Q:

What is an asset protection trust?

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Quick Answer

An asset protection trust is a vehicle an individual establishes to protect his assets from creditors. The domestic asset protection trust is established by special laws in a few jurisdictions, including Nevada and Delaware, as of 2014. A statute of limitations in DAPT jurisdictions dictates how long it takes before assets transferred to a DAPT are protected from creditors; many have a period ranging between two and four years.

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Full Answer

The administration of a DAPT, its documents and some of its assets must be located in the original jurisdiction of its establishment. All DAPT jurisdictions, except Nevada, have statutes that allow an "exception creditor" to access the funds in a DAPT, as of 2014. Exception creditors include divorcing spouses, child support recipients and alimony creditors.

A DAPT must meet certain criteria for it to be valid, such as being irrevocable and the appointment of a trustee to manage the trust. Some disadvantages of DAPTs include conflicting laws in different states, especially between DAPT and non-DAPT states. DAPTs can encounter significant challenges in implementing court judgements across different states in compliance with the Full Faith and Credit Clause. Experts point out that DAPTs may not offer as much safety for a person's assets as compared to overseas asset protection trusts.

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