Domestic Asset Protection Trust Case Law

Every case against a domestic asset protection trust decided outside the trust’s state, or by a federal bankruptcy court, ended with the court reaching the trust property.

The settlors who won defended their trusts in the trust state’s own courts. A Nevada couple’s Nevada trusts survived their divorce. A Delaware trust settlor won because her creditor sued after the limitations period had run. No court has upheld a domestic asset protection trust against a creditor who sued in a state without a DAPT statute.

Which Court Cases Have Tested Domestic Asset Protection Trusts?

Bankruptcy trustees, divorcing spouses, and judgment creditors have taken domestic asset protection trusts to court. A domestic asset protection trust is a self-settled irrevocable trust: the person who funds it is also a beneficiary, and a state statute bars that person’s creditors from the trust assets.

• Bankruptcy. Bankruptcy trustees have avoided transfers to Alaska trusts under the Bankruptcy Code’s ten-year rule, and a Tennessee trustee obtained turnover where the trust failed its own state’s statute: Battley v. Mortensen, In re Huber, In re Erskine.
• Divorce. Spouses reached assets held in Nevada-law and South Dakota trusts in Utah and Connecticut divorces, and a spouse in a Nevada divorce could not reach Nevada trusts: Dahl v. Dahl, Netter v. Netter, Klabacka v. Nelson.
• Creditor suits. Creditors reached trust assets in the Illinois Supreme Court and a California appellate court, and lost on timing in Delaware’s Court of Chancery: Rush University Medical Center v. Sessions, Kilker v. Stillman, TrustCo Bank v. Mathews. When Montana judgment creditors pursued an Alaska trust, the Alaska Supreme Court held that Alaska’s statute could not keep the suit out of Montana or federal courts: Toni 1 Trust v. Wacker.

Which state a settlor lives in decides most of these cases, and a DAPT state’s statute has held only in that state’s own courts.

Case	Year	Trust and forum	Result
Battley v. Mortensen	Bankr. D. Alaska 2011	Alaska trust, Alaska settlor, federal bankruptcy court	Transfer avoided under Bankruptcy Code § 548(e) despite compliance with Alaska law
In re Huber	Bankr. W.D. Wash. 2013	Alaska trust, Washington settlor	Washington law applied; transfers void; avoided again under § 548(e)
Rush University Medical Center v. Sessions	Ill. 2012	Cook Islands governing law, Illinois assets	Trust held liable for the settlor’s $1.5 million pledge
Kilker v. Stillman	Cal. Ct. App. 2012, 2015	Irrevocable trust, California settlor	2004 transfer held a fraudulent transfer against a creditor whose claim arose in 2008
Dahl v. Dahl	Utah 2015	Nevada-law trust, Utah divorce	Utah law applied; trust held revocable; assets reachable in the divorce
TrustCo Bank v. Mathews	Del. Ch. 2015	Delaware trusts, Florida settlor, New York creditor	Creditor’s principal claims time-barred; DAPT statute not reached
In re Erskine	Bankr. W.D. Tenn. 2016	Tennessee trust, Tennessee settlor	Trust failed the Tennessee statute; accounts turned over
Klabacka v. Nelson	Nev. 2017	Nevada trusts, Nevada divorce	Trusts upheld; equalization order reversed; support awarded against the settlor personally
Toni 1 Trust v. Wacker	Alaska 2018	Alaska trust, Montana judgments	Alaska’s exclusive-jurisdiction clause held ineffective against Montana and federal courts
Netter v. Netter	Conn. App. Ct. 2025	South Dakota trusts, Connecticut divorce	Trusts held void under Connecticut public policy; assets divisible marital property

Does a Court Outside the Trust State Have to Apply the Trust State’s Law?

No. A court in the settlor’s home state applies its own law when that state has a strong policy against self-settled trusts. The three courts that faced the question, in Washington, Utah, and Connecticut, all did so. Domestic asset protection trusts only reliably work for people who live in a state that has enacted a DAPT statute. A creditor sues where the debtor lives, and a court in a non-DAPT state will likely apply local law instead of the trust’s chosen law.

In re Huber: An Alaska Trust With Nothing in Alaska

The court in In re Huber, 493 B.R. 798 (Bankr. W.D. Wash. 2013), applied Washington law to a trust that designated Alaska law. Donald Huber, a Tacoma developer for more than forty years, had personally guaranteed bank loans on his projects. By August 2008 his loan maturities were being extended and the real estate market was collapsing. His son emailed an estate planning attorney that his father “has some assets that he would like to protect and shield.” The Donald Huber Family Trust was established on September 23, 2008.

