Domestic Asset Protection Trust: How to Safeguard Your Assets

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If you have savings that you want to keep safe, you need asset protection strategies. There are so many ways to lose a nest egg, so financial priority number one is preventing loss of assets. Even better than that is preventing loss while keeping assets safe for future generations. A Domestic Asset Protection Trust (DAPT) can help you do just that. Even though North Carolina does not offer DAPTs, we can help you set up this type of trust in another state.

Everyone’s life has unexpected and unwelcome events. You could suffer a medical event leaving you unable to make future decisions to protect your assets. A car accident could leave you with a civil lawsuit. Suddenly, you face significant expenses that you never planned for, and your savings are gone. In these situations, it’s important to have asset protection in place.

How Can a Domestic Asset Protection Trust Help Me?

A Domestic Asset Protection Trust can help protect your assets from creditors. If you’re sued, the trust can provide a buffer between your assets and the judgment against you. This can help prevent the seizure of your property or bank accounts, and it can also keep the courts from awarding money to your creditors.

The trust can also help protect your assets from probate. When you die, the trust can continue to protect your property from being seized by creditors or taken by the government.

A domestic asset protection trust is a great way to keep your assets safe for the future. If you face a difficult situation, the trust can help you protect your savings and ensure that you still have a financial cushion to fall back on.

Prevent Common Losses

Everyone’s life has unexpected and unwelcome events. Your doctor may diagnose you or your spouse with a rare disorder that will require assisted living in 2 years. A grown child’s spouse could start showing signs of drug addiction. Issues like these eat into your savings now and affect how you may wish to distribute assets to heirs later. Just some of the reasons we see clients suffer from crushing loss include:

  • Auto accidents costing more than insurance limits
  • Someone suing you for malpractice
  • Business disputes
  • Injury claim from a rental property you own
  • Civil claims against you
  • Grown child in a divorce or child support dispute
  • Medicaid spend-down to qualify for long-term care costs
  • Heirs’ drug, gambling, or shopping addictions eating a lumpsum inheritance overnight

A Domestic Asset Protection Trust Safeguards You and Your Heirs

What can you do to protect your or your family’s assets when these inevitable life events happen? You certainly do not want to wait until the unfortunate event happens. In that case, it may be too late to do anything about the issue.

For example, waiting to plan for Medicaid until two years before you need it means that you can no longer protect your assets and get coverage without a spend-down or period of ineligibility. Preparing for long-term care at least five years before you need it can make all the difference for thousands upon thousands of your savings.

Waiting to consider your child’s inevitable divorce can mean that you pass away and a lump sum inheritance goes into their joint banking account. Even though you could have easily prevented this scenario, your child loses half of their inheritance.

If you wait until you face a civil lawsuit where the court will likely award a judgment to the plaintiff, it is too late to shield your assets. At that point, putting assets into a trust will only bring on a charge of fraudulent transfer, which a court will void.

What Exactly is a Domestic Asset Protection Trust (DAPT)?

You can use a domestic asset protection trust (DAPT) to protect your assets from creditors. It’s a legal arrangement where you transfer your assets into the trust, and the trust then pays you income for your use. Your attorney sets up the trust so that you do not legally own it, which helps protect it from seizure by creditors.

You may use a domestic asset protection trust in any state, but some states offer more creditor protection than others. If you live in North Carolina, you will need to work with an attorney to set up a domestic asset protection trust in another state.

How Does a Domestic Asset Protection Trust Work?

There are a few things you need to know about how a domestic asset protection trust works:

1. The trust is irrevocable, which means that you cannot change your mind and withdraw the assets later on.

2. You must adequately fund the trust by transferring the assets into the trust.

3. The trust pays you income to use rather than giving you complete access. This practice can help protect the entire amount from seizure by creditors.

4. You cannot act as a trustee since this would provide too much control to you and could defeat the trust’s purpose.

5. You must maintain proper records for the trust so that it is transparent to the courts.

6. The trust will have its own tax

We Can Help

Contact us today to learn more about domestic asset protection trusts and how they can help you. We can help you set up a trust that will offer you the maximum level of protection possible. Your assets are vital for you, and we want to help you protect them.

 

 

Citations:

1) “What is a Domestic Asset Protection Trust?” The Balance, https://www.thebalance.com/what-is-a-domestic-asset-protection-trust-29