This Transcript was auto-populated.
00:00:00 so recently I’ve released a series of videos that discuss the best trust jurisdictions in the United States for 2024 we even drilled down on a few topics that make up the reasons why that these trusts are considered the best in the US one of the things that we looked at was the best domestic asset protection trust jurisdiction in the US but today we’re going to talk about which type of domestic asset protection trust is actually the best so let’s get into it so universally when you’re talking about a domestic asset protection trust
00:00:41 it means that you’re talking about a self-settled irrevocable trust that means that the person setting up the trust is setting it up for the benefit of themsel so you just got one party same party involved in that situation there is this perceived legal risk with this trust not necessarily it’s legitimacy it is a legitimate trust not all states have laws that offer this type of trust planning that’s why you see residents in other states setting them up in places like South Dakota and Nevada the perceived risk is that
00:01:13 there’s this constitutional law question that has not been settled and that is whether or not let’s say that you have a person in California who sets up a trust in South Dakota a self-settled domestic asset protection Trust in South Dakota they move assets into it later there’s a personal creditor claim against that person they don’t really have any assets to settle that personal credit creditor claim and the Creditor finds out that they’re a beneficiary of this trust in South Dakota that creditor then tries to
00:01:46 bring a claim against that trust in South Dakota which the person who set it up is the beneficiary of now there’s this thing called the Full Faith and Credit Clause within the United States Constitution that says that states are going to give or should give um full faith and credit they should honor any judgments or laws from other states So in theory a creditor from California could enforce a claim against someone in South Dakota however South deota law says that it will not honor a judgment against uh from a
00:02:21 foreign court whether it’s a domestic foreign court or a foreign Court abroad will not honor that foreign Court’s judgment um against the beneficiary a personal creditor claim against the beneficiary of a trust now the issue is well why not and because of this full faith in credit clause that we have a lot of people think it should be honored but we’ve actually never seen it honored we have no court court cases that say that it’s actually been enforced but there’s still this concern that it could go up to the US Supreme
00:02:55 Court and be decided there we don’t know how it would be decided because it’s never been brought before the US Supreme Court so some attorneys some practitioners will say hey we don’t know how this will be be resolved so we’re not really comfortable with it so ultimately that’s a decision that a client has to make but we do know over decades multiple decades it’s never been brought before the US Supreme Court therefore it has a good track record of being a solid way to deter personal creditors against
00:03:27 you but with his perceived risk out there the question arises is there a better solution to this and the answer is yes there’s what’s called a hybrid domestic asset protection trust so a hybrid domestic asset protection trust is actually a third- party settled irrevocable trust that means that one person is setting it up for the benefit of someone else so third party different parties are setting it up for the one part is setting up for the interest the benefit of someone else so that’s been resolved and that’s why this is a better
00:03:57 vehicle there isn’t this issue of whether or not you can force a a claim um from a foreign Court into um into the other court so what is this domestic asset protection this hybrid domestic asset protection trust so it’s third party so let’s just say uh client sets it up for benefit of their spouse and their children so they move assets their own assets into that trust the idea is that if they ever need to benefit from those assets then the spouse or the children could share those assets back with the
00:04:32 person who set it up the client there is this concern though what happens if that spouse passes away or what happens if there’s a divorce or what happens if those children die and so there is a solution to that but I’ve only seen this played out in South Dakota and Nevada I’ve done this type of planning in South Dakota before so because of the really flexible trust laws that exist in South Dakota and Nevada you could actually name what’s called a trust protector um of of the trust and that trust
00:05:02 protector is there for purposes of providing flexibility so they can they can assign assets they can create sub trust they can um they can change provisions of an irrevocable trust so there’s a lot of flexibility that’s built in so you name a person as a trust protector of this hybrid domestic asset protection trust and if that person who set up that trust ever needs to become the beneficiary of the trust we can actually work that out so we originally set it up as a thirdparty settled trust but we have the flexibility to actually
00:05:37 then later change the third party settled trust to a first party settled trust so the trust protector can create a sub trust from that thirdparty settled trust and then assign assets the assets that the client moved into the trust assign those assets to that sub trust they can move as many or as few of those assets to that sub trust for the benefit of the client the person who set up the trust as they want so it could continue to be a do a hybrid domestic asset protection trust a third party trust and
00:06:11 benefited spouse or kids and then you could carve out a little bit that that client might need or you could take all the assets and move it to that sub trust and because this is because of the third party because of how the third party um settled asset or third party irrevocable trust has been settled there’s less concern about the legitimacy of that so it there’s this backdoor exit that’s involved with the thirdparty hybrid dapt domestic asset protection trust that a lot of people really like so there could
00:06:46 be some estate tax planning that goes into that as well but just know that you know if you are fearful of the Constitutional risk involved with a self-settled domestic asset protection trust you do have other options so explore those as well in fact they probably it I shouldn’t say probably because we don’t know but if you do like another option it is a very viable and legitimate option that should be explored and you figure out which one makes the most sense for you [Music]