Michigan Domestic Asset Protection Trust Legislation Goes Live March 8, 2017
What is it? Domestic Asset Protection Trust (DAPT) is a type of irrevocable trust with enhanced asset protection and some retained control for the settlor.
Tell me more. The DAPT can move assets outside of both the probate estate and the reach of settlor’s creditor’s with some of the following perks when the requirements are met:
- Shortened 2 year look back period for creditors to unravel trust under certain circumstances (normally 6 years under Michigan law)
- Maintain control of investment decisions regarding trust assets
- Receive income from the trust during lifetime, can veto distributions
- Remove or appoint trustee
What else should I know? At the time of a transfer of assets into the trust, the settlor is required to execute an affidavit affirming the following (among other requirements):
- Settlor will not be rendered insolvent by the transfer
- Settlor is not the subject of pending litigation except as disclosed
- Settlor is not in arrears on child support obligations
- Settlor does not contemplate filing bankruptcy
- Settlor has authority to transfer the asset to the trust
- Settlor is not acting with the intend to defraud creditors
Why is this important? Irrevocable trusts have always offered protection from creditors and a vehicle to avoid estate taxes and administration issues upon death of the settlor. However the loss of control of asset management during a settlor’s lifetime makes such trusts unattractive and the potential consequences of retaining some control made the irrevocable trust suspect and potentially exposed to attack by creditors or the IRS.
The new DAPT legislation provides a vehicle for creation of an irrevocable trust which retains some control by the settlor and may reduce creditor and IRS attack.
Who is a good candidate for a DAPT? A professional or business owner who has potential liability exposure who is currently solvent without pending collection action or an individual whose assets may exceed the federal estate tax threshold ($5.49 million for single persons in 2017, and $10.98 million for married couples).
Contact The Taunt Law Firm to see if a DAPT is right for you or your clients.