A Hybrid Domestic Asset Protection Trust is similar to a Traditional DAPT, but you, as the grantor, are not an initial beneficiary of the trust. In a Hybrid DAPT, you create a third-party settled trust for the benefit of your spouse and descendants (or other beneficiaries). Trust assets may be accessed by your spouse, descendants, or other beneficiaries through a distribution from the trust. You have created a third-party trust with significantly more asset protection than a traditional DAPT. If the traditional DAPT is the Joe Montana of asset protection, the Hybrid DAPT is Tom Brady.
A good drafting attorney should include a floating spouse provision in the Hybrid DAPT. This defines “spouse” in the trust document as the person who you are married to from time to time. This allows access to the trust assets through a new spouse if you were to get divorced, or if your prior spouse passed away.
If you are not married, do not want to get married, or cannot access the trust assets through other beneficiaries, you may be added as a beneficiary later by a trust protector. If this were to happen, the Hybrid DAPT turns back into a traditional DAPT. With so many ways to indirectly access the trust assets through your spouse or beneficiaries, being added back in as a beneficiary is highly unlikely.
For Nevada residents or residents of another domestic asset protection trust jurisdiction, there is clear authority in the form of state law that would allow the grantor to be a beneficiary of the traditional DAPT. However, there is not clear case law on how a non-DAPT jurisdiction will respect a traditional DAPT if the grantor is not a resident of the DAPT jurisdiction and is sued in the non-DAPT jurisdiction. Since Alaska enacted the first Asset Protection Trust statute in 1997, there has been limited case law to clarify whether a traditional DAPT will be upheld in a claim against a settlor who is a resident of a non-DAPT state.
The mere fact that traditional asset protection trusts have not been pierced in 24 years helps demonstrate their effectiveness. Even so, there are naysayers who argue the strategy is not ironclad. The reaction to the naysayers was to create the Hybrid DAPT, particularly for settlors who are not residents of a DAPT state. The Hybrid DAPT is an asset protection trust where you as the grantor are not an initial beneficiary of the trust but can be added later, or simply have access to the trust assets through your spouse or children. So long as you are not added as a beneficiary, a Hybrid DAPT is a third-party trust and should be fully creditor protected.
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If you have any questions on the Hybrid DAPT or Traditional DAPT, please contact IconTrust at 702-998-3700 or email email@example.com