November 20, 2018
Have You Considered Using a Michigan Domestic Asset Protection Trust in Your Estate Plan?
Not all states recognize a Domestic Asset Protection Trust (DAPT). With the enactment of the Qualified Dispositions in Trust Act in December 2016, Michigan became the seventeenth state to recognize DAPTs. The law became effective on March 8, 2017, giving Michigan residents another estate planning tool.
Before the state enacted the new law, you were required to transfer assets to a trustee in a state that recognized DAPTs to take advantage of the benefits of using this type of asset protection trust. However, you can now use a Qualified Trustee who resides in Michigan when setting up a DAPT.
Whether you should consider a Michigan DAPT or a Castle Trust™ is another story all together.
What is a Domestic Asset Protection Trust?
A DAPT is an irrevocable trust that can be used to protect assets from creditors and gain certain tax advantages for estate planning. The Grantor (the person who creates the trust) transfers assets into the trust to be held by the trust and administered by a Qualified Trustee. A Qualified Trustee for a DAPT must be someone who:
- Resides in Michigan;
- Is not the Grantor;
- Arranges for or maintains custody of some or all of the trust property;
- Administers the trust property or some of the trust property; and,
- Retains the trust records or some of the trust records at the trustee’s residence or place of business in Michigan.
The Grantor is typically the lifetime beneficiary of the trust and can retain some limited decision-making authority, such as the right to veto distributions from the trust and direct how the assets are to be distributed after his death with certain limitations.
However, creating a DAPT is not simple. You must include extremely specific wording and legal terms to ensure that the DAPT is recognized by state law. If the trust agreement is not drafted according to the requirements of the Qualified Dispositions in Trust Act, you may not receive the benefits and protections associated with a DAPT.
What are Some of the Benefits of a Domestic Asset Protection Trust?
With very few exceptions, such as bankruptcy and fraudulent transfers, the Grantor’s creditors are barred from asserting claims against the trust property after two years from the date of the transfer. Therefore, any assets that were transferred to the DAPT more than two years ago should be safe from creditors’ claims.
Another advantage of a DAPT is to protect pre-marital assets. If you are concerned about assets you own now, but you do not want to discuss a prenuptial agreement with your partner, you could use a DAPT to protect larger assets from becoming marital property during a divorce. You must set up the DAPT and transfer the assets before you are married to retain the assets as non-marital property.
A DAPT can also be used to reduce the value of an estate to eliminate or reduce federal estate taxes. Another use for a DAPT is to provide for an adult child. The trust agreement can be drafted to provide for the child without transferring assets directly to the child. This use may be necessary if an adult child is insolvent, may file bankruptcy, has tax issues, or could be facing judgment liens. To learn about all advantages and benefits of using a DAPT, call our Michigan trust planning attorney.
Is There A Better Option?
While the Domestic Asset Protection Trust (DAPT) does have several benefits and may be the best choice for some individuals, you may also want to consider a Castle Trust. A Castle Trust is also an Asset Protection Irrevocable Trust recognized in Michigan. The Castle Trust allows for more flexibility without all the requirements you encounter when using a DAPT.
Click here to read more about a Castle Trust or contact our Michigan trust attorney to discuss which type of irrevocable trust is best in your situation.
Contact Our Michigan Estate Planning Lawyer for More Information
If you need help with an estate, retirement, and trust planning, the attorneys of The Elder Care Firm of Christopher J. Berry, CELA can provide the guidance and advice you need to develop a comprehensive plan that meets all your needs and goals.
Contact our office by calling 888-390-4360 or use the contact form on our website to schedule an appointment with one of our Michigan estate planning lawyers.