Domestic Asset Protection Trust States

On March 8, 2017, Michigan enters the ranks of states with allowing asset protection trusts. Michigan is the 17th state to pass such legislation.  It’s been 20 years since the first domestic asset protection trusts (DAPT) were allowed in Alaska and Delaware in 1997.

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The existing states with DAPT laws are: Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.  There is some question as to whether Colorado statute allows for a DAPT.  Its statute is very terse, only indicating public policy.

There is of course, a great deal of variation among the state statutes. This makes some states better than others.  While the general idea and purpose of these special trust is something shared by all the different statutes, it is usually agreed that the top tier states for DAPTs are South Dakota, Nevada, Tennessee, and Ohio.  It is expected that Michigan will fall somewhere in the middle of the list.

The top states have short statutes of limitations and few or no exceptions to the law.  Nevada and South Dakota have relatively short 2 year statute of limitations.  While one state, Ohio, is the shortest with only 1 ½ years.  Most states give creditors 4 years to access the trust assets to satisfy judgments.

And it is good if the state does not allow for any exceptions to the creditor protection.  Nevada, Utah and West Virginia have no exceptions, not even for spouses or child support.  Utah is actually a very good asset protection trust state if you live in Utah.  The concern for non-residents is how Utah will apply its state income tax laws to such trusts.

Except for the 3 states mentioned in the preceding paragraph, all other states allow exceptions for divorcing spouses and/or child support.  While a public policy argument can certainly be made for such exceptions, from a pure asset protection point of view, the ideal is to have no exceptions.

Michigan, the latest entry in the pool of DAPT states, has the shorter 2 years statute of limitations.  Michigan also provides an exception for child support and spouses.  However, the spousal exception will not apply to transfers to the trust more than 30 days before the wedding.

For residents of Michigan and those owning property in Michigan, this new law provides a good option to protect hard earned assets.  For those living in other non-DAPT states, jurisdictions such as Nevada will continue to be sought after for their beneficial asset protection laws.

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