2025 Delaware DAPT Win: CES 2007 Trust Upheld

Domestic Asset Protection Trusts (“DAPTs”) are often criticized as ineffective or vulnerable to creditor attack—especially when the trust creator lives outside the state where the trust is formed.

A recent decision from the Delaware Court of Chancery, however, shows that when properly structured and administered, a Delaware DAPT can withstand aggressive creditor challenges—even when the grantor is a non-resident and the trust indirectly holds valuable real estate.

The case, In the Matter of the CES 2007 Trust, involved a Michigan judgment creditor attempting to reach assets held through a Delaware trust structure. The court rejected those efforts in full and recommended dismissal at the pleading stage.

The Setup: A Michigan Grantor, a Delaware Trust, and Real Estate Held Through LLCs

The trust at issue was created in 2007, years before the underlying Michigan litigation. The grantor was not a Delaware resident. Instead, he used Delaware law to establish a self-settled asset protection trust.

Crucially, the trust did not own real estate directly. Instead, it owned membership interests in Delaware LLCs, and those LLCs owned the real property:

“In pertinent part, the Trust’s assets include a ninety-percent interest in three Delaware limited liability companies…”

Those LLCs, in turn, held real estate in Michigan and Colorado, including residential and commercial properties.

This structure mattered. Under Delaware law:

“A limited liability company interest is personal property. A member has no interest in specific limited liability company property.”

Because the trust owned LLC interests—not the real estate itself—the creditor’s attempt to collapse the structure failed.

Why the Court Refused to “Look Through” the LLCs

The creditor urged the court to disregard the LLC structure, treat the real estate as trust property, and characterize various historical transfers as fraudulent.

The court refused.

It held that it would be inappropriate to adjudicate real estate transactions at the LLC level in an action targeting the trust’s spendthrift provision:

“It would be inappropriate for this Court, through this type of proceeding, to adjudge the real estate transactions at the LLC level under the guise of potential fraudulent transfer sufficient to void the Trust’s spendthrift provision.”

The court went further:

“There are, simply put, no transfers to/from the Trust which would give rise to such an inquiry, and the Petitioner has pled no basis on which this Court should engage in veil piercing.”

This is a critical point for asset protection planning. DAPTs are evaluated based on what the trust owns—not what its subsidiaries own.

Out-of-State Grantors and Delaware Law

Another important aspect of the case is that the grantor was not a Delaware resident. The underlying judgment arose in Michigan. The real estate was located outside Delaware. Yet Delaware law governed the trust.

The court emphasized that Delaware expressly authorizes self-settled asset protection trusts, provided statutory requirements are met:

“In 1997, Delaware codified the ability to create Delaware self-settled asset protection, or qualified disposition, trusts.”

The trust satisfied those requirements, including:

• Invocation of Delaware law
• An enforceable spendthrift provision
• Irrevocability
• Transfers to a qualified trustee

The court found no statutory defect simply because the grantor lived elsewhere.

Trustee Independence and “Control” Arguments

A common creditor argument in DAPT cases is that the grantor retained too much control, effectively acting as the trustee in disguise.

That argument failed here.

The trust had an independent, qualified Delaware trustee. The grantor retained certain advisory powers—but Delaware law expressly permits this.

As the court explained:

“As advisor, the Respondent has the power to manage investments and delegate authority in accordance with his fiduciary duties.”

The court rejected the notion that advisory roles or business management automatically destroy asset protection, noting the statutory framework that allows settlors to appoint advisors and trust protectors.

Common Law Attacks: Public Policy and “Sham Trust” Claims

The creditor also attempted a fallback strategy: arguing that even if the trust met statutory requirements, it should be invalidated under common law doctrines.

Delaware courts recognize that avenue—but apply it narrowly.

The court reiterated that Delaware will not enforce a spendthrift trust that lacks economic reality and exists solely to allow the settlor to enjoy assets without restraint. But that was not the case here.

The court concluded:

“Neither doctrine supports the Petitioner’s request for relief in this action.”

And explicitly declined to recharacterize the structure:

“I decline to pierce down, treat the LLCs as shams or alter egos […] and convert the Trust’s membership interests therein to real property interests.”

The Outcome: Dismissal at the Pleading Stage

After reviewing the trust’s structure, governance, and statutory compliance, the court reached a clear conclusion:

“The Petitioner has failed to state a claim to void the spendthrift provision of the Trust or invalidate the Trust altogether.”

The recommended result:

“The Respondent’s motion to dismiss the Amended Petition should be granted, and the Amended Petition should be dismissed.”

What This Case Means for Asset Protection Planning

This decision reinforces a central principle we emphasize in our asset protection practice: effective planning is not about evasion—it is about structure, discipline, and statutory compliance.

When those elements are present, courts will respect the plan, even under aggressive creditor attack.

At Dilendorf Law Firm, we  represent high-risk professionals and entrepreneurs whose personal and professional exposure makes proactive asset protection essential.

We represent physicians, surgeons, medical specialists, real estate developers, builders, business owners, and investors—individuals whose success often places them squarely in the crosshairs of litigation.

The Delaware Court of Chancery’s decision in In the Matter of the CES 2007 Trust underscores several planning principles that are directly relevant to this clientele:

• DAPTs can protect assets even when the grantor lives in another state
• LLC layering matters—owning real estate indirectly can be decisive
• Qualified trustees and statutory compliance are non-negotiable
• Retained advisory powers do not automatically defeat asset protection

At Dilendorf Law Firm, we assist U.S. and non-U.S. clients protect a wide range of assets, including:

• Income-producing and investment real estate
• Operating businesses and development projects
• Investment portfolios (public and private securities)
• Cryptocurrency and digital assets
• Cash reserves and alternative investments

This case also serves as a reminder that timing matters.

The trust in question was established years before the underlying litigation—an essential factor in surviving fraudulent transfer challenges.

Asset protection is most effective when implemented before a claim arises, not in reaction to one.

Ultimately, CES 2007 confirms what sophisticated planners already understand: well-designed Delaware DAPTs—combined with disciplined administration and proper entity structuring—remain a powerful tool for protecting wealth against future creditor risk.

For high-exposure professionals and investors, asset protection is not a luxury. It is a core component of long-term financial and estate planning—and when done correctly, courts will enforce it.

Contact Us

At Dilendorf Law Firm, we assist U.S. and international clients with sophisticated cross-border estate and asset protection planning. Our practice spans domestic asset protection trusts (DAPTs) in leading U.S. jurisdictions—such as Wyoming, Alaska, Nevada, and South Dakota—as well as offshore trust structures in key jurisdictions including the Cook Islands, Nevis, and the Cayman Islands.

In each jurisdiction, we have developed a network of experienced trustees, financial institutions, and vetted legal partners who help ensure that every structure is professionally administered and compliant with local regulatory standards.

To discuss how our experience and network can support your planning goals, contact us at info@dilendorf.com or by calling us at 212.457.9797 to discuss your needs.