Seventeen states now permit domestic asset protection trusts, allowing grantors to create self-settled trusts that protect assets from future creditors while retaining some beneficial interest. Not all asset protection trust states offer the same level of protection. Differences in statute of limitations, exception creditors, evidentiary standards, and related trust laws create meaningful distinctions between jurisdictions. Understanding these differences helps in selecting the best state for a particular planning situation.
What Makes a State Favorable for Asset Protection Trusts
Several factors determine how effectively a state’s laws protect trust assets from creditors.
The statute of limitations determines how long creditors have to challenge transfers to the trust. Shorter periods provide protection more quickly. Some states measure this period differently for creditors who existed at the time of transfer versus those whose claims arose afterward.
Exception creditors are categories of claimants who can reach trust assets regardless of the normal protections. Common exceptions include child support, alimony, and pre-existing tort claims. States with fewer exceptions provide stronger protection.
The evidentiary standard affects how difficult it is for creditors to prove fraudulent transfer. A clear and convincing evidence standard is more protective than the preponderance of the evidence standard used in ordinary civil cases.
Related trust features including perpetual trust duration, state income tax treatment, privacy protections, and directed trust statutes affect the overall attractiveness of a jurisdiction for trust planning beyond asset protection alone.
Nevada
Nevada is widely considered one of the strongest asset protection trust states due to its combination of favorable statutory provisions.
Nevada’s statute of limitations is two years for creditors whose claims arise after the transfer. For existing creditors, the limitations period is two years or six months after the creditor receives notice of the transfer, whichever is earlier. This relatively short period means assets become protected more quickly than in states with longer lookback periods.
Nevada stands out for having no exception creditors under its domestic asset protection trust statute. Claims for child support, alimony, and tort judgments do not receive special treatment that would allow them to penetrate the trust. This provides broader protection than most other states.
Nevada requires clear and convincing evidence to establish that a transfer was fraudulent, placing a higher burden on creditors than the preponderance standard.
Nevada has no state income tax, making it attractive for trusts that will accumulate income. The state allows trusts to continue for up to 365 years, supporting multi-generational planning. Nevada’s directed trust statutes permit separation of investment and distribution responsibilities among different fiduciaries.
The trustee requirement for Nevada trusts is that at least one trustee must be a Nevada resident or a trust company licensed in Nevada, and some or all trust administration must occur in Nevada.
South Dakota
South Dakota has developed a strong reputation as a trust-friendly jurisdiction with comprehensive asset protection features.
South Dakota’s statute of limitations is two years for claims arising after transfer. For existing creditors, the period is the later of two years after transfer or six months after the creditor discovers or reasonably should have discovered the transfer. Filing a bill of sale with the appropriate county register of deeds starts the discovery period, potentially shortening the limitations period for known creditors.
South Dakota requires clear and convincing evidence for fraudulent transfer claims, providing enhanced protection compared to preponderance states.
Exception creditors in South Dakota are limited. Child support and alimony claims are exception creditors only if the support order existed at the time of the transfer to the trust. A divorcing spouse can reach trust assets only if the transfer was made during the marriage using marital property and the spouse was not given proper notice.
South Dakota allows perpetual trusts with no rule against perpetuities for personal property trusts, making it attractive for dynasty trust planning. The state has no income tax, no estate or inheritance tax, and strong privacy protections. South Dakota is the only state that provides permanent sealing of trust litigation records, limiting public exposure of trust details even in court proceedings.
South Dakota’s directed trust statutes under SDCL 55-1B allow flexible arrangements where trustees can follow the direction of investment advisors or distribution advisors without incurring liability for doing so.
Wyoming
Wyoming combines strong asset protection provisions with business-friendly laws and privacy protections.
Wyoming’s statute of limitations is two years from the date of transfer. The state provides an accelerated option: if the trustee gives written notice to a known creditor, that creditor must bring a challenge within 120 days of receiving notice. This mechanism can shorten the waiting period significantly for settlors who want to address known potential claimants.
Wyoming requires clear and convincing evidence for fraudulent transfer claims, consistent with other strong asset protection states.
Exception creditors under Wyoming law include child support claims. Unlike some states, Wyoming’s statute does not include alimony or property division claims as exception creditors, though the statute of limitations and fraudulent transfer rules still apply.
Wyoming allows trusts to continue for up to 1,000 years, effectively providing multi-generational planning capability similar to states with perpetual trusts. The state has no income tax, no estate or inheritance tax, and does not impose franchise taxes on entities.
Wyoming’s privacy protections are particularly strong. The state allows private family trust companies, which permit families to create their own trust company to serve as trustee while maintaining control. The grantor can serve as manager of a private family trust company that acts as trustee, providing a level of control not available in most other jurisdictions.
Wyoming also offers strong LLC protection with exclusive charging order remedy even for single-member LLCs, making it attractive for combined planning using both trusts and entities.
