How Does a Michigan Domestic Asset Protection Trust Protect Generational Wealth?

By: Nick Leydorf
estate planning and elder law attorney
Meet Nick Leydorf
My practice is dedicated to helping families get their affairs in order so that they can stay out of court and out of conflict. I’ve experienced first-hand how a lack of planning can have a terrible impact on a family. One morning, my wife received a phone call that her mother had been found unconscious in her bathroom and had been rushed to a local hospital. We panicked and drove to Grand Rapids as fast as we could to be with her. For two weeks, she never regained consciousness and she passed away. My wife and I were devastated.
A Michigan Domestic Asset Protection Trust (DAPT) may be a good option for professionals or business owners who want to preserve generational wealth and have the potential for third-party creditors’ claims.

For many professionals and business owners in Lansing, the concept of wealth preservation isn't just about ensuring their immediate financial future. It's about passing down a legacy to future generations. If you're someone with a considerable amount of wealth or potential liability – think physicians, real-estate developers, executives, or even celebrities – you might want to take steps now to protect your wealth against unforeseen third-party creditors' claims of you or your family.

As your trusted Lansing trust attorney, I'm here to help provide a guide for how a Michigan Domestic Asset Protection Trust (DAPT) can protect your generational wealth.

What is a Domestic Asset Protection Trust?
According to the American Academy of Estate Planning Attorneys, Michigan is one of 17 states that allow for DAPTs. In Michigan, DAPTs are a relatively new tool for wealth transfer. A DAPT is a self-settled, funded irrevocable trust crafted by an individual, known as the "settlor." What sets DAPTs apart is the heightened protection from third-party creditor claims. Plus, Michigan's DAPT statute allows you, the settlor, to retain specific powers and interests in the trust, including the right to receive distributions, all while safeguarding your assets.

Why Should Professionals or Business Owners Consider a DAPT?
Lansing professionals with a high risk of liability stand to gain much from a DAPT, primarily because:

  • Professional Protection: A DAPT safeguards assets against the unique risks tied to high-liability professions.
  • Guarding Wealth: Even if a significant portion of a high net worth family's wealth is already secure in trusts set by family members, DAPTs offer an additional layer of protection for the wealth creator and assets inherited outside these trusts.
  • Credit Shield: A DAPT serves as a protective shield against potential creditor claims during the settlor's lifetime and beyond. It limits creditors' access to trust assets while offering added advantages like shortened statutes of limitation and higher burdens of proof.
  • Prenuptial Power: If you're considering marriage, and it's been over 30 days since you've funded your DAPT, it can act as a supplementary layer to a prenuptial agreement or even replace one.

Michigan's DAPT Requirements – A Primer
However, as any diligent trust attorney will tell you, while DAPTs offer powerful protection, they come with strict Michigan-specific requirements. Each state has their own separate regulations for these types of trusts.

  1. The trust agreement must unequivocally be governed by Michigan law.
  2. The designated trustee cannot be the settlor and must either be a Michigan resident or an entity permitted to act as a trustee in Michigan.
  3. Neither the settlor nor anyone related to them can retain control over the trust beyond what the statute permits.
  4. Settlors shouldn't lag behind on child support obligations by over 30 days.

Is a DAPT Right for You?
Although DAPTs offer numerous benefits, they aren't a one-size-fits-all solution. Their appropriateness depends on individual assets, potential exposure to future creditors, and your comfort level with any related restrictions.

If you're considering ways to preserve your generational wealth, schedule a call with Lansing Trust Attorney Nick Leydorf who will ensure that your legacy remains secure for generations to come. Read more about protecting your wealth in our article, Protecting Inheritances in a Blended Family.

American Academy of Estate Planning Attorneys (January 2019) "Domestic Asset Protection Trusts"
Michigan Bar Journal (November 2018) "Michigan Asset Protection Trusts"

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