Domestic Asset Protection Trusts: Key Income and Transfer Tax Implications

Domestic asset protection trusts (DAPTs) are an integral part of many estate and asset protection plans. Under current tax law, trusts and estates counsel must identify critical structuring techniques and significant differences among jurisdictions to minimize income and transfer taxes.

States have enacted asset protection legislation allowing individuals to create a trust with themselves as a beneficiary while still removing the trust assets from the reach of their creditors and estate taxation. However, they raise significant federal income and transfer tax issues to consider when structuring transactions.

Trusts and estates counsel are considering establishing DAPTs to lock in transfer tax exemptions. The IRS acknowledges that a transfer to a DAPT can be a completed gift even if the asset is distributed back to the settlor at the trustee's discretion. If a grantor makes a transfer while retaining the right to the income from the asset, then it may be included in the estate under Section 2036. Furthermore, a DAPT might be used to escape the income taxes of many states if structured correctly, but if not, unintended state taxes can be significant.

Listen as our panel comprised of estate planning, tax, and asset protection experts discusses best practices for using DAPTs, essential structuring techniques to minimize income and transfer taxes, identifying the differences among jurisdictions, and other tax and legal implications.

1. Asset protection planning under current tax law
2. How the domestic asset protection trust works
   1. Statute of limitations
   2. Fraudulent transfers
   3. Exception creditors
3. Structuring DAPTs to minimize income and transfer taxes
4. State law considerations

The panel will review these and other key issues:

• In asset protection planning, what factors should counsel consider in deciding how and where to structure the DAPT?
• How does the DAPT work and what are the rules regarding statute of limitations, fraudulent transfers, and creditor exceptions?
• What factors must be considered in structuring DAPTs to minimize income and transfer taxes?
• What state law issues must be considered?

Learning Objectives

After completing this course, you will be able to:

• Recognize key factors that should be considered in deciding how and where to structure a domestic asset protection trust
• Ascertain how a domestic asset protection trust works and the rules regarding statute of limitations, fraudulent transfers, and creditor exceptions
• Understand factors that must be considered in structuring a domestic asset protection trust to minimize income and transfer taxes
• Identify state law issues that must be considered

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of estate, gift and trust taxation including various trusts types, the unified credit, and portability.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.