6.3 Domestic Asset Protection Trusts

Recently several states have enacted enabling legislation to permit self-settled asset protection trusts (Alaska, Delaware, and other jurisdictions).   Although untested, the domestic asset protection trust offers the promise of asset protection without some of the more unacceptable risks associated with offshore trusts:   “The risk of fine or incarceration should be lower in the case of a DAPT (domestic asset protection trust) because the controversy will be adjudicated in the U.S. legal system.”   Nenno, Planning with Domestic Asset-Protection Trusts: Part I, 40 Real Prop. Prob. & Tr. J., 263, 247 (Summer 2005).  To the extent a client needs a self-settled trust with a significant retained interest, the domestic version is probably the most attractive vehicle.

As with the offshore variety, a detailed discussion of domestic asset protection trusts is beyond the scope of this paper.   See: Lischer, Domestic Asset Protection Trusts: Pallbearers to Liability, 35 Real Prop. Prob. & Tr. J., 479 (Fall 2000); Nenno, Planning with Domestic Asset-Protection Trusts: Part I, 40 Real Prop. Prob. & Tr. J., 263 (Summer 2005); Nenno, Planning with Domestic Asset-Protection Trusts: Part II, 40 Real Prop. Prob. & Tr. J., 477 (Fall 2005).

As noted above, an exception to the general rule may have been created by the tenant by the entirety trust.