Domestic Asset Protection TrustsA Domestic Asset Protection Trust is also known as a DAPT and it is basically a trust that can be established in any US state, which has laws that have been designed to protect the trust assets from creditors. Establishing a DAPT involves placing assets into a trust to keep them safe so that it can be used by the beneficiary. But the question is that is an asset protection trust strong enough to protect the assets from creditors? The answer is yes and not only protection of assets but there are other advantages of domestic asset protection trust. According to U.S. jurisdictions in different states, the trusts assets will not reachable by the creditors of beneficiaries'. In short, it means that by establishing a DAPT, your parents will ensure that it will protect your assets effectively from your creditors. There are five states in the US namely Alaska, Delaware, Rhode Island, Nevada, and Utah, which recognize irrevocable spendthrift self-settled trusts. This means that you will be able to create an asset protection trust protect them from creditors. Off late people feel that there is a significant bias against establishing a DAPT and these trusts are not being created with good intention. All states in the US have strong fraudulent transfer rules that make it easier for creditors to take control of the trust assets. This can take place only when there has been an improper transfer to a domestic asset protection trust. One of the most important things that you need to understand before establishing a DAPT is who all are eligible or who should ideally establish an asset protection trust. If you are trying to establish an asset protection trust to hide assets then it is not recommended at all. A domestic asset protection trust should be opened if: · You don't have any current or existing creditor problems · You are worried about different types of claims that can come up in the near future · You have assets, which is not required to meet any of your current living expenses · You don't want to any access to your assets on a regular basis Tax Consequences on DAPT While establishing a DAPT, you will have multiple choices. You can structure the trust assets in such a manner that it becomes a gift from the point of view of federal gift tax. This way you will be able to exclude the trust principal from your gross estate when federal estate tax submission is required. From the point of view of income tax, you can treat the domestic asset protection trust as a grantor trust also. There are many people who prefer a domestic asset protection trust to avoid local income tax or state income tax. There are different ways by which you can use a domestic asset protection trust and they are: · You can use it for shielding any inheritance or gift received outright · You can use it to protect your children from taxes especially if they receive assets · You can use your asset protection trust to avoid different types of taxes like intangible taxes or state income taxes |