An essential goal of estate planning is to protect the assets you have worked all of your life to build. This planning may need to include protecting your assets from creditors while making sure that you are still able to benefit from them. Fortunately, for Michigan residents, there is an estate planning option which offers protection of your resources from creditors while allowing you to continue to be the recipient of advantages from them.
Michigan, along with 17 other states, allows residents to set up a trust referred to as a domestic asset protection trust or DAPT. A DAPT is an irrevocable trust meaning that once an asset is placed in the trust, the creator of the trust cannot get it back. However, the trust creator is allowed to benefit from the trust asset. Best of all, under most circumstances, DAPT trust assets are protected from creditors.
To qualify the assets which are placed in the trust must be permanently irrevocable. What this means is that there cannot be a provision which would allow the trust creator to take any of the assets back. The creator can, however, have certain powers and rights concerning the trust. For instance, the creator may retain the power to replace the trustee, direct trust investments, or veto a distribution from the trust. The creator may also have the right to receive income or payments from the trust as well as, with some exceptions, direct how assets will be distributed after the creator’s death.
There are specific rules which must be followed in order to create a Michigan DAPT. For example, the DAPT must be governed by Michigan law, and the trustee must be a Michigan resident or an organization which can act as a Michigan trustee and cannot be the creator of the trust. Further, the creator cannot retain certain powers and must not be more than 30 days delinquent on any child support obligation.
A critical limitation in setting up a DAPT is that the creator cannot set up a DAPT to defraud a creditor. In fact, creditors can raise a claim against the DAPT on the basis that the assets have been fraudulently concealed. There are also specific rules about how the trust assets will be considered for division and allocation during a divorce.
Determining whether a DAPT is right for your circumstances will depend on several factors. Additionally, it is essential that the DAPT be set up in a manner which adheres to the law while also taking your individual needs into consideration. Our office has experienced and knowledgeable estate planning attorneys who can help you explore your options and decide what tools are right for you. Please contact us online or by phone if we may be of assistance.