On March 27, 2013, the Ohio Legacy Trust Act became effective, making Ohio the 14th state with a DAPT statute. Below please find a quick primer on DAPT’s generally. Click here for more information about Ohio’s new law specifically.
Who: Benefits those in high risk professions, such as doctors, lawyers, entrepreneurs. A DAPT is not a substitution for the appropriate malpractice or umbrella insurance.
What: A trust in which the grantor may retain some benefits to the assets in the trust, which a creditor may not reach. Under common law, a self-settled trust (typically may be called a revocable trust, grantor trust, living trust) may not be protected from creditors. If a state provides a separate statute creating a DAPT, such as the Ohio Legacy Trust Act, certain assets may be protected from creditors. Most of the state statutes provide that the DAPT assets are not protected from child support or a divorcing spouse, when the grantor was married to the spouse at the time the DAPT was created.
Where: Currently there are DAPT statutes in Alaska, Delaware, Hawaii, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Wyoming. An individual may create a DAPT in any state, even if they do not reside there. However, the trustee of the DAPT must reside in the state in which the DAPT is created, and some of the trust assets will need to be sitused there as well. Some states have more debtor friendly than others, and depending on the “Who” depends on the best state for a DAPT. For example, Delaware, Hawaii, New Hampshire, Rhode Island, and Utah all have an exception for pre-existing torts, even if they are unknown at the time the DAPT is funded. Therefore, while a business developer may not have an issue with torts, a doctor may not want to create their DAPT in those states.
When: The trust may not be funded when there are known creditors (i.e. a demand has been made or a lawsuit filed). In certain professions there will always be the possibility of creditors, but unknown creditors are generally not an issue (unless the DAPT is in a state allowing for preexisting torts). Additionally, a DAPT may not be funded when it leaves the grantor insolvent. Once a DAPT is funded, the statute of limitations begins to run. For bankruptcy purposes, a 10 year period needs to pass before the assets are protected from creditors. For most other purposes, the periods are significantly shorter (it varies by state).
Why: To create some security for a grantor and their family. Assets may be contributed to a DAPT and ideally, never accessed. If a catastrophe occurs, the trustee may distribute the funds for the benefit of the grantor. If the trust is not accessed during the grantor’s lifetime, the assets may pass at death to children, grandchildren, charity, or wherever else the grantor chooses.
How: By contacting counsel familiar with creating DAPTs. Each state has different rules, but generally, a trust document is drafted, and the trustee is consulted. The grantor then contributes assets. Ohio also requires an affidavit where the grantor attests that the conveyance to trust is not fraudulent, nor will it leave the grantor insolvent. Once funded, the trustee manages the assets for the grantor and the grantor’s family.