A solid asset protection strategy is essential for any wealthy individual looking to protect what they’ve
worked so hard to earn. A domestic asset protection trust, also known as a DAPT, is one of the most
dependable tools used for this purpose.
Choosing the right DAPT isn’t as simple as setting one up and leaving it alone. Before initiating the trust
creation process, you must determine which state’s DAPT laws best suit your needs. Seeing as there are
currently 17 states that offer DAPTs, selecting the best state can be extremely difficult.
If you have considered setting up a DAPT but don’t know where to establish yours, we can help! At Asset
Protection Planners, we have three decades of experience setting up offshore and domestic trusts. We
know about the best asset protection trust states.
To help you find the jurisdiction that best fits into your plans, we’ve created a guide covering the five
best domestic asset protection trust states and the basics of each:
- Understanding Domestic Asset Protection Trusts
- The Five Best Domestic Asset Protection Trust States
- What Makes Nevada and South Dakota the Best Domestic Asset Protection Trust States
- The Best Asset Protection Trust States vs. Offshore Asset Protection Trusts
Understanding Domestic Asset Protection Trusts
Domestic asset protection trusts are US-based irrevocable trusts. These types of trusts allow the settlor
of the trust to act as a beneficiary. As a result, individuals can use DAPTs to protect their own assets and
those they want to gift to other beneficiaries. There are currently 17 states that allow for the creation of
DAPTs that can effectively protect assets.
To receive protection from a DAPT, a settlor must cede asset distribution control to a trustee. Doing so
separates the trust’s assets from the settlor’s possession, creating a barrier for creditors pursuing those
assets. Even in states where the settlor can act as a co-trustee, another trustee must control asset
distribution. Why? It is because if a settlor was sued while serving as a lone trustee, a court order could
compel them to distribute the trust’s assets to a creditor.
Each state has a statute of limitations, a waiting period between when assets are deposited into a trust
and when those assets receive protection. This period varies from state to state and typically ranges
between six months and four years. During this waiting period, a creditor can sue, claiming that a
transfer was fraudulent and explicitly made to delay or elude payment.
It’s worth noting that the statute of limitations in many states differs for pre-existing creditors (creditors
with valid claims prior to trust formation) and exception creditors. Both types of creditors have greater
claims to trust-held assets and can often bypass some or all DAPT protections. When searching for the
best asset protection trust states, favor those with strong protections against exception creditors or,
better yet, no exception creditor categories at all – like Nevada.
The Five Best Domestic Asset Protection Trust States
Five states have DAPT laws that provide far better protection than all the others. We’ve outlined the
basics of what makes them the best asset protection states:
Alaska
As the first state to allow self-settled domestic asset protection trusts, Alaska has a long case history to
draw upon when defending trusts against creditors. As a result, it’s exceptionally difficult for Alaska
plaintiffs to bring a compelling case against any trust. Most legal strategies have already been attempted
without success.
Another reason Alaska ranks among the best asset protection trust states is its lack of pre-existing
special creditor groups and classes Typically, states allow certain groups of creditors to pursue trust
assets without having to prove fraudulent conveyance. Alaska has no special groups except for divorcing
spouses. Thus, anyone else seeking to claim assets from a DAPT in Alaska must prove that the trust, or a
transfer into the trust, is fraudulent.
Despite these advantages, Alaskan DAPTs have one notable drawback — a lengthy four-year statute of
limitations. Once assets are placed in a trust, it takes at least four years for full protection to take effect.
This drawback makes this trust state less ideal for situations where legal trouble is on the horizon and
protection is needed as soon as possible.
Delaware
While Alaska was the first state to introduce DAPTs, Delaware was mere months behind. As such, there
is also a long case history for creditors to contend with if they try to claim your trust assets. The court
protections for Delaware DAPTs are further enhanced by the Delaware Chancery Court, which is well-
known for ruling against creditors and in favor of DAPT protections.
Delaware DAPTs are best known for offering exceptional flexibility and estate tax benefits. In Delaware,
grantors (the person creating the trust) can assign themselves as a beneficiary of their own trust. In an
emergency, the trustee can use this benefit to quickly transfer the assets back to the grantor. This
benefit can also reduce the gift and estate taxes associated with transferring assets to another party.
As with Alaska, the primary drawback to Delaware-based domestic asset protection trusts is a four-year
statute of limitations.
Nevada
Of all the best domestic asset protection trust states, Nevada consistently ranks as one of the best. It
was among the first states to create self-settled trust legislation, and the state legislature specifically
designed laws that oppose creditors.
