A decade ago states were racing to pass legislation making dynasty trusts possible. According to one 2005 study I wrote about here, the winners of that legislative race (including Florida) reaped roughly $100 billion in new trust business. So yes, the stakes are high.
Today, the legislative race is all about asset protection trusts. The concept originated offshore in the Cook Islands, a tiny chain of islands in the South Pacific, and migrated onshore when Alaska became the first U.S. state making self-settled asset protection trusts legal. Currently there are 14 states with some form of domestic asset protection trust (DAPT) legislation in effect (Florida isn’t one of them).
Love ‘em or hate ‘em, you’ll want to hang on to this 14-state DAPT chart.
The latest puff piece touting the benefits of DAPT’s appeared in this month’s issue of the ABA’s Real Property, Trust and Estate Law Journal entitled The Domestic Asset Protection Trust: Ranking the Jurisdictions. The ABA article has an easy to read chart summarizing the DAPT legislation in the 14 states where they’re currently legal. Sooner or later someone’s going to ask you if it’s a good idea to set up a DAPT in state "X". When they do, you’ll be glad you have this 14-state DAPT chart handy.
Are DAPT’s a good idea?
I was, and am, a big fan of dynasty trusts. DAPT’s, not so much. And I’m not alone. My views are reflected in the following quote from this blog post by California attorney Jay Adkisson, author of the Wealth Conservation blog, one of the best blogs published in the trusts and estates universe:
[T]he real problem with DAPTs is that they are so far significantly untested. We’ve got a pretty good idea after the Anderson and Lawrence cases what happens with [foreign asset protection trusts (it's not pretty, click here)], but what will happen with DAPTs is largely a crapshoot. Whether they realize it or not, many clients in DAPTs are the lab rats in a great legal experiment which, in this author’s opinion, is not hopeful as far as DAPTs for non-DAPT settlors and their assets are concerned.
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For what it is worth, your writer and his law firm only very rarely use self-settled trusts of any kind for asset protection planning. My advice has long been to “avoid self-settled trusts altogether whenever possible”
What about "exemption" planning for Florida residents?
Especially in a state like Florida, which affords extremely generous asset protection to its residents in the form of statutorily-sanctioned creditor exempt assets (think homestead property, TBE property, insurance, annuities, pension plans, IRA’s), there’s a lot of very effective planning you can do way before you need to even consider a DAPT. I did a seminar back in 2005 on this type of planning. Much has changed since then, so don’t rely on my outline without doing your own research, but if you’re interested in a better understanding of what I mean by exemption planning, click here for a copy of the 2005 outline.