There are various types of trusts that can be used as part of your estate planning strategy. Domestic Asset Protection Trusts are one of those great options. However, not every state has a statute that recognizes the use of these types of trusts. In fact, only 16 states currently have this law in place. Missouri joined that list in 2005 but Kansas has not. Here is what you need to know about Overland Park asset protection trusts, in particular, Domestic Asset Protection Trusts.
What are Domestic Asset Protection Trusts?
A Domestic Asset Protection Trust (DAPT) is an irrevocable trust that allows you to be a discretionary beneficiary of the trust, while still maintaining asset protection from creditors. This is different from a revocable type of trust, which does not protect assets because of the fact that you maintain control of your assets. When it comes to Overland Park asset protection trusts, the DAPT is a good choice.
How do Domestic Asset Protection Trusts work?
One of the important components of a Domestic Asset Protection Trust is the statute of limitations. This is a set period of time, established by state statute, which must pass between the date the property is transferred to the trust and the date that property will be protected from creditors. This time period differs from one state to the next. There is also a different statute of limitations period that applies to preexisting and new creditors. In most cases, the statute of limitations period is tolled (i.e., postponed or suspended) when it comes to pre-existing creditors.
Exceptions for certain creditors
Each state which recognizes Domestic Asset Protection Trusts, with the exception of Nevada, has included an exception for specific categories of creditors. That means these specified creditors are still allowed to access the trust assets placed in the DAPT. For instance, many states include an exception for divorcing spouses with alimony claims. The same is true for child support creditors. Some states also include an exception for tort creditors whose claims existed before the trust was established.
Why Overland Park asset protection trusts are necessary
Creating an asset protection plan simply means analyzing your assets and organizing them in a way that provides the best possible protection against unnecessary risk or loss. Contrary to what some people believe, when done correctly, asset protection is completely legal. The complexity of your plan will depend on the size and nature of your estate, but your estate planning attorney will be fully capable of helping you minimize your risks. With the proper plan, you can be prepared for any unexpected circumstances that would otherwise put your assets at risk. You can do this without any form of tax evasion or fraud.
When it comes to using Domestic Asset Protection Trusts as a strategy, it is important to remember not to transfer the majority of your net worth into the trust. If you do, it is possible that a court will see this as a fraudulent conveyance. One way to protect against this happening is to consider using a hybrid version of the Domestic Asset Protection Trust.
What is a Hybrid Domestic Asset Protection Trust?
Using a Hybrid Domestic Asset Protection Trust is a technique that, if used properly, can increase your chances of protecting the majority of your assets without any challenges to your transfers by creditors. A Hybrid DAPT is very similar to a regular DAPT except that you are not named as the initial discretionary beneficiary of the trust. Instead, you can be added later by an independent trustee.
If done properly, a Hybrid DAPT can be constructed as a third-party trust which will provide more protection for your assets. Instead of being the initial beneficiary, your spouse and descendants can be named as discretionary beneficiaries. In some cases, you may not need to be named as a beneficiary at all if your spouse is a beneficiary who can then provide indirect access to the trust property.
When to start considering Overland Park asset protection trusts
In order for your plan to be the most effective, it is necessary to put that plan in place long before debts and legal claims arise. If not, any attempts to move your assets around after a claim has been made or a lawsuit has been filed could appear to be a fraudulent transfer. Another reason for planning early is that most clients are not adept at recognizing potential sources of liability that would put their assets at risk.
Download our free estate planning worksheet today! If you have questions regarding asset protection trusts or any other estate planning matters, please contact the experienced attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!