What Is a DAPT?
A DAPT allows you to create a trust and name yourself as the settlor of the account, which means you choose how to handle assets in the trust. A DAPT is an irrevocable self-settled trust that provides protection from creditors who may come after your assets. By forming a DAPT for your assets, you have control and access to the asset, but it’s inaccessible to creditors. There are provisions for DAPTs in certain states that allow some creditors to obtain access to your DAPT, but the protection makes it more challenging and time consuming.
Although this type of trust protects your primary residence, you can add other assets, such as cash, securities, limited liability companies (LLCs), real estate, intellectual property, and recreational equipment, to a DAPT. To determine whether a DAPT is your best option, you should establish goals for protecting your assets from creditors and forming an estate plan that ensures your beneficiaries get the assets you want them to have.
What Is a NAPT?
A NAPT is an asset protection trust formed in Nevada, supplying some of the best protection out of all the states that offer DAPTs. In other states, you don’t get asset protection when you first fund your DAPT, but in Nevada, your protection begins within two years of creating and funding the NAPT. Nevada also has no exceptions for the creditors who can access your NAPT, giving you an added layer of protection over DAPTs in other states that allow certain creditors access to your DAPT.
Additionally, creditors must prove you fraudulently funded a DAPT to avoid contractual or judgment liability if they want to access it for debts or lawsuits owed. Nevada also gives you broader powers to make investment decisions for your trust than other states. While you can’t make distribution decisions as the settlor for your NAPT, you can change trustees whenever you like, so if there’s a disagreement about distributions, you can choose new trustees whose ideals better align with your own.
What Are the Benefits of a DAPT or NAPT?
Protecting your assets with a DAPT or NAPT provides many advantages, but whether this type of asset protection is right for you will depend on your investment strategy and the security you need. As each estate plan is unique, you should speak to an advisor who understands your financial situation and goals to help you determine the best way to protect yourself and your wealth.
It’s also important to speak with someone familiar with DAPTs in the state where you want to form one because the regulations vary among them. Depending on the state, these are some of the benefits DAPTs offer:
Tax Exclusions and Savings
When you file taxes, the IRS typically doesn’t require you to include DAPTs in your federal estate taxes. This ultimately helps eliminate or significantly lower death taxes because the trust isn’t included in the gross estate. Establishing your DAPT in a state with no income tax can help shield you from paying income tax if you live in a state that taxes income.
No Limitations on DAPT Holdings and Transfers
You can hold any asset in a DAPT, allowing you to shield anything you want with this type of asset protection. While DAPTs commonly protect securities, you can put a wide range of assets into the trust fund. Because you can appoint yourself as the grantor and the beneficiary, you’ll have access to all the assets in the trust, although most states prevent you from unilaterally controlling the trust.
Privacy From Creditors
The main reason to establish a DAPT is to provide an added layer of protection to prevent creditors from taking your assets. If a creditor sues you when you have your LLC in a DAPT, they won’t be able to seize your business or assets. While they can still sue you, the assets in the DAPT can’t be used as part of a court settlement against you. This isn’t foolproof, but the obstacle that DAPTs provide can deter creditors.
Available to Nonresidents
Most states will allow nonresidents to form DAPTs, but some rules apply. For instance, you’ll probably need to appoint a trustee or co-trustee living in the state. In some cases, lawyers may fight to access assets in a DAPT in another state. For example, if you have real estate in Arkansas in a NAPT, there could be a conflict of interest, and your assets may need more security. Consult an advisor to ensure you have the proper protection for your situation.