers and duties circumscribed by the trust. Most out-of-state grantors will reserve most of the trustee responsibility for an out-of-state administrator of their choosing.
In order to start a Delaware domestic asset protection trust, one must establish an irrevocable trust which contains a spendthrift clause and designates Delaware to govern the trust through the laws of the state. A qualified trustee who resides in Delaware must also be appointed, or one may use a Delaware trust company as an alternative.
What are the benefits of a Delaware domestic asset protection trust?
A Delaware DAPT has many benefits, including:
- A grantor in a Delaware DAPT may assign his or herself as a discretionary beneficiary of the trust, in order to get assets back in the event of an emergency, as well as a way to avoid the gift tax, when applicable.
- A reduction in federal transfer tax will occur if the grantor makes a gift that incurs gift tax and lives at least three years after making the gift, and his estate must pay estate tax. However, if the gift is made through a Delaware asset protection trust the transfer taxes may be avoided.
- Similarly, if a grantor’s state of residence imposes an inheritance tax, he or she may be able to reduce that by making a gift before their death. However, if the gift is made through a Delaware DAPT it is possible to get the funds back, if needed.
Clients may also use a type of Delaware APT known as the Delaware Incomplete Non-Grantor Trust, also known as a DING, to avoid paying income tax on the trust’s capital gains and undistributed ordinary income, which may be imposed by a state without the federal grantor-trust statutes. However, as of 2014 this option is no longer available in New York.
Who should obtain asset protection through a Delaware DAPT?
- Anyone who has been successful in business, a savvy investor, or the recipient of an inheritance, gift, or personal-injury award, or who might own substantial assets
- A client with young adult children receiving distributions from a trust should put them into a Delaware DAPT to limit their ability to squander them
- An individual with significant assets who is planning to get married may have an interest in the Delaware DAPT, as these trusts are immune from claims by future spouses
- Any vulnerable person with significant assets who is either mentally, physically, or financially incapable of carefully monitoring personal finances
- A non-resident alien (NRA) who may be interested in immigrating into the United States and who might want to take advantage of favorable tax treatment and flexibility of a Delaware DAPT
The asset protection attorneys at the Dilendorf Law Firm work closely with clients who are interested in setting up a Delaware asset protection trust and offer guidance to ensure this is the best way to satisfy their unique objectives.
- Treatment of Delaware Statutory Trusts – State of Delaware
- Accounting and Distribution of Trust Funds – State of Delaware
- Corporate Forms and Certificates for a Statutory Trust – Delaware.gov
- Dynasty Trusts: Nothing Lasts Forever – Delaware Tax Institute
- The Delaware Business Trust Act Failure as the New Corporate Law – Boston University School of Law
- Delaware Statutory Trusts are Controlled by Contract American Bar
- Trusts in the News – Multistate Tax Commission