17 Dec DAPTS May Be The Best Irrevocable Trust Option Even If Asset Protection Is Not a Consideration
By the early 2000’s, trust planners began to recognize that Domestic Asset Protection Trusts(DAPTs) offered significant trust benefits in addition to pure asset protection planning, which here to forehead been their primary focus. An indicator of this trend is that South Dakota, a leading DAPT state,has empaneledastanding trust task force with representatives from state government and the private sector to monitor new trends in creative trust legislation throughout the country.
The following list discusses non-asset protection DAPT advantages and different types of situations in which they can beneficial; however, planners should be aware that some of these benefits are not available in every DAPT state.
- A client might be more willing to create other types of irrevocable trusts if the funds can be accessed in an emergency. Examples include: an irrevocable life insurance trust, a charitable lead trust, a charitable remainder trust, a grantor retained annuity trust,or a spendthrift trust for a young adult or disabled person. Further, some of these trust vehicles are vulnerable to creditor claims that could be insulated.
- A client might desire a trust that exhausts her gift tax exemption or GST Exemption.
- In some states, the trust can be used to receive a taxable gift to reduce federal and state estate taxes.
- Under Rev. Rul. 2004-64, favorable tax treatment for grantor trusts can be assured.
- In certain states, DAPTs allow the option of federale state tax inclusion or exclusion.
- The trust can be used to protect officers and directors.
- The trust can be used for pre-marital planning.
- The trust can be used by foreign persons who wish to own U.S. sitused assets held by U.S.trustee.
- Before immigrating,non resident aliens may engage in transfer tax planning.
- Trusts moved from offshore or other domestic jurisdictions can be protected.
- In certain states, the state income tax may be eliminated. Also,DAPTs may not be required to file state income tax returns or qualify for exemption from such taxes.
- Possibly no state capital gains, dividend,interest or intangible taxes.
- Low insurance premium taxes.
- Unlimited duration “rule against perpetuities” statutes;
- If a trust’s provisions need to change due to evolving tax laws or changes in the settlor’s family or business, the trustee can decant the DAPT into a new trust with different provisions, and reform or make trust modifications.
- Two-year fraudulent conveyance statute.
- Automatic total seal privacy for all court matters involving trusts, including litigation, reformation and modification and court blessed decants.
- Sole and exclusive remedy charging order protection for LLCs.
- Special provisions encouraging the trend of international families looking for the safety of a U.S trust situs and trustee.
- Permitting the use of special purpose LLCs to function as: trust protectors to watch over the trust and change the trustee in the event of misconduct and trust investment and distribution advisers.
- If settlors have concern about the motivation of their heirs to become self-sufficient, they may decide what notice, if any, is given to beneficiaries about the trust’s value and provisions.
- Allows for the creation of “purposeful trusts” and dynasty trusts.
- In an action against the trust, the prevailing party may be awarded attorney’s fees.
- Provides protection for trust advisers in the counseling, drafting, preparation, execution, and funding of a trust.