Domestic Asset Protection Trusts

What Is a Domestic Asset Protection Trust?

A domestic asset protection trust (DAPT) is a type of trust designed to protect assets from creditors and lawsuits. DAPTs are typically irrevocable, meaning you cannot modify the trust once it’s established, and you must give up complete ownership of the assets transferred into the trust.

The person who transfers assets into a DAPT is called the grantor. The grantor needs to assign a trustee to hold and manage the trust on behalf of its beneficiaries — or the individuals who will receive the assets in accordance with the trust document.

Not every U.S. state allows DAPTs. However, Tennessee is one of the 20 states with laws permitting these asset protection trusts. Residents can set up a Tennessee Investment Services Trust (TIST).

A TIST protects assets from creditors and gives the grantor some control over trust management. For example, grantors with TISTs can deny asset distribution or replace the trustee. Still, as with most irrevocable APTs, a TIST requires the grantor to give most control of the trust to their chosen trustee.

What Is a Lifetime Domestic Asset Protection Trust?

A lifetime domestic asset protection trust refers to an asset protection trust (DAPT) funded and managed during the grantor’s lifetime. It also describes a DAPT designed to distribute assets to beneficiaries throughout their lifetimes. For example, you can create a DAPT that requires the trustee to transfer specific assets to one of your children at certain life milestones, such as when they get married or have their first child.

In either case, a lifetime domestic asset protection trust contrasts with a testamentary trust — which dictates how your assets will be distributed after death. Testamentary trusts can be created as part of a person’s last will and testament and only take effect after the grantor passes away.

How Do You Set up an Asset Protection Trust?

Take the following steps to set up your asset protection trust.

1. Speak to an Estate Planning Attorney

Setting up an asset protection trust begins with speaking to an experienced estate planning attorney. A lawyer can help you design a personalized APT that meets your unique needs and desires, complies with legal requirements, and incorporates strategic tax planning.

2. Choose a Trustee You Trust

You’ll also need to select a trustee to manage your trust. The trustee may be a family member, a trusted friend, or a third party, like a financial institute or law firm.

If you feel uncertain about a family member’s or friend’s ability to handle trustee duties, working with a third-party professional may be best. A professional like a lawyer brings expertise, reliability, and impartiality to trust management, so you can be sure your assets are protected and distributed as outlined in your trust document — no matter what happens within your personal relationships.

Regardless, if you live in Tennessee, your selected trustee must be “qualified.” The trustee must be a state resident or a corporate trustee licensed under TN law. They will also need some trust management duties, like preparing tax returns. Your attorney can help you decide who should be the trustee for your APT.

3. Transfer Your Selected Assets

Finally, you’ll need to transfer your selected assets into your trust. Your assets may include real estate, bank accounts, and investments. Due to legal requirements and potential tax consequences, transferring assets can be complicated. Your lawyer will handle the legal complexities and documentation requirements and guide you through the other aspects.

What Are the Disadvantages of a Domestic Asset Protection Trust?

Although a DAPT has certain benefits, it’s not the right choice for everyone. Consider the following disadvantages:

Lack of asset control and ownership: Once you transfer assets into a DAPT, you no longer own them. Therefore, it’s crucial to consider your long-term financial needs and goals before establishing a DAPT.
Complex process: Creating and managing a DAPT can be complex, requiring financial and legal knowledge. Choosing a lawyer who is well-versed in trust law and the right trustee is essential to effectively establish and manage your trust.
Does not provide immediate protection: In Tennessee, assets placed in a trust are shielded from creditors after two years. However, you can shorten this period to six months by notifying creditors of the DAPT.

Protect Your Legacy With Crow Estate Planning & Probate

A domestic asset protection trust requires careful planning to avoid legal risks and ensure it aligns with your financial goals. If you’re seeking experienced lawyers to help you establish a strategic DAPT, we’re ready to serve you at Crow Estate Planning & Probate.

Our attorneys provide comprehensive, personalized estate planning services to clients in Tennessee and Kentucky. We understand the importance of protecting your assets for your loved ones, and we are dedicated to ensuring your legacy is secure — whether you’re interested in establishing a domestic asset protection trust or another type of trust.

Hear From Our Clients

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Domestic Asset Protection Trust

What Is a Domestic Asset Protection Trust?

What Is a Lifetime Domestic Asset Protection Trust?

How Do You Set up an Asset Protection Trust?

1. Speak to an Estate Planning Attorney

2. Choose a Trustee You Trust

3. Transfer Your Selected Assets

What Are the Advantages of a Domestic Asset Protection Trust?

What Are the Disadvantages of a Domestic Asset Protection Trust?

Protect Your Legacy With Crow Estate Planning & Probate

Hear From Our Clients

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