A National Asset Protection Trust (DAPT) is a self-managed spendthrift trust that protects assets from creditors. It differs from a typical trust as the creator, controller, and beneficiary are generally the same person. Some US states allow people to create DAPTs, but conflicting US laws may affect their effectiveness. The US Congress has established a 10-year statute of limitations on assets transferred to a DAPT, which can be overridden by a bankruptcy court.
A National Asset Protection Trust (DAPT) is a legal entity created to protect assets from creditors seeking to obtain the assets to satisfy a debt. Another name for a DAPT is a self-managed spendthrift trust. A national asset protection trust differs from a typical trust in that the person who creates, controls and benefits from it is generally the same. Several countries around the world have laws that allow individuals to create trusts to protect assets. Some US states have decided to enact laws allowing people to create DAPTs in their jurisdiction. It is unclear whether a domestic asset that protects trust can effectively protect assets due to conflicting US laws
Normally, a trust involves a settlor, a trustee and a beneficiary. A settlor is the person who puts his assets into the trust, the trustee manages the assets in the trust, and the beneficiary is the person who benefits from the trust. Trust laws control how the trustee manages assets. A trustee must also follow the instructions the settlor provides in the document creating the trust. In contrast, the settlor, trustee and beneficiary are the same person in a domestic asset protection trust.
Some US states have passed laws allowing people to set up a national asset protection trust within their borders. They did this to attract business to their state because many other countries have laws allowing asset protection funds. Having the ability to establish a national asset protection trust in the United States is attractive to people seeking asset protection because the United States is seen as a stable country. It is also easier for US citizens to transfer assets to a trust in the US instead of traveling to another country for that purpose.
One potential problem with a national asset protection trust is that the US Congress has passed a law in the Bankruptcy Code that establishes a 10-year statute of limitations on assets transferred to a DAPT. In other words, a bankruptcy court has the power to override state laws that allow people to move assets into that vehicle. For example, if a person files her assets in a DAPT and files for bankruptcy nine years later, the court can still reach for the assets placed in the DAPT to settle any debts the person owes. A person should consult an attorney experienced in setting up a domestic asset protection trust to understand any other pitfalls.
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