One of the most notable advantages of a Nevada-based DAPT is the total lack of special creditor classes. This benefit prevents groups that would typically be excepted, like ex-spouses, from laying claim to assets held within a trust, even to receive alimony.
Nevada does not impose state income, estate, or inheritance taxes. However, if you establish a
Domestic Asset Protection Trust (DAPT) in Nevada, the tax treatment of the trust’s assets depends on
your state of residence. While Nevada’s favorable tax laws apply to the trust itself, as a resident of
another state, you may still be subject to your home state’s tax laws on the trust’s income and
distributions. It’s essential to consult with a tax professional to understand how your state’s tax
regulations may affect your Nevada DAPT.
Finally, Nevada has a two-year statute of limitations, shorter than most states. This period can be
shortened to a mere six months if the transference of assets into the trust is publicly declared (e.g.,
announced in a local newspaper). With this shorter statute of limitations, you can set up a trust and
protect your assets as soon as you sense looming legal challenges.
A major drawback of a DAPT in Nevada or any other state is that your assets can still be accessed
through a federal court order or by an unfavorable judgment in a trust-unfriendly state, like New York or
California. This is where an offshore asset protection trust shines bright.
Another possible drawback of Nevada’s asset protection trusts is that the trustees often exhibit a high
degree of rigidity, which can make them a bit more challenging to work with. This inflexibility typically
stems from the stringent compliance requirements imposed by Nevada’s trust laws and the trustees’ desire to maintain the trust’s legal integrity. While this cautious approach ensures the trust remains
protected from legal challenges, it can lead to frustration for settlors and beneficiaries who may find the
trustees unwilling to accommodate reasonable requests or adapt to changing circumstances. South
Dakota, on the other hand, is known for being more client-centric and flexible in their administration.
South Dakota
Of all DAPTs nationally, we like South Dakota the best if privacy is your principal concern. It is the only
state that has a total seal on DAPTs, meaning that DAPT assets cannot be disclosed during any litigation
that takes place within the state.
How quickly does a South Dakota trust protect assets from fraudulent transfer claims? In as little as six
months. Simply publishing the transference of assets in a local newspaper can do the trick.
South Dakota DAPTs are also used for generational asset transfers. Trusts founded in South Dakota have
no set perpetuity period. So long as they’re properly funded and maintained, they can theoretically last
forever.
South Dakota DAPT trustees can also work with outside investment managers, which most states don’t
allow. Like Nevada, there are no state income or capital gains taxes in South Dakota, which protects the
trust’s assets against certain tax burdens. Naturally, you will want to comply with the tax laws in your
jurisdiction of residence.
Wyoming
In Wyoming, DAPTs are known as qualified spendthrift trusts. Trust settlors in Wyoming enjoy more
control than your average settlor, despite the trust’s irrevocable status. Settlors there can veto trust
distributions, appoint or remove trustees and protectors, and even receive trust-generated income and
distributions.
Wyoming also allows settlors to create purpose trusts, which are trusts designed to fulfill a specific
purpose, like guarding an antique, art, or vehicle collection.
In addition, Wyoming is one of few states that allows private trust companies to act as trustees. This
eliminates the need to find an in-state trustee and greatly reduces the risk of trustee misconduct.
Like Alaska and Delaware, Wyoming has a four-year statute of limitations on any trust-held assets. This
significantly reduces the efficacy of Wyoming DAPTs when legal action is imminent.
Best Domestic Asset Protection Trust States Takeaways
In addition to the benefits each of these states provides DAPT settlors, only the above five states allow
single-member LLCs to form asset protection trusts. Forming an LLC with a trust makes it easier to
protect certain assets against creditors; it separates your personal and business assets into two distinct
categories. When done by an asset protection professional, forming an LLC will provide much more
protection than even the best DAPT.
Though any of the above states are excellent options for anyone looking to improve their asset security,
Nevada and South Dakota stand head and shoulders above the rest. Given the advantages and
popularity of Nevada DAPTs, we’ve decided to do a deep dive into what makes them so exceptional,
even when compared to the rest of the top DAPT states.
