Using South Dakota Domestic Asset Protection Trusts to Shield Your Property from Creditors
- posted: Jan. 30, 2021
If you hold substantial wealth and you fear that you might be exposed to liability or incur serious debts in the future, you may need a way of protecting your assets from creditors. South Dakota law provides one of the best vehicles for achieving this aim: the Domestic Asset Protect Trust (DAPT). It allows you to put assets out of reach of creditors while retaining selective use of the assets. And you might not even need to live in South Dakota or keep the protected property here in order to take advantage of a DAPT.
A DAPT is a kind of living trust. The creator (known as the grantor) of a DAPT places designated property into the control of a trustee. A DAPT must have three characteristics to be effective:
- The document creating it expressly states that South Dakota law applies.
- At least one trustee is located in South Dakota.
- It is irrevocable (you cannot change it).
The trustee is required to give the grantor money out of the DAPT for as long as the grantor is alive and wants it. This can include:
- Any income from the trust property
- 5 percent of the principal per year
- Any additional amounts the trustee decides to give
However, the grantor also has the right to refuse payment, thereby exercising control over what stays in the DAPT. Why would a grantor do that? One of the key advantages of a DAPT is that, if it was properly created, the property in it should be safe from most creditors. So a grantor who has accumulated serious debts since creating the DAPT might want to keep as much of his property in it as possible.
There are limitations to the protection a DAPT provides. If the grantor was already insolvent when he or she transferred property into the DAPT, creditors might be able to disqualify the DAPT in court and get access to that property. In addition, the DAPT doesn’t protect against certain types of claims, namely:
- Child support, alimony and divorce property divisions
- Death, personal injury and property damage the grantor caused before the DAPT was created
- Claims against trust property located in states that outlaw DAPT-like mechanisms
Under South Dakota law, neither the grantor nor the trust property covered need be physically in the state. However, some other states have laws that ban the use of DAPTs, so assets located in those states might not be protected.
The South Dakota wills and trusts attorneys of Anker Law Group, P.C., located in Rapid City, understand DAPTs and how they can benefit our clients. We can help you decide if a DAPT is right for you and, if so, prepare one that will have all the advantages a DAPT can offer. Call us at 605-519-5967 or contact us online to schedule an appointment.