A Domestic Asset Protection Trust “DAPT” is an irrevocable trust in which the creator of the trust is a discretionary beneficiary. The trust may be set up for the benefit of the creator, the creator’s spouse and/or the creator’s descendants.
17 states in United States have DAPT statutes. Under the laws of the 17 states, transfers of assets to the DAPT are protected to the extent hose statutes allow. Nevada appears to have the most protective laws as well as statutes of limitations when it comes to DAPT:
Each of the DAPT states has a statute of limitations that determines how long it will take for the trust assets to be protected. The statutes range from 1.5 years to five years. Nevada has a two-year statute.
Each DAPT state tolls the statute of limitations for a preexisting creditor, meaning a creditor whose claim arose prior to the grantor’s transfer to the trust. Most states have either a six-month tolling or a twelve-month tolling. Nevada has a six-month tolling. This means that with respect to a preexisting creditor, no person can sue the Nevada DAPT after the longer of two years from the date of transfer to the trust or six months after the person discovered the transfer to the trust or reasonably should have discovered the transfer to the trust. Nevada is one of only five states that allows its tolling period to start running upon making a public notice of the transfer to the trust (i.e., such as recording an assignment at the Recorder’s Office).
Nevada is one of two DAPT states that have no statutory exception creditors. Exception creditors are classes of creditors that are able to access the trust assets despite the existence of the DAPT statute because that state’s public policy protects that class of creditor.
Nevada law also allows the trust creator to be the investment trustee, so the transferor can retain all powers to make investment decisions. However, the grantor cannot have any powers to make distributions. Therefore either the transferor’s close friend or a Nevada trust company or bank will be the distribution trustee. There must be at least one Nevada trustee, so if the grantor is the investment trustee and the transferor’s close friend is the distribution trustee, then if neither of them is a Nevada resident either a Nevada resident, a Nevada trust company or a Nevada bank will serve as a jurisdictional trustee.
The transferor can retain the power to fire and hire trustees, so regardless of the trustee decisions made, the grantor can retain the power to change the trustees at any time. Thus, there is substantial protection from creditors, but without much sacrifice in control and access.
