The previous blog spoke about the 5 requirements common to all 19 DAPT (domestic asset protection trust) states that the DAPT must follows:
Those were the basics. From here there are a few additional provisions that vary from state to state and that are seen as important by "experts" in assessing the desirability of one state's DAPT over another. They include:
- The period (statute) of limitations within which an action must be brought to challenge a transfer to the trust;
- "Exception creditors" (such as ex-spouses collecting alimony, child support obligations, and tort creditors), if any, whose claims override the protection of the DAPT):;
- The level of the creditor's burden of proof in challenging a transfer to the DAPT as "fraudulent," meaning prejudicial to the creditor.
One of the most significant considerations is the statute of limitations, which runs from 18 months in Ohio (currently the shortest) to five years in Virginia (the longest). Almost half of the rest is four years, including Connecticut; and the other half, now joined by Indiana, is two years.
In virtually all the statutes the burden of proof to establish a fraudulent transfer if by "clear and convincing evidence," while Connecticut cut that liberal standard down a bit by requiring proof only by a "preponderance of the evidence" if the transferor is also a beneficiary of the DAPT, which would in fact typically be the case with a self-settled DAPT.
The idea of a period of limitations makes sense in some respects, as it would lead to chaos and widespread uncertainty in commerce and property ownership if creditors could surface and make a claim 10 or 20 years after the claim arose.
Exception creditors are the next important consideration. They are creditors whose claims take priority over the protection offered by the statute. Typically, these are claims existing at the time the DAPT was created, for child support, alimony or marital settlements, which is the law in a majority of the DAPT states.
As more states adopt DAPT statutes and more DAPTs are established, more laws will no doubt develop, but at the moment there are relatively very few reported cases across the country.
Furthermore, there are discussions among legal organizations of establishing a uniform asset protection trust law, which could help unify the laws across the country. But whether or not that occurs, we can unequivocally say that times and concepts have changed, and estate planners need to be mindful of that.
Given the growing trends of the states to adop DAPT laws, when we get to the "full monty" where all 50 states have DAPT laws, it may become borderline negligent for estate planners not to consider a DAPT in every estate plan.
When that happens, if people could really rollover in their graves, Queen Elizabeth would be in the likes of a spin class.