Michigan Asset Protection Trusts – What are they, and who can they benefit?

Michigan now allows residents to establish a Domestic Asset Protection Trust (“DAPT”). A DAPT is an irrevocable trust that allows the individual creating the trust (the “transferor”) to benefit from the trust, protect properly transferred assets from creditors, and maintain some management rights in those assets, when the specific requirements are met.

So, when should you consider a DAPT? A DAPT is not a general estate planning tool and it is not for everyone. If your career is high risk (i.e., you have greater exposure to being sued) and your financial situation is such that moving some of your assets into an irrevocable trust will not have a significant impact on your overall financial situation and lifestyle, you may be a good candidate for this type of trust. A DAPT is a tool that is used along with other estate planning and asset protection techniques.

Because a DAPT is irrevocable, the transferor is permanently giving up those assets transferred to the trust; however, the transferor may be a beneficiary of the trust and he or she may retain some of the management rights in those assets. A transferor may retain the power to direct investment decisions, veto distributions from the trust, receive income as a trust beneficiary, receive discretionary distributions of the income and/or principal (this is subject to the trustee’s discretion – not the transferor’s discretion), remove and appoint a trustee, and direct how trust assets will be distributed after his or her death (i.e., direct the trustee to pay debts, expenses of administering the estate, or payment of any estate or inheritance tax).

A properly established DAPT, with assets that were appropriately transferred to the trust, will generally shield against creditors (after those assets have been in the trust for the statutory time-period). A DAPT can also protect assets that may have otherwise been considered marital property, in the event of a divorce, if you establish that the assets were transferred into the DAPT at least 30 days prior to the marriage or if the parties agree in writing that the trust assets are not considered martial property. If a DAPT was created and/or assets were transferred with the intent to fraudulently conceal, hinder, or delay a creditor, those assets will not be protected from creditors.

You can access the Michigan Qualified Dispositions in Trust Act here.

Contact Kate Gadbois

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