"New" wrinkles on domestic asset protection trusts?

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afan
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"New" wrinkles on domestic asset protection trusts?

Post by afan » Fri Apr 13, 2018 4:18 pm

At least new to me. Micheal Kitces has a pointer to this article.

https://www.financial-planning.com/news ... x-planning

It suggests that there are even more hurdles for a resident of a state that does not favor domestic asset protection trusts. One is now advised not to make the grantor a beneficiary, but rather establish a mechanism under which a third party, not the trustee, can add the grantor to the list of beneficiaries.

Or have someone, again, not the trustee, have the power to direct the trustee to make distributions to the grantor.
Or make loans instead of distributions to the grantor when the grantor needs money.

This sounds like they have squeezed these trusts into very tight quarters, making them even harder to pull off.
From this short article, it is not at all clear whether these suggestions have actually worked to protect assets when someone was sued. It sounds more like speculation of what one might attempt, in the hope of protection.

Any thoughts?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

golfCaddy
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Re: "New" wrinkles on domestic asset protection trusts?

Post by golfCaddy » Fri Apr 13, 2018 9:04 pm

It sounds like lawyers want to sell expensive trusts to people who don't need them and that probably won't work if they do need them. DAPTs have been around since 1997. If they worked to protected residents in a non-DAPT state, you would think there would be at least one success case in court by now. Here's another view on DAPTs: https://www.forbes.com/sites/jayadkisso ... 813d7e62a7. If you're a UHNW individual, maybe it's worth it to put a few million into a strategy that might, maybe work as insurance, but not if you are an ordinary physician with a net worth under $5M, living in a non-DAPT state.

afan
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Re: "New" wrinkles on domestic asset protection trusts?

Post by afan » Sun Apr 15, 2018 3:52 pm

Both articles refer to the same Alaska case.

The solutions proposed in the article I cited seem beside the point. They assume the assets have been successfully protected in the DAPT and the only question is whether the grantor can be a beneficiary. The moves to pretend the grantor is not a beneficiary and then to make the grantor a beneficiary when they need money appear a desperate attempt to keep this approach afloat.

But if the transfers are voided by the non-DAPT state then it hardly matters what the trust pretends to say about who is a beneficiary. The assets become available to the creditors in the non-DAPT state and provisions of the trust about who can get money from it only arise if there is anything left after the creditors (and the lawyers) are paid.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

bsteiner
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Re: "New" wrinkles on domestic asset protection trusts?

Post by bsteiner » Sun Apr 15, 2018 5:28 pm

golfCaddy wrote:
Fri Apr 13, 2018 9:04 pm
It sounds like lawyers want to sell expensive trusts to people who don't need them and that probably won't work if they do need them. DAPTs have been around since 1997. If they worked to protected residents in a non-DAPT state, you would think there would be at least one success case in court by now. ... If you're a UHNW individual, maybe it's worth it to put a few million into a strategy that might, maybe work as insurance, but not if you are an ordinary physician with a net worth under $5M, living in a non-DAPT state.
The typical client who creates an asset protection trust is indeed someone wealthy (usually with net worth in the 8 or 9 figures, and if in the 8 figures, the first digit isn't a "1", and who is concerned about a risk that has a small chance of happening but which can't easily be insured against. It's not the doctor whose net worth is usually in the 7 figures or if in the 8 figures the first digit is usually a "1" and who can usually buy enough insurance to cover the expected risks.

Opinions differ as to how well they work, but the goal isn't to win the case, but rather to get a better settlement.

afan
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Re: "New" wrinkles on domestic asset protection trusts?

Post by afan » Sun Apr 15, 2018 7:46 pm

Opinions differ as to how well they work
That is the question. How well do they work?

Agree that for a physician whose primary exposure is medical malpractice, getting higher coverage limits is almost certainly less expensive and more effective.

Similarly, for those whose exposures would be covered by umbrella insurance, then getting a larger policy is very cheap compared to the DAPTs.

Would the ability to void the transfer of assets to the trust make the other maneuvers (not naming the grantor as an initial beneficiary, giving a third party the ability to instruct the trustee to pay money to the grantor) ever get that far? Or would these serve only to protect an empty trust, once the transfers have been reversed?

But this still leaves the question of whether the DAPT works. To get a better settlement, to protect a larger share of assets, to discourage suits or to completely defeat a creditor?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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