Domestic Asset Protection Trusts: Impact of Huber CaseLegal Compliance Resource
April 18, 2014 — 1,572 views
Domestic Asset Protection trusts are set up in various states of the United States to protect certain assets of the person. This means that in any legal situation where assets have to be split or transferred, domestic asset protection trusts will ensure that a part of the overall assets of the person belong solely to him or her. In the United States, a domestic asset protection trust or DAPT can be set up only in a few states such as Alaska, Nevada, Delaware and South Dakota. Asset protection trusts allow granters to move away some of their possessions or keep assets away from their taxable assets and estate.
Background on the In re Huber, 493 BR 798 case
A domestic asset protection trust (DAPT) is seen as a way for companies to ensure that they do not lose all their assets in case of a bankruptcy. In the recent economic turmoil, the housing and real estate markets took the biggest hits. This is why many real estate companies, often set up DAPTs in states that allowed them to protect their assets in case the crash in the real estate market led to them having to file bankruptcy.
One such company was United Western Development or UWD. This company was started by Donald G. Huber in 1968 and he was very successful in the real estate investments industry till the year 2008 when the economic crisis took a turn for the worst. The real estate markets were sinking rapidly and the company was losing money fast, unable to pay back many lenders and this made Donald very anxious.
To make a long story short, Donald along with his son Kevin, who was involved very heavily in UWD by that time, decided to create a DAPT in Alaska to protect their assets. However, as Donald and his family benefited from the DAPT and enjoyed a luxurious life, lenders did not get most of their money back. In the ruling of In re Huber, 493 BR 798 the court decided that the DAPT set up in Alaska was invalid and could be liquidated in the bankruptcy issue.
Benefits of DAPT
There is no doubt about the fact that DAPTs can help estate planners, financial advisers and attorney firms protect their assets. Bankruptcy is a very traumatic process not only for the company, but also the owners of the firm who often have to use their personal assets to payback lenders. A DAPT can be used to protect some essential assets.
However, to avoid the issues that Donald Huber faced you need to make sure that the grantor and the manager of the DAPT is a resident of the state where the trust is created. Also, DAPTs must be created as early as possible so that fraudulent intent can be ruled out by the courts. Always appoint trustees who are in the DAPT states and minimize the use of co-trustees who reside outside DAPT states.