Huber moved $10,000 in cash and his interests in more than 25 entities into an Alaska limited liability company owned 99 percent by the trust, and moved his residence the same way. His bankruptcy examiner later calculated that 71.1 percent of his assets went into the trust. One trust asset sat in Alaska, a $10,000 certificate of deposit. Everything else, including the settlor, the beneficiaries, the creditors, and the drafting attorney, was in Washington.

The court applied the Restatement (Second) of Conflict of Laws. That rule honors a settlor’s choice of law only if the chosen state has a substantial relation to the trust, and even then a strong public policy of the most closely connected state overrides it. Alaska’s relation was administration and one trustee. Washington had the substantial relation, and Washington’s statute voiding transfers to self-settled trusts dated from 1854. The court disregarded the Alaska choice, held the transfers void under Washington law, and granted the bankruptcy trustee summary judgment.

Dahl v. Dahl: A Nevada Clause in a Utah Divorce

The Utah Supreme Court refused to enforce a Nevada choice-of-law clause in Dahl v. Dahl, 2015 UT 23. Dr. Charles Dahl, a cardiologist, had created the Dahl Family Irrevocable Trust under Nevada law with his brother as investment trustee. The trust held the marital home, which his wife had deeded to it. By her account it also held her interest in his real estate company and other marital property worth at least $2 million.

Utah enforces a trust’s choice-of-law provision unless doing so would undermine a strong Utah public policy, and the court held that equitable division of marital property was such a policy. Construing the trust under Utah law, the court found it revocable: the instrument reserved to the settlor “any power whatsoever to alter or amend any of the terms.” Ms. Dahl was held to be a settlor by contribution who held an interest in the trust property. The court ordered the trust joined in the divorce and never decided what Nevada law would have produced.

Netter v. Netter: South Dakota Trusts in a Connecticut Divorce

The Connecticut Appellate Court reached the same result in 2025 against trusts written to South Dakota’s statute. In Netter v. Netter, 235 Conn. App. 774 (2025), a Greenwich husband created three South Dakota trusts in 2013 and 2015. Each named South Dakota law, gave South Dakota courts exclusive jurisdiction, and declared itself a qualified disposition trust under South Dakota’s statute. A South Dakota trust company was disinterested trustee and had to approve every distribution.

The trial court found he had funded them “secretly,” with most of the marital assets, “as the marriage deteriorated.” They held roughly $34.7 million, $2.7 million, and $7.6 million.

The appellate court agreed that South Dakota law governed the instruments’ construction and that they were spendthrift trusts. Whether they were marital property, however, was a question of Connecticut law, and self-settled spendthrift trusts violated Connecticut public policy when the husband created them. Connecticut’s own 2019 DAPT statute did not save them: it requires Connecticut governing law, they chose South Dakota’s, and sustaining them would have unfairly prejudiced the wife. The three trusts were divisible marital property. A fourth trust his father had created before the marriage was held outside the marital estate.

Rush University Medical Center v. Sessions: Foreign Governing Law, Illinois Assets

The Illinois Supreme Court applied Illinois common law to a trust that named Cook Islands law in Rush University Medical Center v. Sessions, 2012 IL 112906. Robert Sessions created the trust in 1994 and funded it with a 99 percent limited partnership interest and Illinois real estate, worth more than $18.9 million when he died. He was its protector, with absolute power to remove trustees and veto their decisions. He pledged $1.5 million to Rush in 1995 and revoked the bequest after a cancer diagnosis. He died in 2005 with an estate under $100,000.

The court held that the common-law rule voiding self-settled spendthrift trusts survived Illinois’s fraudulent transfer statute. The settlor’s reachable interest included everything the trustees could have distributed to him, and the trust was liable for the pledge. The opinion records the Cook Islands clause and does not analyze it. A trust with domestic assets and a domestic settlor answered to the settlor’s home court under that court’s law, whatever governing law the deed named.

Toni 1 Trust v. Wacker: The Exclusive-Jurisdiction Clause

The Alaska Supreme Court held in Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018), that Alaska’s statute claiming exclusive jurisdiction over suits against Alaska trusts binds no other court. Donald Tangwall’s family had transferred real property in 2010 to what they described as an Alaska trust, while Montana judgments against them were accumulating. Montana courts entered fraudulent transfer judgments against the trust under Montana law. After a family member filed bankruptcy, an Alaska bankruptcy court entered a federal fraudulent transfer judgment as well.

