Illinois Domestic Asset Protection Trusts

Domestic asset protection trusts (DAPTs) are powerful tools for shielding your assets from potential creditors. Understanding how DAPTs work can help you create a formidable, secure estate plan. However, they can be misused as well. This article aims to provide a brief overview of domestic asset protection trust basics and how to set one up properly.

What is a Domestic Asset Protection Trust?

A domestic asset protection trust is an irrevocable trust that can shield your assets from creditors when used properly.

It’s a special type of trust that offers unique benefits. The most important benefit over other types of trusts is that you can name yourself as a beneficiary to a DAPT.

However, not every state offers DAPTs, so it might require some very careful planning to execute one properly.

Let’s go over the ins and outs of a domestic asset protection trust now:

Why use a DAPT?

DAPTs prevent creditors from reaching your assets. They are a strong form of asset protection.

Generally, once assets are transferred into a DAPT, those assets are shielded from future creditors, lawsuits, and even a divorced spouse.

And, unlike many other irrevocable trusts, a person can set up a domestic asset protection trust for his or her own benefit. That is, you can be a beneficiary to your trust. You can also choose other people (like your family members) as beneficiaries to the trust.

This means that, unlike third-party trusts, you still can access the assets in a domestic asset protection trust.

Furthermore, DAPTs offer some great tax benefits, particularly for high net worth users. The Tax Cuts and Jobs Act increased the estate tax exemption up to $11 million, though that exemption is designed to drop back down to the $5 million threshold in 2026 (adjusted for inflation). That said, speak with a tax professional about your specific situation.

How to Use a Domestic Asset Protection Trust?

Let’s go through an example to illustrate how to use a DAPT.

Let’s say you are a professional worried about lawsuits stemming from your career (such as an attorney or surgeon with a risk of malpractice claims). You have a significant amount of assets now and would like to protect them.

Assuming you live in a state that allows DAPT formation, you set one up with an estate planning attorney. You name yourself as one of the beneficiaries so that you can access the funds again for your retirement.

With your DAPT ready to go, you add a significant portion of your assets into the trust.

From a legal perspective, any transfers into a domestic asset protection trust are permanent. This means that creditors and other claimants will be unable to reach the assets that were placed into a DAPT since they are no longer yours; instead, the DAPT itself owns the assets.

As long as the DAPT was set up properly and a court honors it, your assets are safe and you can still use them for your own benefit in the future.

If you do not live in a state that allows DAPTs, there are some potential work arounds that can allow you to enjoy the benefits of this powerful tool. We’ll go over that in the next section.

What States Allow Domestic Asset Protection Trusts?

Not every state allows for DAPTs. Currently, those states that allow DAPTs include Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.

Some states have hesitated to respect DAPTs setup in other states. The law is relatively unclear about this as of now, but there is a risk that a DAPT created in another state won’t be honored if you are in a state that does not allow them.

That said, just because you do not live in one of the states listed above does not necessarily mean that you cannot use a DAPT. There are some work arounds that you can use to maximize your asset protection, even if DAPTs might not be an option in your home state.

Using an LLC within a Domestic Asset Protection Trust

One potentially simple work around is to use an LLC within a domestic asset protection trust.

This is where you setup an LLC in a state where DAPTs are allowed, give assets you want protected to the LLC, and then give the DAPT ownership over the LLC. The DAPT’s trustor essentially becomes the LLC owner.

In this way, you maintain control over the assets while “moving” the DAPT trustor’s home state. That is, the LLC’s home state replaces your own.

Of course, some legal limitations apply to LLCs as well. A court might not honor an LLC if it is not used properly, potentially eliminating this strategy’s viability. It is worth speaking with an attorney before moving forward with this strategy.

Does Illinois allow domestic asset protection trusts?

No. Illinois does not allow domestic asset protection trusts. However, this does not mean that a person cannot set one up in a different state, even if Illinois might be his or her home state.

The LLC strategy outlined above could be an effective method for Illinois residents. This goes for anyone who might be unable to setup a DAPT in his or her personal home state.

However, every person’s situation is different. It’s worth speaking with an experienced estate planning attorney to figure out your best options.

Conclusion – DAPTs Are a Powerful Estate Planning Tool

DAPTs are a special class of trusts that allow a person to designate him or herself as a beneficiary while simultaneously shielding assets from creditors. This allows for maximum control combined with significant protection.

However, they are not available in every state. Some states have been hesitant to honor DAPTs created in other states. Thankfully, there are potential work arounds to this problem, such as creating an LLC with the DAPT as the majority member.

In any event, domestic asset protection trusts must be used responsibly. If they are not, a court can easily ignore their offered protections and leave a beneficiary vulnerable to losing the assets.

Contact an Experienced DAPT Attorney

Properly setting up a domestic asset protection trust can be complicated. Using it while preserving its benefits can be tricky as well. To make sure that your assets are protected, contact the experienced attorneys at Johnston Tomei Lenczycki & Goldberg LLC. We can help to design a strategy that works best for you. Call us today at (847) 549-0600 or email us at to schedule a free consultation.



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Johnston Tomei Lenczycki & Goldberg LLC

Phone Number: (847) 549-0600
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