With more investors diversifying their investment portfolios, cryptocurrencies and other kinds of digital assets (i.e., non-fungible tokens “NFTs”) have become a more popular option in recent years. With the Internal Revenue Service declaring that digital assets are property, they can be accessed by creditors, however, so certain kinds of trusts may be established to help protect these assets as well as enabling access to online accounts, especially for cryptocurrency assets. A state-based Domestic Asset Protection Trust (DAPT) enables a trust creator (“trustor”) to protect their exiting digital assets through a legal instrument that shields them from creditors. Previously, these types of trusts were only available offshore. Fortunately, many states across the U.S. have adopted DAPT statutes to allow this type of trust to be legally-established within their jurisdictions.
What is a Domestic Asset Protection Trust?
Before DAPTs were enacted, a trustor/settlor would have to establish an irrevocable trust created by a third party in order for asset protection. A DAPT is a self-settled trust that allows the trustor/settlor protection to be the beneficiary, transfer a portion of estate assets to the trust, and provide for certain protections from future creditors, legal complaints, malpractice claims, and other financially-consequential events. Formally known as a qualified spendthrift trust, it is a trust that enables the trustor to transfer assets into a trust of which the trustor/settlor is also a beneficiary to protect themselves from creditors. This type of irrevocable trust may assure that wealth can be safeguarded for future generations and protects wealth from liability risk.
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