Practical Considerations in Drafting a Delaware Asset Protection Trust
The validity of Domestic Asset Protection Trusts has been addressed by a variety of commentators. While the consensus among practitioners appears to be that such Trusts are an effective vehicle for asset protection and other planning purposes, after nearly eight years on the books, the statutes have yet to be truly tested and much remains to be seen. Moreover, certain of the tax consequences remain unresolved. Despite this uncertainty, many practitioners are increasingly recommending and implementing such Trusts on behalf of their clients.
The purpose of this article is to explore some of the practical considerations that arise in drafting and effectively implementing a Domestic Asset Protection Trust. While the specific requirements for establishing such a Trust are generally straightforward, there are a variety of unique issues and options to consider in the drafting process that may have a significant impact on the effectiveness of the Trust, whether for creditor protection or other planning purposes. Given our experience with the Delaware Qualified Dispositions in Trust Act (the “Act”) and the many unique advantages of Delaware law, we will limit our discussion to the Act although many of the issues are applicable to other state asset protection statutes.