At Dilendorf Law Firm, we are dedicated to empowering New York residents with comprehensive asset protection and estate planning solutions. Our skilled attorneys specialize in crafting both foreign and domestic asset protection trusts, tailored to the unique needs of each client.
New Yorkers face distinctive challenges in asset protection due to the absence of a state-specific domestic asset protection statute. This lack can leave assets more exposed to legal disputes and creditor claims. Despite the United States offering favorable conditions for non-U.S. residents, American citizens, including those in New York, may not benefit equally.
Domestic Asset Protection Laws – Are They Effective for NY Residents?
Nationally, 19 states have enacted Domestic Asset Protection Trusts (DAPT) laws, providing significant safeguards for their residents’ assets. Yet, New Yorkers establishing a DAPT in another state might encounter legal hurdles. Creditors could potentially challenge the trust’s validity, exploiting the lack of a corresponding New York statute.
Our experience with New York’s business owners, entrepreneurs, and real estate professionals has shown a preference for using DAPT structures for asset and estate planning.
In our professional experience, we frequently observe New York business owners, entrepreneurs, real estate professionals opting for DAPT asset and estate planning trusts. Nonetheless, it’s crucial to recognize that the fundamental principle of “full faith and credit” requires that each state within the U.S. must recognize and respect judgments from sister states.
It’s essential to note that 31 states, including New York, Florida, Texas, and California, lack DAPT statutes.
In situations where, for example, a business owner becomes entangled in a contract dispute or tort case in New York while holding a DAPT trust in a state such as Wyoming or Nevada, creditors may have strong grounds to assert claims against the developer’s assets located within a DAPT trust.
Enforcing an out-of-state judgment typically involves a “conflict of law” analysis in the enforcing state, often a DAPT state. Notably, the new Section 10 of the Uniform Voidable Transactions Act (already adopted by 20 states) stipulates that it is the debtor’s home state law that applies, not the DAPT jurisdiction.
In the case of a DAPT state, if the only connection to that state is the existence of a trust where you are both the beneficiary and grantor, the judge may look beyond the trust’s physical location. In deciding the enforceability of the judgment, the judge is likely to apply the law of the state where the tort occurred.
Furthermore, under Section 548(e) of the Bankruptcy Code, there exists a 10-year clawback provision for assets transferred to a self-settled trust.
As a result, DAPT trusts may not always serve as an effective asset protection and estate planning tool for real estate professionals residing in non-DAPT states, as creditors may collapse the trust structure.
Another significant development to consider is the Corporate Transparency Act (CTA), scheduled to become effective on January 1, 2024. This act will bring substantial changes to corporate reporting requirements in the United States.
It will require millions of companies and trusts to disclose information about their beneficial owners, individuals who hold ultimate ownership or control over the entity. This increased transparency may have implications for privacy, particularly for entities like LLCs, trusts, and corporations.
In summary, while DAPT asset protection structures offer valuable benefits to residents of DAPT states and non-U.S. residents, they may not provide the same level of protection for out-of-state residents.
For those seeking comprehensive asset protection solutions, offshore options, such as trusts in the Cook Islands, can be highly effective.