Tangwall sued in Alaska state court to declare both judgments void. The court held that a state cannot restrict a sister state’s jurisdiction over transitory actions, and fraudulent transfer claims are transitory. The Full Faith and Credit Clause does not require Montana to honor Alaska’s assertion, and a state statute cannot contract federal bankruptcy jurisdiction. The court adopted the Delaware Court of Chancery’s reading of Delaware’s parallel clause and noted similar provisions in South Dakota’s and Utah’s statutes.

Can a Bankruptcy Trustee Reach a Domestic Asset Protection Trust?

Yes. Federal bankruptcy law lets a bankruptcy trustee avoid a transfer into a self-settled trust made during the ten years preceding the petition, when the debtor’s actual intent was hindering, delaying, or defrauding any creditor, present or future. Congress added the provision, section 548(e), in 2005 to close what the legislative history called the self-settled trust loophole in the five states then permitting such trusts. Ten years exceeds every state waiting period; the longest, Virginia’s, is five years. The section applies through the same lookback that reaches offshore trusts, and it needs no choice-of-law ruling.

Battley v. Mortensen: In-State, Solvent, and Still Avoided

The court in Battley v. Mortensen, Adv. No. A09-90036-DMD (Bankr. D. Alaska May 26, 2011), avoided a transfer to an Alaska trust that complied with Alaska law. Thomas Mortensen, an Alaska resident, drafted the “Mortensen Seldovia Trust” from a template and had an attorney review it. On February 1, 2005, he deeded 1.25 acres near Seldovia, worth about $60,000, into the trust. His brother and a friend were trustees, his mother was protector, and he filed the solvency affidavit Alaska requires.

The court found Mortensen solvent when he funded the trust and held that the trust “was created in accordance with Alaska law” as of that date. He filed chapter 7 in August 2009 owing more than $250,000 on credit cards, and the bankruptcy trustee sued under section 548(e). Alaska’s statute provides that a settlor’s stated intent to protect assets from future creditors is not evidence of intent to defraud. The court held that a federal statute enacted to close a loophole could not be read through the state law that opened it.

The trust’s stated purpose was protecting the trust estate “from creditors’ claims of the Grantor or any beneficiary,” and that purpose therefore counted as evidence of intent. The rest of the record added lean earnings, mounting card balances, and $80,000 of his mother’s money seeded into the trust for stock speculation while creditors went unpaid. The transfer was avoided. Two months earlier, an Illinois bankruptcy court had written that it knew of no opinion construing the section’s self-settled trust language.

Mortensen moved for reconsideration, lost, and appealed. The docket then shows a September 2011 order approving the trustee’s settlement, under which the estate would sell the Seldovia property back to the debtor, followed by a dismissal with prejudice. The settlor bought his own land from his own bankruptcy estate.

In re Huber: The Ten-Year Rule Applied a Second Time

The Huber court, having voided the transfers under Washington law, avoided them again under section 548(e). The Ninth Circuit’s badges of fraud were all present: threatened litigation, a transfer of substantially all of the debtor’s property, unmanageable debt, a settlor who was also the beneficiary, and retention of the property. Huber kept living in a trust-owned house and drew $14,500 a month. His son approved his distribution requests. The Alaska trust company, the court found, “did nothing to become involved” and “was acting merely in the nature of a straw man.”

Huber argued that he had relied on counsel and that the trust was estate planning. The court held that reliance on counsel does not negate intent when the debtor knows the transfer’s purpose, and Huber knew it. Through his lawyer he had barred his own business partner from creating a spendthrift trust, because the partner’s assets were his only security. Estate planning and shielding assets from creditors, the court said, are not mutually exclusive. The court declined to deny Huber’s discharge; that question required a trial.

In re Erskine: A Tennessee Trust That Was Never a Tennessee Trust

The bankruptcy court in In re Erskine, 550 B.R. 362 (Bankr. W.D. Tenn. 2016), ordered turnover from a trust its settlor called a Tennessee Asset Protection Trust. Robert Erskine, a contractor, had signed the “Robert Massey Erskine, Sr. Irrevocable Living Trust” in February 2011, named himself trustee, and made the trust the member of his contracting LLC. He argued that Tennessee’s statute excluded the LLC’s bank accounts from his 2015 bankruptcy estate.

The court held that the trust met none of the statute’s requirements. The transferor cannot be the required qualified trustee; the instrument let him “amend or revoke” it and remove any property “at any time”; and no qualified affidavit accompanied any transfer. In the court’s words, “the power to revoke a trust renders it revocable,” so no restriction was enforceable under Tennessee law and the accounts belonged to the estate. The court never reached the trustee’s alternative section 548(e) theory.

