In 2010, the Florida Legislature first considered a proposed amendment to the Florida Trust Code that would have made Florida among a number of states to authorize Domestic Asset Protection Trusts (“DAPT”). While the Florida Legislature decided not to approve the proposed legislation, analysts predict that DAPTs will be approved in Florida in the coming years. Given that prediction, it is worth having some basic understanding of the purpose of a DAPT.
Assume that Dr. Paull, a high-risk surgeon, with no current malpractice issues, owns significant stock and bonds outside of his pension/ profit sharing/ IRA, which are vulnerable to creditors should he be successfully sued. He does not want to give them away outright to family members, transfer the assets to a trust in which he is not a beneficiary, or go offshore.
Under current Florida law, in most cases, a beneficiary of a Florida trust that contains a “spendthrift clause” cannot have his interest in the trust seized by his creditor. This is only true if the beneficiary is not the grantor of the trust- the person who funded it. A “spendthrift clause” is language to the effect that the beneficiaries’ interest in the trust cannot assigned or alienated.
A DAPT is sometimes referred to as a self-settled spendthrift trust. It allows a person to set up a trust for the benefit of himself and typically family members- a preselected class of beneficiaries. The most prominent feature of a DAPT is that it provides that the designated trustee the power to choose when to distribute trust funds and to whom to distribute among the class of beneficiaries. Since Dr. Paull cannot force the trustee to distribute the assets to him, neither can the creditors of Dr. Paull force the trustee to distribute the assets to them.