Domestic Asset Protection Trust (DAPT)

A Domestic Asset Protection Trust, commonly called a DAPT, is a self-settled trust, meaning the grantor (the person who creates and funds it) is also named as a permissible beneficiary. Traditionally, self-settled trusts offered no creditor protection because courts reasoned you cannot hide assets from creditors in a trust you still benefit from. A handful of U.S. states changed that by passing statutes explicitly allowing such protection if certain conditions are met.

For families with significant assets, a DAPT may be evaluated as one layer in a broader asset protection strategy. A hypothetical surgeon with a substantial investment portfolio, for instance, might explore whether a DAPT established in a permissive state could shelter a portion of assets from future malpractice claims. The key phrase is future: assets moved in after a creditor claim arises raise serious fraudulent transfer concerns and typically receive no protection.

Several important limitations are frequently misunderstood. Federal bankruptcy law, choice-of-law disputes between states, and the required waiting periods (called seasoning periods) built into most DAPT statutes all constrain how much protection a DAPT actually provides. A qualified attorney must evaluate whether a DAPT is appropriate for any particular family's circumstances before any structure is established.