What is a Domestic Asset Protection Trust?
A Domestic Asset Protection Trust, formally known as a qualified spendthrift trust, is designed to allow you to create a Trust of which you may be a beneficiary, transfer a portion of your assets to the trust, and provide for certain creditor protection and asset protection for the assets transferred to the trust. Traditionally, these types of trusts were not permitted in the United States and individuals would have to establish an offshore asset protection trust to provide for creditor and asset protection. Effective as of July 1, 2007, the Wyoming Legislature enacted legislation permitting individuals to establish domestic asset protection trusts in Wyoming, formally known as Qualified Spendthrift Trusts, which can provide certain protection from creditors, liabilities and judgments. The Majors Law Firm, P.C. assists clients throughout the country with the establishment of domestic asset protection trusts in the State of Wyoming.
A Domestic Asset Protection Trust is an attractive option for those individuals who want to protect their assets without having to give their assets away, transfer their assets to a trust of which they are not a beneficiary, or move their assets to a foreign jurisdiction or an offshore asset protection trust.
How Much Does a Domestic Asset Protection Trust Cost?
The fee for establishing a Wyoming Domestic Asset Protection trust is dependant upon the complexity of the Trust. The Majors Law Firm, P.C. is available to provide a complimentary consultation to discuss any questions you may have regarding establishing a Domestic Asset Protection Trust and to provide a fee quote, based upon the complexity of the planning and objectives of the client.
What are the Requirements for a Domestic Asset Protection Trust?
The basic requirements for creating a Domestic Asset Protection Trust include the following:
- A Wyoming Domestic Asset Protection Trust (Qualified Spendthrift Trust) is established by the client under the laws of the State of Wyoming.
- The client appoints at least one qualified trustee to serve as Trustee of the Trust.
- The qualified trustee must either be a resident of the State of Wyoming, or a person or institution authorized by the State of Wyoming to act as a Trustee.
- A Wyoming Private Trust Company may be established to serve as the qualified trustee, and the client’s advisors in the client’s home state may serve an as Manager, Officer, Director, or agent of the Wyoming Private Trust Company.
- The client is not permitted to be a trustee of the Trust.
- The client may be permitted to remove or replace a Trustee of the Trust, after it is created.
- The trust is considered irrevocable and cannot be amended, changed or revoked by the client once it is established.
- Upon establishment of the Trust, the client will name the beneficiaries of the Trust, which may include the client, other family members, friends or charities.
- The Trustee of the Trust is generally given the authority to manage and invest the assets of the Trust and make distributions to the beneficiaries of the Trust, in the Trustee’s sole discretion.
- The client may be permitted to serve as an investment advisor of the Trust. The investment advisor may direct, consent or disapprove of a Trustee’s or Co-Trustee’s action or inaction relating to the investment of trust assets and direct the acquisition, transfer or retention of any trust investment.
- The client may be permitted to veto a distribution from the Trust.
What Type of Trust Property is Protected?
The Wyoming Domestic Asset Protection Trust provides protection for real property, personal property and all gains, appreciation and income generated from the property transferred to the Trust.
At the time of the transfer of the property to the Trust, the client must sign an Affidavit affirming the following:
- The client has full right, title and authority to transfer the property to the trust;
- The transfer of the property to the trust will not render the client insolvent;
- The client does not intend to defraud any creditors by transferring the property to the trust;
- The client does not have any pending or threatened court actions against him, except for those court actions identified in the affidavit;
- At the time of the transfer of the property to the trust, the client is not in default of a child support obligation by more than thirty (30) days;
- The client does not contemplate the filing for relief under the provisions of the federal Bankruptcy Code; and,
- The client has and shall maintain personal liability insurance of at least one million dollars ($1,000,000.00) or shall provide coverage equal to the fair market value of the client’s total transfers to the trust, whichever is less. (A personal liability policy in the amount of $1,000,000 typically cost approximately $200 – $400 per year and can be purchased as an umbrella policy).
