Effective March 8, 2017, Michigan joined an increasing number of states that permit “Domestic Asset Protection Trusts,” aka DAPTs. These instruments enable the Grantors forming the Trusts to protect their property against future claims, as long as they follow the specified guidelines.
DAPTs are irrevocable trusts. Unlike most irrevocable trusts, however, the Grantor who sets up the DAPT retains a certain amount of control over the Trust, and can even receive income and annuity payments from the DAPT! Among other elements of control, the Grantor may direct investment decisions, veto trust distributions, and remove and replace the DAPT trustee or advisor.
Creditors seeking to challenge a DAPT or collect from a DAPT have only a two year window to file their claims, subject to a one year discovery rule. The Creditor must prove by “clear and convincing evidence” that the DAPT was set up to defraud the Creditor.
To counter such Creditor claims, a DAPT Grantor is required to sign an Affidavit which among other things affirms that the Grantor does not contemplate filing bankruptcy, is not the subject of pending litigation (except as specified), is not rendered insolvent by the DAPT, and is not acting with the intent to defraud creditors.
DAPTs promise to be an effective tool for business owners, professionals, and others who need to protect their valuable assets against future creditor claims. To learn more, see my article elsewhere in this web site as referenced below. Also, feel free to contact us to determine how you might take advantage of this new planning tool.