The Ratliff Law Firm - Domestic Asset Protection Trust - DAPT
Domestic Asset Protection Trust Video.
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DAPT FAQ's
- What does an asset protection trust do? It allows one who is the grantor (i.e., the one with the assets to be protected) to place those assets into a special trust where an out-of-state Trustee will be the account holder. The grantor is also the beneficiary.
- Where does this type of trust help? It can first be used as a replacement for a pre-marital agreement. So long as the grantor transfer the assets early enough and does not get a final divorce decree in 2-4 years (depending on the jurisdiction for situs), then the trust is designed to protect the assets from a divorcing spouse. It is further used in anticipation of lawsuits in the same manner. In some states, it can be used as a post-marital defense (i.e., in anticipation of a pending divorce). “Situs” means the state who’s laws we use to draft the trust document and administer it from.
- How is this different than a traditional irrevocable trust? A traditional irrevocable trust has the grantor losing control of the assets and paying gift tax in most instances (i.e., because the person is gifting the assets to another person, like a child). A traditional irrevocable trust, however, has more case law associated with it as an asset protection trust is relatively new. However, if the client follows our instructions, the asset protection trust should operate in a similar manner as an irrevocable trust.
- What are the ongoing trustee fees? Usually 1% or less of the principal annually at some point in time during the year. There are some savings mentioned below. Some jurisdictions are moving to allowing the grantor to become trustee. In my study of this subject, I think that the grantor being the trustee and beneficiary is ineffective. On a $1m trust, the fees are then roughly $10,000 per year, or about $800 per month. If one tried to find insurance to cover this, even if available, it would be much more expensive (compare to a professional malpractice policy, except this trust covers all conceivable liability depending on the jurisdiction and a few other administrative factors).
- How does the grantor get money? The grantor will keep their current financial institution. The trust is “self directed” so that the trustee will not have investment authority. Therefore, the client will put in an order for money with the financial advisor and the Trustee will sign-off on it. This process usually happens in a matter of minutes. One can also name a distribution committee locally under some state laws (a spouse), but one should not name themselves as the distribution committee and also as grantor as this could lead to a civil contempt charge by the court if, for example, a Tennessee court ordered the distribution committee/grantor to distribute funds for the judgment. We have failsafes in the trust to prevent a court from finding room for civil contempt against anyone over which is has jurisdiction.
- Why not use a Tennessee domestic asset protection trust when the person lives in Tennessee (replace “Tennessee” here with your state of residency)? This is the same as keeping all of one’s own eggs in one basket. If the grantor asks a Tennessee court to protect the assets from creditors before the same judge, the judge has much more power to equitably break the trust. With our trusts, we use SD, AK, DE, NV and other states depending on the specific client needs. This separates the grantor from the creditor in court at first appearance.
- How can the trust be formed cheaper? If the grantor finds other grantors wanting to do this, then we can form a company (called a “cell company”) where all grantors are insulated from each other and have a controlling asset protection trust. By using this method, there are more assets in any one trust and the trustee fees will normally be lower. Legal costs will go slightly up due to additional drafting and consultation.
- What are the attorney fees? This will start at $7500, and be higher depending on a number of factors such as the complexity of the trust, the amount of assets going into the trust, and working with the client to protect assets that can’t be protected with an asset protection trust. For example, the asset protection trust only protects liquid assets if one has a foreign situs; another method must be used in addition to the asset protection trust for Tennessee “dirt.”
- What if the client already has other asset protection documents? The asset protection trust should be considered an “umbrella,” covering asset protection where other existing documents do not. We will review existing documents to be sure that they link-up with the asset protection trust, but otherwise and in most cases the other documents will be fine. Remember that a revocable living trust has no asset protection. Therefore, if one has no documents, we can draft the asset protection trust to act much like a revocable living trust, saving the client money.
- Why use The Ratliff Law Firm for this? Our firm has a great deal of experience using offshore asset protection trusts. Domestic asset protection trusts can only follow the established case law as used in the offshore context. Also, one should consider that US law is behind the laws of foreign sovereigns where we are licensed in this context. We have the experience to know most failing arguments and successful arguments in other jurisdictions and prepare for those here at home. Therefore, we implement every additional precaution that might not be drafted in the situs state’s asset protection laws because of US Constitutional concerns, among other concerns from experience, that such additional precautions can protect the grantor when the court relies on foreign asset protection trust laws for its judgment. As an example of this experience, one would not want to sign the trust in the jurisdiction that they are wanting the protection or the court may find enough evidence to disregard the trust and find the person in contempt.
Article from Trust and Estates Magazine
