Why Attorneys Don’t Use Asset Protection Trusts

I think it’s one of the biggest overlooked benefits of estate planning. Why aren’t domestic asset protection trusts (DAPTs) more common in the United States? I’m going to discuss that today, and it’s all coming out of conversations I recently had in the last few days.

Yesterday, I was asked two questions by two different people. I was having lunch with someone, explaining to them what it is that I do and how I help clients. I told them that a large percentage of what I do is focused on domestic asset protection trust planning, particularly in South Dakota. This person didn’t know much about South Dakota, so I explained it to them. It’s interesting because I’m located in Texas, and I explained that I work with clients throughout the country and even abroad, and a lot of that is spent helping them set up these domestic asset protection trusts in South Dakota.

The comment made to me was, “Well, surely other attorneys are doing this. A lot of other attorneys must be doing this, right?” I kind of shook my head and just said, “No, not really.” That’s what’s unusual about this. Then, another question I got asked yesterday by another estate planning attorney was, “So, wait, you’re helping clients set up self-settled asset protection trusts in South Dakota?” I said, “Yes.” The next question was, “Well, are you licensed there? Are you licensed in other states?” I said, “Yes.” Then they asked, “So, you’re helping clients in Texas with these South Dakota asset protection trusts?” And the answer is yes, I’m helping clients located everywhere with these DAPTs.

The response I received was, “I didn’t know you could do that.” I understand that sentiment. I grew up in this world of multi-jurisdictional tax and estate planning, so this has just kind of been my background. It’s probably an unusual background for most attorneys to have, or at least most estate planning attorneys, because they mostly deal with clients who are located in their local community. That client may not have business interests or other interests or children or whatever it may be, located in different jurisdictions. So, historically, there hasn’t always been a reason to look at other jurisdictions when it comes to finding the best available laws or options.

The interesting thing about DAPTs is that not every state has them, and I think that’s another reason why they aren’t as popular as they should be. There are about 20 states right now, in 2023, that offer DAPT legislation, DAPT laws, or DAPT statutes. Most of these states aren’t the most populated. California doesn’t have them, Texas doesn’t have them, Florida doesn’t, New York doesn’t. A lot of times, it’s these smaller states. Right now, the best trust jurisdictions for DAPTs are, hands down, South Dakota and Nevada. I prefer South Dakota because there are additional reasons outside of the DAPTs that make it a better trust jurisdiction, and that’s widely accepted across the board. Today’s video isn’t necessarily about that, but this all gets a conversation going that I think is really important.

Who can benefit from a DAPT? The answer is, anyone can benefit from a DAPT. It doesn’t matter where you’re located or which state you’re a resident of. You have the same ability that businesses or corporations do when it comes to shopping around to figure out what states have the best laws to protect your assets, that might be most tax beneficial to you, or that might provide you the best privacy—whatever is most important. The same concept applies. We see that with the advent of these DAPTs. They’ve really pushed trust legislation and laws into modern times. We’ve seen more progression and modernization of trust laws in the last 20 years than we have seen in the last, I don’t know, hundreds of years.

The reason I’m trying to pin down here is why DAPTs aren’t more common, or even FAPTs (foreign asset protection trusts). I shouldn’t say “more important,” but “more known,” because the best jurisdictions are very tiny jurisdictions. Nevada is a larger jurisdiction—Las Vegas is there, that’s a pretty major city, at least in the United States. Attorneys in Las Vegas and Nevada do a great job of marketing to the greater population the different benefits that Nevada trusts have. You see a lot of Nevada trust companies there that are helping clients throughout the United States and throughout the world.

Alaska has been popular over the last few decades. Again, a smaller state, smaller population, not a lot of attorneys there, but you do see some really good trust companies there. We’ve seen it with Delaware, which is a bit unique in that it is a smaller state, but it’s here in the lower continental U.S., unlike Alaska. It is also ideally situated on the East Coast, close to other major cities and a larger population of people. People have become very familiar with Delaware as being a destination for corporate law and trust law. However, Delaware hasn’t really continued to progress in the last 20–25 years like it perhaps had done in the ’90s or even early 2000s. You’ve seen Nevada and South Dakota continue to progress.

As a point of reference, South Dakota has less than a million residents in the state. It doesn’t have a lot of attorneys, and even if you’re just looking at the numbers and the statistics, the amount of attorneys out of the greater population that are actually estate planning attorneys is very small. You might have some who dabble, but those who specialize in estate planning are even smaller. All of this is to explain why DAPTs and FAPTs, and these asset protection trusts protecting wealthy clients, business owners, celebrities, and public figures, are not more widely talked about.

I think, as we continue to progress into the future, we’ll see more and more attorneys having conversations with their clients about asset protection. I think it’s one of the biggest overlooked benefits of estate planning, particularly trust planning, that attorneys aren’t having conversations about. It’s a shame, because you can protect your assets from creditors, lawsuits, malpractice suits, negligence suits, and divorcing spouses. There’s a lot of benefit that we can really take away from these types of trusts.