How Do Divorce Courts Treat Domestic Asset Protection Trusts?

Divorce courts have divided DAPT assets when the settlor lived outside the trust state and have left them alone when the settlor, the trust, and the court were all in the same state. Utah and Connecticut courts reached the trust assets in Dahl and Netter, discussed above. The Nevada Supreme Court protected them in Klabacka.

Klabacka v. Nelson: Nevada Trusts in a Nevada Divorce

The Nevada Supreme Court enforced Nevada’s statute in Klabacka v. Nelson, 133 Nev. Adv. Op. 24 (2017). Eric and Lynita Nelson had signed a separate property agreement ten years into their marriage. They later converted their separate-property trusts into Nevada self-settled spendthrift trusts, each naming a Nevada resident as distribution trustee and the settlor spouse as investment trustee. When they divorced in 2009, the family court ordered $8.7 million in trust assets equalized between the two trusts. It also ordered Eric’s trust to pay $800,000 in lump-sum alimony and his child support arrears.

The court held the trusts valid under Nevada’s statute, which requires a Nevada trustee, a written irrevocable instrument, no mandatory distributions to the settlor, and no intent to hinder known creditors. It reversed the equalization. Nevada trusts, it held, are protected against a settlor’s child and spousal support obligations that were not known when the trust was created, and the Restatement (Third) of Trusts exception for support claims was expressly rejected. Nevada’s legislature had considered and declined such an exception. The alimony and child support awards stood, but only against Eric personally.

Nevada’s statute contains no support-creditor exception, and the court enforced that choice. The decision has a limit stated in the opinion itself: a nonbeneficiary spouse’s community property share held inside a trust remains that spouse’s property, and the restraints on reaching trust assets do not apply to it. The ruling binds Nevada courts. Whether a court in another state would honor a Nevada trust against its own resident is the question Dahl and Netter answered against the trust.

Has a Domestic Asset Protection Trust Ever Held Up Against a Creditor?

Yes, twice. Both times in the trust state’s own courts. The Nevada Supreme Court upheld Nevada trusts on the merits in Klabacka. Delaware’s Court of Chancery dismissed a creditor’s claims against Delaware trusts as time-barred in TrustCo Bank v. Mathews. Neither settlor was sued in a non-DAPT state, and neither case involved a bankruptcy trustee.

TrustCo Bank v. Mathews: The Creditor Sued Too Late

The Court of Chancery in TrustCo Bank v. Mathews, C.A. No. 8374-VCP (Del. Ch. Jan. 22, 2015), granted partial summary judgment to a Delaware DAPT settlor. Susan Mathews, a New Yorker and later a Florida resident, personally guaranteed a $9.3 million construction loan in July 2006. That December she created three Delaware trusts, naming a Delaware trust company as trustee. In January 2007 she moved her stock in the company that had bought her business into two of them.

The borrower defaulted in 2011, and a Florida court entered a foreclosure judgment of roughly $8.2 million and later a deficiency judgment of about $2.3 million. The bank sued in Delaware in March 2013, more than six years after the stock transfers. The court held that Florida, or perhaps Delaware, had the closest relationship to the claims. Both states allow four years from the transfer or one year from discovery, and Delaware’s borrowing statute would have barred the claim even under New York’s longer period. The stock-transfer claims were dismissed with prejudice.

The decision reaches no further than timing. The court assumed without deciding that the transfers were fraudulent and left open whether Mathews had kept impermissible control over the trust assets. It found it unnecessary to decide whether Delaware’s DAPT statute governed. The opinion observes that “little case law interpreting the QDTA exists” and that some of the questions raised were ones of first impression. The court left those questions undecided.

What the Settlors Who Lost Had in Common

The settlors who lost funded their trusts after their debts turned bad, kept using the property, or wrote instruments that failed the statute they invoked. Huber signed his trust in September 2008 as payments on his guaranteed loans fell behind. The Tangwall family moved property into the Toni 1 Trust in 2010 while Montana judgments were being entered against them. Netter created his trusts in 2013 and 2015 “as the marriage deteriorated,” in the trial court’s words. Mortensen was solvent when he funded his trust, and the transfer was still avoided on his stated purpose.

