A Domestic Asset Protection Trust (DAPT) is a specialized type of irrevocable trust designed to protect your assets from future creditors — while still allowing you to be a beneficiary of the trust.
Unlike traditional irrevocable trusts, which typically require you to give up access to the assets, a DAPT allows you to transfer assets into the trust and retain certain limited benefits.
Because of this unique structure, DAPTs are powerful — but complex — estate and asset protection tools.
How Does a Domestic Asset Protection Trust Work?
A DAPT is:
- Irrevocable (it generally cannot be changed once created)
- Self-settled (you can be a beneficiary)
- Managed by an independent trustee
- Created under the laws of specific states that authorize them
Once assets are transferred into the trust:
- The trustee manages the assets
- You may receive discretionary distributions
- Future creditors may be prevented from reaching the trust assets
However, the protection only applies to future creditors, not existing ones.
Which States Allow DAPTs?
Not every state recognizes Domestic Asset Protection Trusts.
Certain states have enacted laws allowing them, including (among others):
- Nevada
- Delaware
- Alaska
- South Dakota
- Tennessee
- Wyoming
Each state has specific statutory requirements and creditor limitation periods.
Because laws vary significantly, proper jurisdiction selection is critical.
What Assets Can Be Placed in a DAPT?
Common assets placed into DAPTs include:
- Investment accounts
- Real estate (sometimes via LLCs)
- Business interests
- Cash
- Certain personal property
Assets should be transferred properly and well in advance of any creditor issues.
Key Benefits of a Domestic Asset Protection Trust
Creditor Protection
When structured correctly, assets may be shielded from:
- Lawsuits
- Personal guarantees
- Business liabilities
- Future creditor claims
Estate Planning Advantages
Assets may also be removed from your taxable estate, depending on structure.
Continued Access
Unlike many asset protection tools, you may still receive distributions as a discretionary beneficiary.
Important Limitations and Risks
DAPT planning must be done carefully. Key considerations include:
- Transfers must not be fraudulent conveyances.
- There are look-back periods for creditors to challenge transfers.
- Bankruptcy courts may apply federal law differently.
- Some states may not recognize another state’s DAPT protections.
- Existing creditors are not protected.
Timing and proper legal drafting are critical.
Who Should Consider a DAPT?
Domestic Asset Protection Trusts are typically used by:
- Business owners
- Professionals in high-liability fields (physicians, attorneys, developers)
- Individuals with significant assets and exposure risk
- Those concerned about future litigation
They are generally not necessary for modest estates or individuals with minimal liability exposure.
Is a DAPT the Same as an Offshore Trust?
No.
A DAPT is created under U.S. state law. An offshore asset protection trust is created in a foreign jurisdiction and may provide different levels of protection — but with additional complexity and scrutiny.
Domestic trusts are often simpler to administer, but protection varies depending on circumstances.
The Bottom Line
A Domestic Asset Protection Trust can be a powerful tool to protect assets from future creditor claims while maintaining limited access to those assets.
However, DAPTs are highly technical and must be established well before any legal issues arise. Improper planning can result in the trust being set aside.
If you are concerned about asset protection, proactive planning is essential. Consulting with experienced counsel can help determine whether a Domestic Asset Protection Trust fits your long-term strategy.
