By Steven J. Oshins, Esq., AEP (Distinguished)

I have assembled state rankings charts for many years showing which states are best for various types of trusts.

With so many different charts and so many different variables, one variable stands out as being disregarded, or maybe even completely missed, by estate planners — the requirement in many of the states’ Domestic Asset Protection Trust (“DAPT”) statutes for the transferor to execute a new Affidavit of Solvency for each and every transfer to the DAPT.

At first blush, one would think that this is merely a public policy requirement. We certainly don’t want people making fraudulent transfers. I hope that we all agree with this public policy, not to mention the law says that you can’t make a fraudulent conveyance (or voidable transfer, depending upon the state law).

But the problem runs much deeper than this…

It’s the Clients, not the Advisors!

The problem has almost nothing to do with the advisors!

The clients are the problem. My clients are primarily highly intelligent, yet all too often they don’t follow the instructions given to them. I hate to say this, but it’s a fact.

What would happen if I were to set up DAPTs for my clients using the laws of a jurisdiction that requires a new Affidavit of Solvency for each and every transfer to the trust? Certainly, the initial transfer would be covered because I would make sure the client executes an Affidavit of Solvency before making the transfers of which I am assisting.

But what happens when the client adds some cash into the trust a month later without my assistance? And then a month after that? And then a month after that? And again, and again, and again, and again.

I use Nevada Law

I use Nevada law for my DAPTs, so I never have to deal with this problem for my clients since Nevada law doesn’t have this problem.

But if I did use a state law that has this requirement, I would have the client sign a disclosure confirming that the client understands the requirement to execute a new Affidavit of Solvency for each and every new transfer, or at least have the client confirm it by email.

This doesn’t solve the problem, but at least it reinforces in the client’s mind the importance of following the rules.

If the rules aren’t followed here, then the assets transferred to the asset protection trust aren’t protected.

Summary

There are plenty of states that have a DAPT statute. There is no good reason to use a state that is inferior to others when there are so many alternatives.

If the chosen jurisdiction otherwise has solid laws, then okay, fine, use that state for your DAPTs. But if you do, make sure your client understands the severe adverse ramifications of failing to follow the rules.

RELATED EDUCATION

If you found this article interesting, you might also be interested in these other educational programs and products about this topic.

• The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique
• The Spousal Lifetime Access Trust: Avoiding the Reciprocal Trust Doctrine

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 was 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, 2022 and 2024. He can be reached at 702-341-6000, ext. 2 or soshins@oshins.com. His law firm’s website is www.oshins.com