At the time of this writing, there are twenty states that have enacted Domestic Asset Protection Trust (“DAPT”) statutes.
However, not all of these states have superior laws. This article describes just one of many differences among the various states’ DAPT statutes. Specifically, it explains the Affidavit of Solvency differences among these states.
What is an Affidavit of Solvency?
An Affidavit of Solvency is a sworn statement that indicates that the transfer of assets an individual is about to make will not render that individual or entity bankrupt or insolvent.
Attorneys generally have their clients sign such an Affidavit when funding an asset protection trust such as a DAPT.
Should DAPT States Require Affidavits of Solvency for every Transfer?
Should DAPT states require Affidavits of Solvency for every transfer? The answer is absolutely not!!!
The policy behind requiring an Affidavit for each and every transfer to a DAPT is that the transferor should understand that he/she cannot make a transfer that would leave him/her unable to pay his/her debts as they come due. However, this requirement misses the point about making the state statute user-friendly which is a variable that should always be considered by those who are drafting legislation.
Consider the typical client who claims to be listening to the attorney’s directions and guarantees that he/she will follow them. Time passes and, as we all know, not every client follows these directions. The client keeps funding the DAPT but yet forgetting to sign an Affidavit of Solvency each time the trust is funded with an additional asset.
The result here is that the assets transferred without an Affidavit of Solvency are not protected from creditors! All because the legislative draftsman failed to understand the disaster that this requirement will cause!
Which DAPT States got this Right and which got this Wrong?
The DAPT jurisdictions that got this right and do not require an Affidavit of Solvency for each and every transfer are as follows: Connecticut, Delaware, Hawaii, Missouri, Nevada, New Hampshire, Oklahoma, Rhode Island, South Dakota and Virginia. Tennessee mostly got this right. It requires and initial Affidavit of Solvency (which presumably wouldn’t be forgotten by the drafting attorney). The DAPT jurisdictions that botched this and do require an Affidavit of Solvency for each and every transfer are as follows: Alabama, Alaska, Indiana, Michigan, Mississippi, Ohio, Utah, West Virginia and Wyoming. Michigan and Ohio have potential statutory relief if an Affidavit is missed, so at least there’s a potential remedy in those two states.
When drafting legislation, always consider the usability of the legislation. Those DAPT jurisdictions that require a new Affidavit of Solvency for each and every transfer simply missed the boat and may cause a transferor to lose assets to a creditor which easily could have been avoided by using another state’s DAPT laws.
If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:
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- Steve’s FREE State Rankings Charts
ABOUT THE AUTHOR
Steven J. Oshins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He has been named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020 and 2022. He can be reached at 702-341-6000, ext. 2, at email@example.com or at his firm’s website, www.oshins.com.