Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, June 4, 2020

How the Hybrid Domestic Asset Protection Trust Has Changed the Entire Asset Protection Industry

Https---blogs-images.forbes.com-jayadkisson-files-2018-03-DAPTSThere are three different main trust options: Domestic Asset Protection Trusts (DAPTs), Foreign Asset Protection Trusts (FAPTs), and Hybrid Domestic Asset Protection Trusts (Hybrid DAPTs). 

Traditional DAPT

The traditional DAPT is allowed by 19 states and is an irrevocable trust. The settlor of this type of trust does not have to reside in one of the 19 states that allows such a trust. Most believe that if the DAPT is tested, it will work to protect its assets from a creditor of the settlor, which is why even after two decades since the first DAPT legislation, no non-bankruptcy creditor has challenged a DAPT all the way through the court system. 

One weakness of the DAPT is that many people believe that a DAPT will not work for a resident of a non-DAPT state and the presiding judge may have the same belief. 

Hybrid DAPT

The Hybrid DAPT, a simple strategy, substantially increases the probability that the trust assets will be protected. What sets the hybrid apart from the traditional DAPT is that the settlor isn't a beneficiary of the trust, but can be added later. Therefore, the trust is set up for the settler's spouse and descendants. This makes the trust a third-party trust and almost certainly avoids the potential risk of uncertainty and scrutiny of a traditional DAPT. 

There are many ways for the settlor to indirectly access the Hybrid DAPTs assets which makes it almost completely unnecessary for a settlor to become a beneficiary.

There are virtually no weaknesses attached to the Hybrid DAPT as it is almost fully protected. The only way a weakness is created is if the settlor is added as a beneficiary, but there is no conceivable reason why that should or would be done. 

See Steven J. Oshins, Esq., AEP, How the Hybrid Domestic Asset Protection Trust Has Changed the Entire Asset Protection Industry, Ultimate Estate Planner, April 1, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


Estate Planning - Generally, Trusts | Permalink


pull quote from Oshins' article:
However, despite the very high likelihood of protection, there are many people who don’t think a DAPT will hold up if challenged. And, in fact, in the dicta of In re Huber, 2013 Bankr. LEXIS 2038, May 17, 2013, the judge said that local law would prevail. Most estate planners believe that the rationale was incorrect, but still that case exists, so people cite it.
end quote
Two points: (a) it was not dictum, and (b) it is not true that "most" planners think the rationale was incorrect. In fact it was sourced directly to a decision of the 9th Circuit federal appeals court, In re Zukerkorn, 484 B.R. 182, 192 (9th Cir. BAP 2012), to which an appeal would lie. * * *

Posted by: Russ Willis | Jun 5, 2020 8:32:15 PM

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