A transfer made before any claim existed was still unwound in Kilker v. Stillman, 233 Cal. App. 4th 320 (Cal. Ct. App. 2015). A soils engineer transferred real property to an irrevocable trust in 2004. The Kilkers’ pool claim arose in 2008, and the trust asserted title just before the sheriff’s sale. The trial court held, and the Court of Appeal affirmed in 2012, that the 2004 transfer was made with actual intent to hinder, delay, or defraud any creditor. Stillman testified that the trust paid his expenses.

Retained control appears in Huber and Rush: Huber lived in a trust-owned house and drew $14,500 a month, and Sessions held the protector’s power to remove trustees and veto distributions. Formation defects decided Erskine and Dahl before any inquiry into intent. Erskine was his own trustee under an instrument he could revoke, and Dahl’s instrument reserved “any power whatsoever to alter or amend” its terms. Tennessee’s statute made the first no asset protection trust at all; Utah’s construction made the second a revocable trust whose assets remained the settlor’s.

Huber’s assets, creditors, and beneficiaries were in Washington; Sessions’s real estate was in Illinois; Netter’s marriage was in Connecticut. Among the others, only Nelson, Mortensen, and Erskine are recorded as living in the states whose statutes they used. Mortensen and Erskine lost to the Bankruptcy Code and their own drafting, and no choice-of-law ruling was needed.

How Creditors Use These Decisions

Creditors sue in the settlor’s home state, plead the trust’s stated purpose as evidence of intent, and, once the settlor is in bankruptcy, invoke section 548(e), because each step has already succeeded against a domestic asset protection trust. A creditor of a non-DAPT-state resident files at home and asks that local law govern, as the bankruptcy trustee did in Huber and the wives did in Dahl and Netter. A creditor whose claim qualifies can also file an involuntary petition, which puts a bankruptcy trustee and the ten-year rule in play whatever the state waiting period.

The losses were expensive. Huber lost the trust that held 71.1 percent of his assets and faced a further trial on his discharge. Netter’s three trusts, holding roughly $45 million, went into the marital estate; the wife’s fees over almost six years ran to about $3.5 million, including roughly $65,000 spent on contempt motions. Mortensen bought the Seldovia parcel back from his own bankruptcy estate. Stillman was held in contempt for withholding asset records, drew a suspended jail sentence and a $38,298.50 fee award, and eventually satisfied the judgment.

Two decisions also mark the creditor’s limits. TrustCo dismissed a claim brought after the state limitations period ran. In Klabacka, a Nevada support claimant recovered against the settlor personally and got nothing from the trust. Every remedy in the losing cases ran through a court that had power over the settlor, the trustee, and the property at once. In each of those cases all three were inside the United States.

Would an Offshore Trust Have Fared Better?

When offshore trusts were challenged, the assets sat beyond the court’s reach and the sanctions ran against the settlors personally; when domestic trusts were challenged, the property itself ended up in the court’s hands. In Huber a Washington court voided the transfers and a domestic trust company held the property. In Rush the trust’s Illinois real estate answered to an Illinois judgment. In Netter a South Dakota trust company held assets a Connecticut court divided.

No court has forced a foreign trustee to release trust assets held offshore, while every domestic asset protection trust tested outside its own state or in bankruptcy lost its assets. Offshore trusts remove the assets from federal bankruptcy jurisdiction, from Full Faith and Credit conflicts, and from reliance on untested state statutes, the three differences that define the domestic comparison. The offshore structure’s cost is contempt exposure: a settlor who keeps a power the court can identify risks confinement until he exercises it.

A DAPT settlor whose trust fails loses the assets. In the domestic cases no settlor was confined over the trust itself.

Do Domestic Asset Protection Trusts Work?

A domestic asset protection trust has held up for a settlor who lived in the trust state and was sued there, and it has failed in every case brought outside that state or before a bankruptcy trustee. Klabacka enforced Nevada’s statute for Nevada residents in a Nevada court, and TrustCo dismissed a late creditor in Delaware without reaching the Delaware statute. The home state’s law reached the property in Huber, Dahl, Netter, and Rush; the Bankruptcy Code’s ten-year rule reached it in Mortensen and Huber; Tennessee’s own statute left it exposed in Erskine.

For a resident of a state without a DAPT statute, a domestic asset protection trust is not a reliable strategy, because the home court will likely apply local law and local law voids the trust as to creditors. For a resident of a DAPT state who cannot justify offshore costs, the trust is better than nothing.

The trust protects against creditors who sue at home and cannot force a bankruptcy, and only when the settlor meets the statute’s form, keeps no power to revoke, and funds it before creditors appear. Even then, a bankruptcy filing within ten years exposes the transfers, as it did for Mortensen in the one state whose statute he had followed.