It’s been just over a month since Michigan became the 17th state to allow Domestic Asset Protection Trusts (DAPTs). Effective March 8, 2017, these irrevocable trusts primarily assist in shielding one’s assets from creditors and estate taxes, with the goal of keeping your wealth with your loved ones.
Michigan’s DAPT Criteria
While DAPTs sound like a no brainer for everyone, there are some legal requirements that must be met before one can fully benefit from a DAPT. As with most laws, these conditions vary by state. Michigan’s DAPT policy necessitates:
- An Affidavit of Solvency: you will need one affidavit for each property transferred into the trust. While this may seem like an unnecessary and tedious hurdle, these affidavits act as checklists that confirm the transferor has the authority and financial stability to make these transfers.
- Good and Honest Intentions: In order to harvest all of the benefits of a DAPT, you must have moral and sound reasons. If you are under fraudulent circumstances or have any intention of hindering or delaying a creditor, you cannot benefit from the Trust’s protection. Affidavits of Solvency are also another way of achieving this.
- An un-related Trustee: Remember that a trustee is not a beneficiary. The Trustee’s responsibility is only to distribute the Trust’s assets to the beneficiaries according to the wishes of the person who established the Trust. The Trustee cannot be related to or a subordinate of the transferor.
- Two-Year Waiting Period: Once the trust is established, the assets are still not protected for another two years. This means that creditors can go after this property for up to two years after the Trust is established. If you think this is unfair, try establishing a DAPT in Nevada or South Dakota, which both have four-year statute of limitations!
Who Thinks About a DAPT?
Those who would benefit most from a Michigan DAPT are people who have significant assets to lose and genuine creditor concerns, such as physicians, attorneys, business executives, celebrities, and athletes. People who participate in activities that have naturally high liabilities, such as watercraft or aircraft owners, may also want to consider a DAPT.
If you have a considerable amount of assets and are getting married, you may also use a DAPT as an alternative to a prenuptial agreement. Divorcing spouses may have access to any assets that were transferred into the trust less than 30 days before marriage. Again, this is Michigan’s statute. Statutes vary by state, and some DAPT-friendly statutes do not carve out any room for alimony, child support, property settlements, or other special circumstance beyond its waiting period.
This is a big win for Michiganders who are eligible and interested in establishing a DAPT. Prior to March 8, Michiganders who wanted to create a DAPT had to find a Trustee who lived in one of the 16 states that allowed it, and then set up their Trust in the trustee’s state.
Whether you’re interested in setting up DAPT, a different type of Trust, or any other estate planning documents, our experienced and compassionate attorneys are here to walk you through the process. Call us today at 248.399.3300 for a free consultation and let us help you protect your loved ones and valuables.
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