Probate & Trust Law Section Conference Manual ... - Minnesota CLE

VII. DOMESTIC ASSET PROTECTION AND SELF-SETTLED TRUSTS
1. INTRODUCTION
Trusts generally provide excellent asset protection. A self-settled trust is one of the more
frequently used types of domestic asset protection trusts (DAPT). It is generally a discretionary
irrevocable trust where the grantor or settlor is a permissible beneficiary. If properly structured,
creditors cannot reach the assets in a self-settled trust to satisfy certain creditor claims against the
settlor. A self-settled trust can be drafted to either keep trust assets within the settlor’s estate or
remove them, which allows a wealthy individual to establish a self-settled trust even though that
individual’s gift tax exemption has been fully utilized. However, advisors generally suggest
structuring the DAPT as a self-settled trust included in the grantor’s gross estate.
Generally, the settlor would place 10% to 40% of their financial assets into a DAPT to protect
those assets from possible future creditors. The settlor is a permissible discretionary beneficiary
of the DAPT, but does not generally use the trust for everyday living expenses, as this could
weaken the asset protection.
a. Offshore Scrutiny
Offshore asset protection has lost momentum as a result of increased scrutiny and
reporting requirements by the United States government. Consequently, DAPTs are quite
popular, and can provide significant advantages for clients.
2. STATES WITH DAPT STATUTES
Alaska, ALASKA STAT. § 34.40.110.
Delaware, DEL. CODE ANN. tit. 12, §§ 3570 to 3576.
Hawaii, HAW. REV. STAT. §§ 554G-1 to -11.
Missouri, MO. REV. STAT. § 456.5-505.
Nevada, NEV. REV. STAT. ANN. §§ 166.010 to 166.180.
New Hampshire, N.H. REV. STAT. ANN. §§ 564-D:1 to 564-D:18.
Ohio, OHIO REV. CODE ANN. §§ 5816.01 to .14.
Oklahoma, OKLA. STAT. tit. 31, §§ 10 to 18.
Rhode Island, R.I. GEN. LAWS §§ 18-9.2-1 to -7.
South Dakota, SOUTH DAKOTA CODIFIED LAWS §§ 55-16-1 to -16.
Tennessee, TENN. CODE ANN. §§ 35-16-101 to -112.
Utah, UTAH CODE ANN. § 25-6-14.
Virginia, VA. CODE ANN. § 64.2-745.1.
Wyoming, WYO. STAT. ANN. §§ 4-10-501 to -523.
3. KEY FACTORS TO ASSET PROTECTION/SELF-SETTLED TRUST SITUS
An important consideration in regard to setting up DAPTs is the application of the DAPT state’s
laws. Generally, a court in a non-DAPT state may be more likely to apply the laws of the DAPT
state if most of the trust contacts are with the DAPT state. Some key factors that a non-DAPT
court may consider are:
a. Governing law in the trust instrument;
i. Governing law of a DAPT state;
b. Location of trustee/where the trust is administered;
i. Same as governing law of trust (DAPT state);
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