What Makes Nevada the Best Domestic Asset Protection Trust State
Understanding what makes Nevada the best asset protection trust state is a good way to see if DAPTs
provide the level of protection you need. We’ve broken down the key benefits of Nevada DAPTs to
demonstrate why this state reigns supreme in asset defense:
Asset Protection for Settlors
The Nevada Spendthrift Trust Act governs Nevada asset protection trusts (also known as Nevada
spendthrift trusts). This act allows DAPTs in Nevada to be self-settled, which enables settlors to use their
trusts to protect their own assets. Many other states’ trust laws only protect assets that will be
distributed to other beneficiaries.
Settlor Can Act as a Trustee
In Nevada, any individual may create a legally valid trust where they are both the settlor and a
beneficiary of the trust. Nevada’s asset protection trust laws even allow the settlor to act as one of two
or more co-trustees responsible for the administration of the trust. From this position, the settlor can
maintain greater control over their own trust assets.
However, any settlor pursuing this strategy must appoint a co-trustee, as a trust cannot properly protect
assets when a single entity serves as the settlor, trustee, and beneficiary. Additionally, the co-trustee
must have control over the distribution of assets to the settlor and can refuse to make distributions if
they violate the Spendthrift Trust Act or if a creditor could seize the distributed assets. If the settlor of
the trust controls the distribution of assets to themselves, courts can force them to give trust assets to a
creditor.
In other words, if a court renders a judgment against you, this gives the judge control of your exposed
assets. So, if you control 100% of the trust, that gives the judge 100% control of the trust as well. The
power of an asset protection trust lies in the fact that an independent trustee can step in to protect you.
By relinquishing full control to a trustee in a secure jurisdiction, you create a legal barrier that prevents a
judge or creditor from accessing the trust’s assets. It’s this separation of control that gives the asset
protection trust its strength, ensuring that your wealth is shielded even when legal challenges arise.
Nevada DAPTs Protect Assets of All Kinds
Another advantage of Nevada asset protection trusts is that one can use them to protect assets of just
about any type or value. Trusts in Nevada may protect personal property, cash, stocks, bonds, jewelry,
family heirlooms, securities, and more.
Even better, these assets can be located anywhere in the world and still be protected by the trust.
However, keep in mind that real estate is always subject to the laws of the state where it is physically
located, which can reduce the protections afforded by a Nevada DAPT.
No Residency Requirement
Individuals who create asset protection trusts in Nevada don’t have to be Nevada residents. However, if
the settlor is a non-resident, at least one of the co-trustees must be a Nevada resident. Additionally,
most or all trust administration functions must take place in Nevada.
Short Statute of Limitations
Nevada has a very short statute of limitations on fraudulent transfer claims. Fraudulent transfer occurs
when one transfers assets with the intent to defraud or delay creditors. The statute of limitations on
fraudulent transfer in Nevada is typically two years. However, it drops to six months if you publicly list
the transfer.
Tax Benefits
Nevada asset protection trusts also have tax planning benefits, being that they’re tax-neutral.
Additionally, Nevada has no taxes on income or capital gains, though you are still responsible for paying
taxes where you reside. One could even construct a trust that treats asset transfers as completed gifts.
This would exclude the trust from their estate, which may offer some additional estate tax benefits.
All of these benefits make Nevada the best domestic asset protection trust state. However, even with all
these advantages, Nevada asset protection trusts aren’t bulletproof. It is important to remember that
they are still subject to United States court judgments.
The Best Asset Protection Trust States vs. Offshore Asset Protection Trusts
For all the protections that the best asset protection trust states offer, none of them quite compare to
the ironclad defenses of offshore trusts. Why? Offshore trusts have no obligation to comply with
anything a United States court says. Even if a federal judge orders someone to pay a creditor, the
offshore trustee company can completely ignore the order and is, in fact, often obligated to do so.
Ultimately, if someone needs an asset protection trust that cannot be breached, a DAPT won’t get the
job done. Only an offshore asset protection trust, like those in the Cook Islands, Belize, or Nevis,
provides the robust protections required to defend against even the most aggressive creditors.
Learn more about Offshore vs. Domestic Asset Protection Trusts.
Schedule a Free Consultation to Set Up a DAPT Today
Though even the best asset protection trust states have their fair share of weaknesses when compared
to offshore trusts, that doesn’t mean they’re not worth pursuing. Depending on how likely you are to
face a lawsuit, the number of creditors you have, and various other factors, a DAPT in one of these
states could be a more convenient option.
The best way to determine if a DAPT is right for you is to speak with a professional. Schedule a free
consultation with a team member at Asset Protection Planners. We can help you choose between an
offshore or domestic asset protection trust and find the best state to set up your DAPT.