Michigan Expands Options for Personal Asset Protection

Business owners now have a new way to protect their personal assets. With Governor Snyder’s signing of the Qualified Dispositions in Trust Act (QDTA) on December 5, 2016, Michigan joins 16 other states that permit domestic asset protection trusts (DAPTs). DAPTs are irrevocable trusts which, when drafted and funded correctly, can shield assets in trust from a person’s creditors.

The passage of the QDTA represents a significant change in Michigan law. Prior to the QDTA, Michigan did not allow someone to create and fund an irrevocable trust, make themselves the beneficiary of the trust, and retain control over aspects of the trust, while at the same time preventing their creditors from reaching those assets. Previously, a person seeking that type of asset protection would need to transfer assets to an out-of-state trustee in a jurisdiction that allowed DAPTs, like Delaware or Nevada, in order or to take advantage of the DAPTs protection.  Some of the rights that the individual creating the trust may retain over trust management and administration are:

  •        The power to direct the investment decisions of the trust
  •        The power to veto a distribution from the trust
  •        The right to receive discretionary distributions of trust income and/or principal
  •        The power to remove and replace trustees

The Act sets forth some requirements that must be met before a self-settled trust will qualify as a DAPT. However, if the trust is drafted properly, assets held in trust are entitled to significant creditor protection – the QDTA provides that creditors of the settlor may not reach assets transferred to the trust upon expiration of a two-year period beginning when the assets were originally transferred to the trust, provided there is no evidence of fraudulent concealment.

Accordingly, to take advantage of the creditor protection available through a DAPT, the trust should be created and assets transferred before a creditor’s claim arises.

With the passage of this new law, Michigan business owners, executives, physicians, real estate developers, and other individuals concerned about potential creditor exposure now have a powerful new tool for reducing personal liability. A properly-drafted DAPT now allows individuals in Michigan to shield personal assets from creditors, while still retaining significant control over those assets.  This combination of creditor protection and asset control makes DAPTs an important component in many estate and asset protection plans.

For questions regarding DAPTs, please contact Jennifer Gross (jennifer@crlaw.biz) or Catherine Riesterer (cathy@crlaw.biz) at (810) 227-3103 or info@crlaw.biz.

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