Domestic Asset Protection Trusts (“DAPT”) In Michigan

People with high net worth and who bear a greater risk of being subject to creditor claims might consider placing some or all of their assets in a Domestic Asset Protection Trust (“DAPT”) to protect assets from creditor attack.

Michigan’s Qualified Disposition in Trust Act, codifying DAPTs, went into effect in 2017.

To qualify as a DAPT, the Act requires: (i) the trust must be irrevocable; (ii) the trustee of the trust must be a corporate trustee or an individual, other than the Settlor (creator of the trust), that resides in Michigan; (iii) the Settlor must execute an affidavit stating that: (a) the transfer won’t create insolvency, (b) the transfer is not made intending to defraud a creditor and the Settlor is not aware of any pending or threatened litigation; and (iv) the Settlor’s rights are limited as set forth in the Act. The biggest limitation is a Settlor cannot demand that the trustee make a distribution to him/her, and the Settlor must give up significant control over the assets.

A creditor’s only remedy with respect to assets transferred into a DAPT is to sue to avoid asset transfer as a fraudulent transfer under the Uniform Voidable Transactions Act. The creditor must show either actual fraud or constructive fraud.

DAPTs may seem attractive, but they are not for everyone, primarily because they must be irrevocable. Although the Settlor is allowed to retain certain rights with regard to the assets, once the assets are transferred the transfer and the limited degree of continuing control is set in stone. A Settlor retains the following rights, powers and interest: (i) the power to direct investments; (ii) the power to veto distributions; (iii) the power to remove and appoint trustees and advisors; (iv) the right to receive income; (v) the right to receive principal under a discretionary trust provision or support provision, or under the direction of an advisor with respect to either; (vi) the right to receive income or principal to pay income taxes on trust income; and (viii) after the settlor’s death, the trustee has the power to pay the settlor’s debts, the expenses of administering the estate, or any estate or inheritance tax imposed on or with respect to the estate. The Trustee of the DAPT cannot be the Settlor or one over whom it is presumed he or she would have control.

DAPT Qualifying Requirements:

1. the trust must be irrevocable;
2. the trustee of the trust must be a corporate trustee or an individual, other than the Settlor (creator of the trust), that resides in Michigan;
3. the Settlor must execute an affidavit stating that:
   • (a) the transfer won’t create insolvency, and
   • (b) the transfer is not made intending to defraud a creditor and the Settlor is not aware of any pending or threatened litigation; and
4. the Settlor’s rights are limited as set forth in the Act.

Settlor's Retained Rights, Powers and Interests:

1. the power to direct investments;
2. the power to veto distributions;
3. the power to remove and appoint trustees and advisors;
4. the right to receive income;
5. the right to receive principal under a discretionary trust provision or support provision, or under the direction of an advisor with respect to either;
6. the right to receive income or principal to pay income taxes on trust income; and
7. after the settlor’s death, the trustee has the power to pay the settlor’s debts, the expenses of administering the estate, or any estate or inheritance tax imposed on or with respect to the estate.
8. the Settlor’s rights are limited as set forth in the Act.

For more information concerning DAPT's, contact the attorneys at

Bowen, Radabaugh & Milton, P.C. by phone at 248.641.8000, or by email at [email protected]