Domestic Asset Protection Trusts

Domestic Asset Protection Trusts (DAPTs) are a trending topic in financial planning.

A DAPT is an irrevocable, self-settled trust that can protect your assets from creditors. When you form a DAPT for your assets, you maintain control and access to them while keeping them out of creditors' reach.

Currently, twenty states recognize DAPTs: Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. Nevada, South Dakota, Alaska, and Delaware are traditionally considered to have the strongest DAPT statutes.

Oklahoma’s Preservation Trust

Oklahoma authorized DAPTs with the Family Wealth Preservation Trust Act, first enacted in 2004 and revised in 2014. Okla. Stat. tit. 31, §§ 10-18 (the “Act”).

Under the Act, a preservation trust must:

1. Be established by a grantor under Oklahoma law,

2. Have an Oklahoma-based bank that maintains a trust department or an Oklahoma-based trust company as a trustee at all times,

3. Only have qualified beneficiaries,

4. Comprise a majority value of its assets from Oklahoma assets,

5. State that the trust's income is subject to Oklahoma's income tax laws.
   

Importantly, a grantor can establish only one preservation trust at a time. If the trust is revoked, they can create a new one under the Act.

A trust that qualifies as a preservation trust under the Act protects its principal and income (including appreciation in the value of the principal and reinvested income) from the grantor's creditors.

Yet, the Act does have limitations on creditor protections:

1. Assets transferred to the preservation trusts in violation of Oklahoma’s Uniform Fraudulent Transfer Act are not protected,

2. Child support judgments are exempt from the Act,

3. A lien on any property transferred to the preservation trust is unaffected.
   

Benefits and Drawbacks of DAPTs

DAPTs, when set up correctly, offer several advantages. They provide a high level of asset protection and can be effective in estate planning for high net worth individuals. However, they also have drawbacks. DAPTs can be complicated and costly to establish and manage, and not all states recognize their validity, which may lead to legal complications.

Contact Whipp Law today for a consultation to discuss if a preservation trust can benefit you and your family.