Domestic Asset Protection Trusts

Are you concerned about your assets going to creditors after you’re gone — and not to those you love? If you’re in a field with a high risk of liability or debt, such as business or health care, you might consider establishing a domestic asset protection trust.

A domestic asset protection trust can be a strategic estate planning tool created to protect your legacy from liabilities and ensure your wealth is managed and distributed according to your wishes.

What Is a Domestic Asset Protection Trust?

A domestic asset protection trust (DAPT) is a type of trust designed to protect assets from creditors and lawsuits. DAPTs are typically irrevocable, meaning you cannot modify the trust once it’s established, and you must give up complete ownership of the assets transferred into the trust.

The person who transfers assets into a DAPT is called the grantor. The grantor needs to assign a trustee to hold and manage the trust on behalf of its beneficiaries — or the individuals who will receive the assets in accordance with the trust document.

Not every U.S. state allows DAPTs. However, Tennessee is one of the 20 states with laws permitting these asset protection trusts. Residents can set up a Tennessee Investment Services Trust (TIST).

A TIST protects assets from creditors and gives the grantor some control over trust management. For example, grantors with TISTs can deny asset distribution or replace the trustee. Still, as with most irrevocable APTs, a TIST requires the grantor to give most control of the trust to their chosen trustee.

What Is a Lifetime Domestic Asset Protection Trust?

A lifetime domestic asset protection trust refers to an asset protection trust (DAPT) funded and managed during the grantor’s lifetime. It also describes a DAPT designed to distribute assets to beneficiaries throughout their lifetimes. For example, you can create a DAPT that requires the trustee to transfer specific assets to one of your children at certain life milestones, such as when they get married or have their first child.

In either case, a lifetime domestic asset protection trust contrasts with a testamentary trust — which dictates how your assets will be distributed after death. Testamentary trusts can be created as part of a person’s last will and testament and only take effect after the grantor passes away.

How Do You Set up an Asset Protection Trust?

Take the following steps to set up your asset protection trust.

1. Speak to an Estate Planning Attorney

Setting up an asset protection trust begins with speaking to an experienced estate planning attorney. A lawyer can help you design a personalized APT that meets your unique needs and desires, complies with legal requirements, and incorporates strategic tax planning.

2. Choose a Trustee You Trust

You’ll also need to select a trustee to manage your trust. The trustee may be a family member, a trusted friend, or a third party, like a financial institute or law firm.

If you feel uncertain about a family member’s or friend’s ability to handle trustee duties, working with a third-party professional may be best. A professional like a lawyer brings expertise, reliability, and impartiality to trust management, so you can be sure your assets are protected and distributed as outlined in your trust document — no matter what happens within your personal relationships.

Regardless, if you live in Tennessee, your selected trustee must be “qualified.” The trustee must be a state resident or a corporate trustee licensed under TN law. They will also need some trust management duties, like preparing tax returns. Your attorney can help you decide who should be the trustee for your APT.

3. Transfer Your Selected Assets

Finally, you’ll need to transfer your selected assets into your trust. Your assets may include real estate, bank accounts, and investments. Due to legal requirements and potential tax consequences, transferring assets can be complicated. Your lawyer will handle the legal complexities and documentation requirements and guide you through the other aspects.

What Are the Advantages of a Domestic Asset Protection Trust?

There are many options in estate planning, so it’s important to weigh the pros and cons when determining if a DAPT is right for you. Here are some of the advantages to consider:

Protect assets: This type of trust allows you to protect your assets from creditors and lawsuits and preserve your wealth for future generations.
Bypass probate: A DAPT dictates how its assets will be distributed, allowing your beneficiaries to skip the probate process and gain access to assets faster.
Maintain privacy: Since a DAPT can prevent probate — a public process — you can keep information about your assets and beneficiaries private.

What Are the Disadvantages of a Domestic Asset Protection Trust?

Although a DAPT has certain benefits, it’s not the right choice for everyone. Consider the following disadvantages:

Lack of asset control and ownership: Once you transfer assets into a DAPT, you no longer own them. Therefore, it’s crucial to consider your long-term financial needs and goals before establishing a DAPT.
Complex process: Creating and managing a DAPT can be complex, requiring financial and legal knowledge. Choosing a lawyer who is well-versed in trust law and the right trustee is essential to effectively establish and manage your trust.
Does not provide immediate protection: In Tennessee, assets placed in a trust are shielded from creditors after two years. However, you can shorten this period to six months by notifying creditors of the DAPT.

Protect Your Legacy With Crow Estate Planning & Probate

A domestic asset protection trust requires careful planning to avoid legal risks and ensure it aligns with your financial goals. If you’re seeking experienced lawyers to help you establish a strategic DAPT, we’re ready to serve you at Crow Estate Planning & Probate.

Our attorneys provide comprehensive, personalized estate planning services to clients in Tennessee and Kentucky. We understand the importance of protecting your assets for your loved ones, and we are dedicated to ensuring your legacy is secure — whether you’re interested in establishing a domestic asset protection trust or another type of trust.

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Hear From Our Clients

Sarah Pichardo

I cannot recommend Thomas Steelman highly enough! From the very start, he made the entire process of setting up our estate trust absolutely painless. His expertise and clear explanations turned what I expected to be a daunting task into a smooth and stress-free experience.

Not only did he handle every aspect of our estate trust with great attention to detail, but he (and law firm colleagues) also took care of transferring over our home deeds so we didn’t have to deal with the hassle of going to the county office ourselves. That alone saved us so much time and stress!

I honestly thought the process was going to cost a small fortune, but I was pleasantly surprised by how reasonable the pricing was. Most importantly, though, Thomas gave us peace of mind knowing that our hard-earned assets are protected and will go exactly where we want them—without placing unnecessary burdens on our loved ones.

If you’re looking for a knowledgeable and professional estate trust attorney, Thomas and team are the ones to trust. ⭐⭐⭐⭐⭐

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