Domestic Asset Protection Trusts in Connecticut – Four Things to Know

Domestic Asset Protection Trusts (a/k/a “DAPTs”) are potentially valuable tools for your estate plan. A DAPT is an Irrevocable Trust where the grantor may also be the beneficiary, and achieve significant asset protection, as long as certain requirements are met. DAPTs may be particularly valuable to people in the following situations:

  • Business owners, executives, and medical professionals;
  • Individuals who want to protect assets from future creditors, such as police officers; and
  • Anyone who wants to protect the family home for their children.

Here are four things to know about DAPTs in Connecticut:

  1. Trust Requirements. The transfer of assets to the DAPT must be a “qualified disposition”, meaning the trust must (a) be irrevocable, (b) incorporate and be governed by CT law, (c) contain a spendthrift clause, and (d) use a qualified trustee.
  2. What is a “Qualified Trustee”. A “qualified trustee” is one who meets certain criteria, including (a) he or she must be independent – cannot be the grantor and cannot be a party subordinate to (or under the control of the grantor), (b) manages the trust property, (c) accounts for the trust property on a periodic basis, and (d) resides in CT. NOTE: Although a “qualified trustee” must be “independent”, the grantor(s) may reserve the power to remove and appoint new trustees, provided such successor trustee meets the above requirements.
  3. Limitations. There are some limits to the creditor protection. Certain claims may still be enforced against a DAPT, including (a) claims arising prior to the establishment of the trust, (b) marital support obligations, including child support, and (c) fraudulent transfer claims under state or federal law.
  4. DAPT rights and powers. The beauty of a DAPT is that even though the transfer of property to the trust is irrevocable, the grantor may maintain significant rights and powers over the trust property. For example, the grantor may (a) receive principal and income; (b) veto other distributions, (c) remove or replace the trustee, and (d) retain a testamentary limited power of appointment.

If you have assets to protect, you may want to consider using a DAPT as part of your estate plan.

If you have questions about DAPTs, or any other matters related to business or estate planning, contact Fournier Legal Services to learn more.

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