Michigan Now Allows Domestic Asset Protection Trusts
While we were all working diligently on preparing our taxes for 2016, in March, a new Michigan law went into effect that allows a Michigan-domiciled domestic asset protection trust. If you want to read the Act, it is known as the Michigan Qualified Disposition in Trust Act (MCL 700.1041, et seq., effective March 8, 2017).
What is this and why should you care, you ask? Great questions! Simply put a Domestic Asset Protection Trust (DAPT) is one in which a person, known as a grantor, can put certain items of their property into an irrevocable trust and gets to continue to have a beneficial interest in (i.e., use) that property. If the DAPT is set up and funded correctly, the property in the trust is protected from the creditors of the grantor and won't be used to pay his or her debts.
DAPTs may also be used to keep certain property out of a Grantor's marriage. If the trust is setup more than 30 days prior to the Grantor's marriage or the parties to the marriage agree in a prenuptial (NOT POST-NUPTIAL) agreement that such property will be part of the DAPT, then that property is not treated as part of the marital property.
The keys to correctly setting up a DAPT are that (1) the trust is managed by a trustee who is not the grantor and (2) the assets need to be placed into the trust before the grantor gets into a situation where he or she cannot pay their creditors. If a Grantor tries to set a DAPT up too late, that could (and probable should) be seen as a 'fraudulent transfer' of those assets and, thus, the trust will be ignored and the assets available for payment of the Grantor's debts.
I am here to help you walk through the benefits and detriments of setting up a Michigan DAPT if you are considering a prenuptial agreement or are otherwise concerned about protecting your assets and those of whom you love from creditors.
Note: my blog posts are not to be confused with tax or legal advice. They are informational. If you want tax or legal advice, I can be reached at:
Jim Shafer, Shafer Legal Services, PLLC, 616.558.1098