Domestic Asset Protection Trusts and Fraudulent Transfer Jurisdiction

A DAPT may not insulate a settlor from a claim that assets were fraudulently transferred into the trust.

September 6, 2018

The common law rule is that self-settled spendthrift trusts may be reached by creditors. Over the years, several domestic jurisdictions, including South Dakota, Nevada, and Alaska, have enacted statutory provisions to protect self-settled spendthrift trusts from creditors. These trusts, often called ‘‘domestic asset protection trusts’’ (DAPTs), may come under attack, however, and may ultimately not shield assets from creditors (and thus from bankruptcy trustees). In particular, a DAPT may not insulate a settlor from a claim that assets were fraudulently transferred into the trust. In Toni 1 Trust v. Wacker, the Alaska Supreme Court considered the issue of whether Alaska could prevent other state and federal courts from exercising subject matter jurisdiction over fraudulent transfer claims against an Alaska DAPT.1 The court said no.

© 2018 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc.

 

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James P. Menton, Jr.

Partner

Co-Chair, Corporate Restructuring and Bankruptcy Group

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