Domestic Asset Protection Trusts (DAPT) Explained by Estate Planning Attorney | Summary and Q&A

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June 18, 2021
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Chapman Law Group: Health Care Attorneys
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Domestic Asset Protection Trusts (DAPT) Explained by Estate Planning Attorney

TL;DR

Domestic Asset Protection Trusts are designed to safeguard the assets of professionals who face potential lawsuits, such as doctors, lawyers, and celebrities, while also providing tax advantages.

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Questions & Answers

Q: What is the main purpose of a Domestic Asset Protection Trust (DAPT)?

The primary purpose of a DAPT is to protect the assets of professionals, such as doctors, lawyers, and celebrities, who are at risk of potential lawsuits or excessive liability.

Q: How does a Domestic Asset Protection Trust (DAPT) provide asset protection?

A DAPT allows individuals to transfer assets to an irrevocable non-grantor trust, which safeguards those assets from creditors and potential lawsuits. The individual maintains some control over investments and distributions while enjoying protection.

Q: Are there any tax benefits associated with a Domestic Asset Protection Trust (DAPT)?

Yes, DAPTs offer tax advantages. The assets placed in a DAPT are not counted as part of the individual's taxable estate, allowing them to reduce estate taxes. This benefit can be particularly beneficial for individuals who have assets exceeding the estate tax exemption limits.

Q: Can you explain the control an individual has over a Domestic Asset Protection Trust (DAPT)?

Although an individual does not have complete control over the assets placed in a DAPT, they still have some power. They can direct certain investments and have the ability to veto specific distributions made by the trustee managing the trust.

Q: How does a Domestic Asset Protection Trust (DAPT) differ from an irrevocable life insurance trust?

Unlike an irrevocable life insurance trust, a DAPT is set up during the individual's lifetime and allows for access to funds if needed. It also provides more control over investments and distributions compared to an eyelid. A DAPT is specifically designed for assets that are not immediately required.

Q: Which states in the US have provisions for Domestic Asset Protection Trusts (DAPTs)?

Currently, Michigan is one of 17 states that permit the formation of Domestic Asset Protection Trusts. Each state may have variations in the specific rules and regulations regarding DAPTs.

Q: Who would benefit the most from setting up a Domestic Asset Protection Trust (DAPT)?

Professionals with high liability risks, such as doctors, lawyers, accountants, and celebrities, would benefit the most from establishing a DAPT. It provides a layer of protection for their assets against potential lawsuits and excessive liability claims.

Summary & Key Takeaways

  • Domestic Asset Protection Trusts (DAPT) are specific types of irrevocable non-grantor trusts designed to protect the assets of professionals with high liability risks.

  • By placing their assets into a DAPT, individuals can shield those assets from creditors and potential lawsuits.

  • DAPTs offer certain control and investment options to the individual while still enjoying tax benefits and protection from estate taxes.

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