I recently had dinner with a well-known and extremely bright asset protection attorney from south Florida. Dinner conversation touched on the topic of domestic asset protection trusts.Domestic asset protection trusts (DAPT) are self-settled trust where the debtor is both settlor/trustmaker and the primary beneficiary. Domestic asset protection trusts set up in states which have enacted statutes to protect self-settled trust from attack by creditors of the settlor. Florida has no DAPT statute, and Florida courts have provided no asset protection to any self-settled trust.
I had never been a fan of DAPT planning because of a concern that Florida courts would not extend protection to a Florida debtor who was the beneficiary of a DAPT in favored states. However, my colleagues persuaded me to reconsider the benefits of a DAPT, especially a Nevada based DAPT. Nevada law provides may unique benefits to its asset protecton trusts. For example, the statute of limitations on fraudulent conveyance suits against transfers to a Nevada DAPT is only two years or six months after the conveyance is discovered. Nevada law specifically allows to debtor/settlor to have limited trustee powers including the retained power to invest trust assets. Powers to distribute trust property to the settlor/beneficiary is best left to an independent co-trustee. A Nevada trust, being domestic, provides greater sense of comfort and control than trust formed and operated in a foreign country.
No Florida court has yet ruled on the asset protection afforded by a Nevada DAPT, but my dinner colleague convinced me that in theory these trusts should be respected by Florida law. In any event, a Nevada DAPT is an asset protection alternative worth considering in complex asset protection situations.