Domestic asset protection trusts (“DAPTs”) are trusts that you set up (you’re the settlor) but you are a beneficiary of, called “self-settled” trusts.
Although there have been a number of court cases suggesting that self-settled trusts might not work, the facts on all of those cases have been pretty ugly.
If you borrow million using the highly appreciated stock as collateral, you can gift the M to a grantor trust.You will grow the value of those assets outside your estate, you’ll pay the income tax on trust income reducing your estate, and your estate will be reduced by interest charges. What if the securities the trust invests in with the fund borrowed plummet in value?The Practical Planner is a bi-monthly electronic (or if you prefer, paper) sophisticated planning newsletter that provides practical and creative ideas to address estate, tax, business, personal, financial, and asset protection planning.Articles address current developments, new planning ideas, and topics the media may not have addressed.Example: You have a highly appreciated stock portfolio worth M.
You might choose to retain those stocks in your estate so that on death the significant appreciate is eliminated by a basis step up.
Might a disgruntled beneficiary argue that merely administering the trust you have, without addressing the potential for modifying that trust, isn’t sufficient? ■ Aging: Alzheimer's affects 47 percent of those over 85. Addressing the issues of an aging are critical for many.
How will the cost and complexity of trust administration change if you as a trustee cannot assume that the governing instrument can be relied upon as the governing instrument? Taxes, while unquestionably an exciting cocktail party topic, are just not as important for many folks as more complex fuzzy personal topics.
There are also a host of modifications or precautions you can consider: defer your right to receive any distributions for 10 years (the bankruptcy laws permit a trustee in bankruptcy to set aside transfers to self-settled trusts with 10 years); instead of having yourself listed as a beneficiary let a trusted person acting in a non-fiduciary capacity (i.e., not a trustee or trust protector) have the power to appoint descendants of your grandparents.
Thus, you are not a beneficiary when the trust is created, so arguably the trust is not a self-settled trust.
Should years in the future you need access to trust funds the trusted person might add you as a beneficiary. This creates interesting planning opportunities, but it might also create a new risk for trustees.