DAPT Asset Protestion. What is it?

Question

I regulary read a blog concerning financial planning and recently they were talking about RE asset protection via a DAPT.

http://bawldguy.com/last-minute-asset-protection-for-the-procrastinator/

Does anyone have any experience or opinions on this.  I'm having difficulty understanding this type of protection so any insight would be greatly appreciated.

Jeff N. · Answer

Thanks Vikram.  I guess it all falls back to the golden rule of maximizing your umbrella liability policy as your primary safety net.

Jason T. · Answer

Jeff -

Your first safety net should be placing your properties into LLCs and/or trusts.  I'm not an attorney so I can't give legal advice but every RE attorney I've met says to, at a minimum, place your properties into an LLC.

Your second safety net should be adequate property insurance with liability.  This is called the primary insurance and will be the first to pay if an occurrence happens.  I would suggest $1M liability per property.  Liability insurance is cheap enough it's not worth skimping on.  Most policies and most agents will suggest $300k liability coverage but that goes away real fast when a jury is involved.

You umbrella liability policy (personal or commercial) should be your third safety net.  Umbrella policies are excess coverage which means they don't kick in until your primary (property) insurance is exhausted.  Occasionally a claim can go over even $1M liability so this is when it's good to have the umbrella.

I hope this helps!

Vikram C. · Answer

Asset protection trusts are a complex topic and require expert legal advice.  In general, these trusts do not work as intended.  There is plenty of case law showing the failure of foreign asset protection trusts.  Domestic asset protection trusts are yet to be fully tested in court but are likely to suffer from the same weaknesses as foreign trusts.  They could, in fact, be much worse due to the Full Faith and Credit clause of the Constitution.

These trusts, however, may be suitable for people who live in states that allow such trusts and have all their assets in that state.  (Particularly if the creditor is also from that state and the suit is in state court and no bankruptcy is involved.)

Most lawyers are not very well-versed in asset protection strategies and you should select your lawyer carefully if you wish to do asset-protection planning.