An estate planning tool called domestic asset protection trusts (DAPTs) may make it possible to minimize income and estate taxes. The DAPT is a self-settled irrevocable trust, which means that a person can both create it and be a beneficiary. However, the trustee must reside in a state such as North Carolina that allows one to be created. While the trustee is generally a financial institution, it generally doesn’t manage the trust’s investments.
Instead, whoever is responsible for doing so before the trust was created will continue in that role. One of the key benefits of a DAPT is that an individual can both protect assets and have access to them at the same time. For instance, a professional who is worried about losing personal assets to pay off a malpractice or liability judgment can put the assets in a DAPT.
Using this type of trust may also be a way to keep assets out of an estate, which can help to reduce a potential estate tax bill. This can be preferable to gifting money outright and losing the ability to access it later. Currently, the estate tax exemption is $11.3 million per person, but it is scheduled to be rolled back to roughly $5 million by 2026. Therefore, it is still important to take taxes into consideration when creating an estate plan.
The use of a revocable trust in an estate plan can provide many benefits to an individual or future beneficiaries. Assets generally remain out of reach of creditors until they become available for beneficiaries to use. Depending on how the trust is structured, it can generate income that can be accessed by beneficiaries. Those who are interested in using this type of estate planning tool may want to speak with an attorney.
