The Domestic Asset Protection Trust is becoming more and more popular lately in various jurisdictions. Alaska created the first such law, effective April 2, 1997, with Delaware’s law going into effect on July 9, 1997. Since that time, 13 additional states adopted some form of an asset protection trust scheme. At least one of them, Hawaii, openly states in the very language of the law itself, that it seeks to create favorable laws to attract foreign capital and entice wealthy individuals across the United States and world to deposit a portion of their net worth in Hawaii for asset and trust protection and management. It is designed to increase the assets within Hawaii’s financial sector, increase tax revenues and position itself as a leading jurisdiction in financial management. There is little uniformity across the jurisdictions. Some jurisdictions, such as Delaware, carve out an exception for child support and separate maintenance of a separated or ex-spouse, while others, such as Nevada, has no exception for child support or separate maintenance creditors.  


As with each of the 15 states, the protections afforded under New York law has its limitations. New York has not adopted an asset protection trust law, but had sufficient protections already in place, well before Alaska created its law. Those protections are permitted by discretionary trusts:

  • As early as 1926 New York held that a creditor cannot attach a trust to satisfy a judgment creditor. Hamilton v Drogo, 241 N.Y. 401 (N.Y. 1926).
  • This case was cited as valid and binding law almost 60 years later in 1984, when an appellate Court held that creditors cannot compel a trustee to satisfy a judgment creditor. Vanderbilt Credit Corp v. Chase Manhattan Bank, 473 N.Y.S.2d 242 (2d Dept.1984).

Conversely, for the benefit of the jugdment creditors,

  • The Court noted that this is not the case if the settlor and the beneficiary are the same person, in which case the whole of the corpus of the trust can be attached. Id. At 244
  • New York statutory law also provides that if the trustee and the beneficiary are the same person and the beneficiary may distributions from the trust without any guiding standards, such legal protections fail and the judgment creditor can reach the assets of the trust. NYEPTL 10-7.2.
  • New York statutory law further provides that a settlor who also serves as the trustee is barred from making discretionary distributions to him- or herself unless:
    • the trust document allows for such distribution;
  • it is revocable by the settlor during his or her lifetime; and
  • is for the “health, education, maintenance and support.

NY EPTL 10-10.1.

It is noteworthy that if a discretionary trust of created such the trustee and beneficiary are different people and the beneficiary has no ability whatsoever to control distribution, even the IRS cannot attach the trust, as it is a separate legal entity, which a Court issuing a judgment for the creditor against the debtor will not have jurisdiction.  

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