What Type of Trust Property is Not Protected?
A Wyoming Domestic Asset Protection Trust does not provide protection for the following types of property:
- Trust property to be used for the payment of Court ordered child support.
- Trust property that is listed upon an application or financial statement used to obtain or maintain credit from a creditor.
- Property that has been fraudulently transferred to the Trust pursuant to the Uniform Fraudulent Transfer Act and a claim is made within the statute of limitations.
- The trust property may not be protected in a bankruptcy proceeding, if the client transferred the property to the trust with the actual intent to hinder, delay or defraud any entity to which the client was or became, on or after the date that such transfer was made, indebted and the transfer is within the statute of limitations.
Are there any Concerns or Risks Associated with Domestic Asset Protection Trusts?
Alaska enacted the nation’s first self-settled spendthrift trust legislation, commonly known as the Domestic Asset Protection Trust in 1997. Other states thereafter followed suit, and currently more than ten states have enacted similar Domestic Asset Protection Trust Legislation, including: Alaska, Delaware, Missouri, New Hampshire, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, and Wyoming. Since Domestic Asset Protection Trust legislation is relatively new, commentators have expressed concern over the effectiveness of Domestic Asset Protection Trusts and whether the assets held by the Trust will be adequately protected. Some of the concerns addressed by commentators are as follows:
- Conflict of Laws. There is a question as to whether the law in the state of Wyoming (or in another Domestic Asset Protection Trust state) will be enforceable or followed in an out of state court that has not enacted Domestic Asset Protection Trust Legislation. The concern is that the out of state Court may not recognize the law of the state of Wyoming or the Domestic Asset Protection Trust Jurisdiction and refuse to extend the asset protection to the Domestic Asset Protection Trust. Since Domestic Asset Protection Trusts are a relatively new, there is little case precedent as to how a Court may decide this issue. In order to mitigate this potential issue, it is generally recommended that the Domestic Asset Protection Trust be established in the state where the client is a resident. In the event that the client is the resident of a state that has not enacted Domestic Asset Protection Trust legislation, it is recommended that the assets transferred to a Domestic Asset Protection Trust be held in the state of Wyoming through a bank or other like depository, or that the assets be held within a Wyoming business entity. Wyoming Statute Section 4-10-522 also provides that if an out of State Court declines to apply Wyoming Law to the Domestic Asset Protection Trust, the Trustee may resign as Trustee.
- Full Faith and Credit Clause. The Full Faith and Credit Clause of the U.S. Constitution provides that each state has to give full faith and credit to the laws of another state. There is a concern that if an out of state court decides not to recognize the protection of a Domestic Asset Protection Trust and enters a judgment in favor of the creditor, the creditor may be able to enforce the judgment against the Trustee of the Domestic Asset Protection Trust, even though the Trustee is located in the state of Wyoming. This issue has not yet been addressed by the Courts, but a Domestic Asset Protection Trust Jurisdiction may decide not to enforce the Judgment.
- Bankruptcy. The Bankruptcy Code creates a ten year statute of limitations for transfers to Domestic Asset Protection Trusts with the actual intent to hinder, delay or defraud any entity to which the client was or became, on or after the date that such transfer was made, indebted and the transfer is within the statute of limitations. Therefore, if the client creates a Domestic Asset Protection Trust, transfers assets to the trust with the actual intent to hinder, delay or defraud a creditor, and the If the client files a bankruptcy petition within 10 years of the transfer, the assets will not be protected from bankruptcy proceedings.
Please contact the Majors Law Firm, P.C. to schedule a free consultation to learn more about Domestic Asset Protection Trusts and to determine whether a Domestic Asset Protection trust may be appropriate for your situation.
The Majors Law Firm, P.C. also co-counsels with out of state attorneys on the establishment of Wyoming Domestic Asset Protection Trusts for their clients.