Delaware
Delaware was among the first states to adopt domestic asset protection trust legislation after Alaska, and it benefits from a well-developed body of trust law and the expertise of the Delaware Court of Chancery.
Delaware’s statute of limitations is four years from the date of transfer, or one year after the transfer was or reasonably could have been discovered by the creditor, whichever is later. This is longer than Nevada, South Dakota, or Wyoming, meaning assets take longer to become fully protected.
Delaware requires clear and convincing evidence for fraudulent transfer claims.
Exception creditors in Delaware include tort claimants under certain circumstances, as well as child support and alimony claims. The broader exception creditor category makes Delaware somewhat less protective than Nevada or South Dakota for certain types of claims.
Delaware allows perpetual trusts for personal property but limits real estate holdings to approximately 110 years due to the state’s modified rule against perpetuities. Delaware does not impose state income tax on irrevocable trusts with non-resident beneficiaries, providing tax advantages for many trust arrangements.
Delaware’s Court of Chancery has extensive experience with trust matters, and the state has a large professional trustee industry. This depth of expertise can be valuable for complex trust administration.
Delaware provides a three-year seal on trust proceedings, which can be extended by court order, offering some privacy protection though not as comprehensive as South Dakota’s permanent sealing.
Alaska
Alaska was the first state to enact domestic asset protection trust legislation in 1997, pioneering the field.
Alaska’s statute of limitations is four years from the date of transfer for future creditors. For existing creditors, the period is four years or one year after the transfer was or could reasonably have been discovered, whichever is later. This is the same as Delaware and longer than Nevada, South Dakota, or Wyoming.
Alaska does not require clear and convincing evidence for all fraudulent transfer claims, instead following the preponderance standard in some circumstances. This lower evidentiary burden makes it somewhat easier for creditors to succeed in challenging transfers.
Exception creditors in Alaska include child support, alimony, and property division in divorce proceedings. These exceptions are broader than some other states.
Alaska allows perpetual trusts and has no state income tax on trust income. The state requires that the trust have at least one Alaska trustee and that some trust assets be deposited in Alaska.
Alaska’s role as a pioneer in domestic asset protection trusts means it has the longest track record, though other states have since enacted stronger statutes with shorter limitations periods and fewer exception creditors.
Other Asset Protection Trust States
Several other states have enacted domestic asset protection trust legislation with varying levels of protection.
Ohio has emerged as a strong jurisdiction with a statute of limitations of 18 months for future creditors, one of the shortest periods available. Ohio uses the clear and convincing evidence standard.
Tennessee enacted its Investment Services Act allowing DAPTs with a four-year statute of limitations and perpetual trust duration.
Other states with DAPT statutes include Connecticut, Hawaii, Indiana, Michigan, Mississippi, Missouri, New Hampshire, Oklahoma, Rhode Island, Utah, and Virginia. Each has different provisions regarding statute of limitations, exception creditors, and related trust features.
Selecting the Right Jurisdiction
Choosing among asset protection trust states depends on individual circumstances and priorities.
For maximum creditor protection with the shortest waiting period and fewest exceptions, Nevada and Ohio offer the strongest provisions. Nevada’s complete absence of exception creditors is unique among DAPT states.
For privacy combined with strong asset protection, South Dakota’s permanent sealing of trust records and Wyoming’s anonymous entity options provide advantages.
For control and flexibility, Wyoming’s private family trust company option allows settlors to maintain involvement in a way not available elsewhere.
For perpetual trust planning with established case law, Delaware offers extensive precedent and professional infrastructure despite its longer statute of limitations.
Multi-jurisdictional planning can combine features from different states. For example, a Wyoming LLC holding investment assets might be owned by a Nevada or South Dakota trust, combining the charging order protection of Wyoming with the trust protections of another state.
Important Limitations
Regardless of which state is selected, federal bankruptcy law under 11 U.S.C. Section 548(e) provides a ten-year lookback period for transfers to self-settled trusts. This federal provision supersedes state statute of limitations in bankruptcy proceedings, meaning transfers made within ten years of a bankruptcy filing can potentially be avoided by the trustee.
Choice of law issues also arise when the settlor resides in a state without DAPT legislation. Courts in the settlor’s home state might apply their own law rather than the trust situs state’s law, particularly if the trust’s connections to the DAPT state are minimal. Genuine ties to the selected jurisdiction, including a qualified trustee, trust administration, and asset custody in that state, strengthen the argument for applying the favorable state’s law.
Conclusion
Asset protection trust states offer varying levels of protection based on their statute of limitations, exception creditors, evidentiary standards, and related trust features. Nevada, South Dakota, Wyoming, Delaware, and Alaska are commonly considered the leading jurisdictions, each with distinct advantages and limitations.
For guidance on selecting the right jurisdiction for asset protection trust planning, consider consulting Mark Pierce and Matt Meuli at Wyoming Trust Attorney.