Asset Protection Trusts
Domestic Asset Protection Trusts (DAPTs) – available only in a small number of states, including South Dakota – are a formidable planning strategy that legally shields assets from third-party liability (including spouses in a divorce proceeding) and lawsuits while permitting settlors (the person establishing the trust) to retain some control over the trust assets and enjoy a discretionary benefit during their lifetime.
Therefore, an individual can establish a Domestic Asset Protection Trust that is fully discretionary, meaning settlors can receive financial benefit from the trust (income and discretionary principal distributions), and protect trust assets from creditor claims and lawsuits, while maintaining control over the investment management function through the directed trust structure. South Dakota has one of the oldest and most progressive self-settled domestic asset protection provisions in the United States. With its two year “look back” fraudulent conveyance statute, South Dakota’s provision is among the shortest in the country (Delaware has a four year fraudulent conveyance statute).