A concern of anyone with creditors is that something may happen in their lives or to their business which will leave their personal assets depleted. Until recently, Michigan residents did not have many ways to protect themselves from such an occurrence. However, recently Michigan joined a growing number of states which allows domestic asset protection trust (DAPTS) to be used to protect assets from an individual’s creditors. Depending on your circumstances, A DAPT may be the right protective tool for you.
A DAPT is a type of irrevocable trust which permits an individual to transfer their assets into the trust for their own benefit while still receiving income and discretionary disbursements from the trust and being protected from creditors. The DAPT must appoint a trustee in the state where it is created. The DAPT trust assets are shielded from creditors for the two-year statute of limitations which begins from the date the assets are transferred into the trust except where there is fraudulent concealment. So if the individual were in default on a loan, the creditor would not be able to reach the assets of the trust for two years from the date the trust was created. However, the DAPT needs to be in place before the date that the creditor’s claim arises. It is also important to note that if the person creating the trust files for bankruptcy, it may affect the protections granted by the DAPT.
In addition to being able to receive income and disbursements from the trust, the person creating the trust may also direct how investments are made, remove the trustee, receive principal from the trust, veto allocations, direct how assets will be distributed upon his death as long as it is not to his estate or his creditors, and receive specific annuity payments.
If you are in a position where you are concerned about creditors being able to deplete your assets, a DAPT can be a vital tool in protecting what you have built. That being said, it is critical that your DAPT be funded appropriately and properly created for it to achieve its intended effect. Without careful planning based on sound advice, you could find that the DAPT does not protect you from creditors.
Preparing a DAPT trust can remarkably be complex. It is crucial that the DAPT be created in a manner which adheres to the law and applicable rules as well as serving to protect your assets. Our office has attorneys who are knowledgeable about DAPT trust planning and can help you create a trust which meets the requirements and serves to protect you and your assets. Please contact us if we may be of assistance.