On December 5, 2016, Governor Snyder signed the Qualified Dispositions in Trusts Act. Robert Tiplady of Dykema’s Ann Arbor office was the primary draftsperson of the Act, which becomes effective February 5, 2017. Michigan joins 16 other states that permit domestic asset protection trusts (DAPTs), which are irrevocable trusts that, if certain legal requirements are met, can shield assets from the claims of a person’s creditors. Individuals who are concerned about possible creditor exposure, such as business owners, executives and physicians, should consider using a DAPT.

Previously, to use a DAPT a person had to transfer assets to an out-of-state trustee in a jurisdiction such as Delaware, Alaska or Nevada. Now, assets will be able to be transferred to a person residing in Michigan, such as a family member or a Michigan corporate or professional trustee. The transferor cannot be the trustee, but can be a beneficiary of the trust. Among the rights that the transferor may retain are the rights to:

  • Direct trust investment decisions;
  • Remove and replace trustees;
  • Veto distributions from the trust;
  • Receive discretionary distributions of income and/or principal;
  • Receive the income from the trust;
  • Direct how the assets are to be distributed on the transferor’s death provided that the assets may not be transferred to the transferor, the transferor’s creditors, the transferor’s estate, or the creditors of the transferor’s estate;
  • Receive the annuity or unitrust payments from a charitable remainder trust;
  • Receive the annuity or unitrust payments from a grantor retained annuity trust; and
  • Receive an annuity from the trust of not more than 5 percent of the trust’s initial value.

If properly established and funded, the Act provides that the transferor’s creditors may not reach assets transferred to the trust upon expiration of a two-year period beginning with the date the assets are transferred to the trust except in certain instances of fraudulent concealment. For bankruptcy, a longer statute of limitation may apply.

To take advantage of this opportunity, a DAPT should be created and assets transferred before a claim arises.