Asset protection is a critical component of modern estate planning. Individuals who have worked hard to build wealth often want to ensure that their assets are protected from unexpected risks such as lawsuits, creditor claims, or financial liabilities. One legal strategy used for this purpose is known as a Domestic Asset Protection Trust (DAPT). However, not every state allows these types of trusts. In fact, California law does not recognize Domestic Asset Protection Trusts at all.
Understanding why California prohibits these trusts — and which states allow them — can help individuals make more informed decisions when designing a comprehensive asset protection strategy. A domestic asset protection trust lawyer can help evaluate out-of-state options and structure a plan that aligns with your long-term financial and legal goals.
What Is A Domestic Asset Protection Trust?
A Domestic Asset Protection Trust (DAPT) is a specific type of irrevocable trust designed to protect assets from future creditors. In most traditional trusts, the person creating the trust (known as the grantor) transfers assets into the trust for the benefit of other individuals, such as children or family members.
A DAPT works differently. With this type of trust, the grantor can still remain a discretionary beneficiary, meaning they may receive distributions from the trust under certain circumstances while the assets remain protected within the trust structure.
Because the trust is irrevocable, the assets transferred into it are no longer considered personal property of the grantor. This structure can provide an additional layer of protection against potential creditor claims.
Why California Does Not Recognize Domestic Asset Protection Trusts
California has long maintained a strong public policy against self-settled asset protection trusts. A self-settled trust is one in which the person who creates the trust is also a beneficiary of that trust.
Under California law, individuals generally cannot shield their own assets from creditors while still retaining a beneficial interest in those assets. For this reason, Domestic Asset Protection Trusts cannot be established under California law.
California courts have historically taken the position that allowing individuals to benefit from assets while protecting them from creditors would conflict with the state’s public policy principles.
States That Allow Domestic Asset Protection Trusts
While California does not permit DAPTs, several states have enacted legislation authorizing them. These states include:
Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
These jurisdictions allow individuals to establish irrevocable trusts that provide meaningful protection against certain future creditor claims while still allowing the grantor to be a discretionary beneficiary.
Why South Dakota Has Become The Leading Trust Jurisdiction
Among the states that allow Domestic Asset Protection Trusts, South Dakota has emerged as one of the most favorable jurisdictions for trust planning in the United States.
South Dakota has intentionally developed a legal framework that supports long-term wealth protection and advanced estate planning. Advantages include strong asset protection statutes, exceptional privacy protections for trust beneficiaries, no state income tax on trusts, flexible trust administration laws, and dynasty trust structures that can last for generations.
Because of these advantages, South Dakota is widely considered one of the premier jurisdictions for individuals seeking long-term asset protection and multigenerational wealth planning.
Where Should You Establish A Domestic Asset Protection Trust?
Even if you live in a state such as California that does not permit Domestic Asset Protection Trusts, it may still be possible to establish a trust in another jurisdiction that allows them.
Selecting the right jurisdiction is an important part of strategic trust planning. States such as South Dakota, Alaska, Nevada, Delaware, and Wyoming are frequently considered among the strongest jurisdictions for establishing Domestic Asset Protection Trusts.
Each state offers unique legal advantages, and choosing the right jurisdiction depends on your financial goals, the nature of your assets, and your long-term estate planning strategy.
Protect Your Legacy With US
At Stuart Green Law, PLLC, we help individuals and families design sophisticated trust structures that protect assets while preserving wealth for future generations.
Attorney Stuart A. Green focuses on advanced asset protection strategies, including the strategic use of Domestic Asset Protection Trusts in leading jurisdictions such as South Dakota.
If you are interested in learning how a properly structured trust may help protect your assets and strengthen your estate plan, we invite you to schedule a consultation with our firm.
The right legal strategy today can help secure and protect your legacy for generations to come.