A domestic asset protection trust, or DAPT, is an irrevocable trust that allows the trust owner to act as a discretionary beneficiary. Essentially, this means the trust’s creator retains limited access to the assets while those assets are shielded against creditor claims. The trust maker’s creditors cannot access assets contained in this type of trust.
Few U.S. states have laws on the books that expressly permit DAPTs. In 2020, the Probate and Trust Section of the Arizona State Bar recommended approving these self-settled protection trusts. However, there has been little movement to legalize them statewide. In the meantime, Arizona law allows for a hybrid domestic asset protection trust. But how does this type of trust work? And can it protect your assets from creditors?
We at Pennington Law, PLLC, want to help you protect your assets and thoroughly evaluate all your options for safeguarding your wealth. Is a hybrid domestic asset protection trust a good option for you in Arizona? We can help you answer that question and more. Contact our office today to arrange a confidential consultation. Our team wants to help you create an estate plan that checks all your boxes.
How Does a Hybrid DAPT Work?
How does an Arizona hybrid DAPT protect your assets? As the trust creator, you transfer ownership of selected assets into the irrevocable trust. By doing this, the assets are technically no longer your property or under your control. They are “owned” by the trust, and an independent trustee takes over the assets’ management per the hybrid DAPT agreement stipulations.
Once you have established a hybrid DAPT, you must select a trustee to administer assets held in trust for named beneficiaries. Assets in the trust generally qualify for protection from known and unknown creditors. However, you lose the ability to manage assets once you place them in the trust.