With the passage of 2016 PA 330, the Qualified Dispositions in Trust Act, Michigan authorizes domestic asset protection trusts (DAPT). The act allows a person to create a trust, retain an interest in that trust, and keep his or her creditors from getting to the assets in the trust. This is a 180-degree turn from Michigan’s common law.
DAPTs do not protect assets from all creditors. Under the Uniform Fraudulent Transfer Act, a transfer to a DAPT is fraudulent and can be set aside if the disposition was made with actual intent to hinder, delay, or defraud any creditor of the debtor. 2016 PA 331. In addition, the assets in a DAPT are not protected in a divorce action if the assets were transferred to the trust 30 days or less before the marriage.
Among many of the interests and powers that a settlor can retain in a DAPT are
- the power to direct investment decisions,
- the power to veto a distribution from the trust,
- the potential or actual receipt of income,
- a special power of appointment effective on the transferor’s death, and
- the right to remove a trustee or an advisor and to appoint a new trustee or advisor.
While the settlor retains some powers and interests, there is no getting around the fact that the settlor has to be prepared to give up control of these assets. Therefore, candidates for this type of trust are individuals with excess funds who also have high exposure to creditors such as physicians, executives, business owners, celebrities, and real estate developers.
For more information, including how this act may make Michigan a “trust destination,” check out Doug Chalgian’s blog.