Delaware enacted its Qualified Dispositions in Trust Act in July 1997, becoming the second state after Alaska to authorize self-settled asset protection trusts. The statute has been influential in shaping DAPT legislation across the country, and Delaware’s reputation in trust law is well established. The Court of Chancery and the state’s long history of business-friendly legislation give many practitioners confidence in Delaware as a jurisdiction.
However, DAPT legislation has evolved significantly since 1997. Other states have enacted more competitive provisions, and Delaware has not always kept pace. Understanding what the Delaware asset protection trust statute provides and how it compares to alternatives like Wyoming is essential for anyone evaluating where to establish a trust.
Key Provisions of Delaware’s Qualified Dispositions in Trust Act
Delaware’s statute allows the creation of irrevocable trusts where the grantor can be named as a discretionary beneficiary while still receiving creditor protection. This was a significant departure from traditional trust law, which held that self-settled trusts offered no protection from the grantor’s creditors.
To qualify, the trust must have at least one qualified trustee. A qualified trustee is either an individual who resides in Delaware (other than the grantor) or a trust company authorized under Delaware law and subject to supervision by the state banking commissioner. The qualified trustee must maintain custody of some trust property in Delaware, maintain records, or prepare tax returns.
The grantor can retain certain powers without jeopardizing protection, including the power to veto distributions, a lifetime or testamentary power of appointment (excluding the grantor, the grantor’s estate, and creditors), the ability to be reimbursed for income taxes, and the power to replace trustees.
The trust must contain a spendthrift clause, and Delaware provides a four-year statute of limitations for creditor claims. For pre-existing creditors, the period is four years from transfer or one year after discovery, whichever is later. Claims must be brought in the Delaware Court of Chancery.
Exception Creditors Under Delaware Law
Delaware carves out several categories of exception creditors who may pursue trust assets despite statutory protections.
A spouse to whom the grantor was married at or before the time of transfer is an exception creditor. However, a 2023 amendment allows spouses to waive this protection with proper disclosure and written consent.
Pre-existing tort creditors also fall within the exception, as do child support and alimony obligations. Creditors who relied on express written statements that transferred property remained available to satisfy debts can also pursue trust assets.
How Delaware Compares to Other DAPT States
Delaware’s four-year statute of limitations is longer than several competing jurisdictions. Nevada and South Dakota both have two-year periods, and Ohio has the shortest at 18 months. A shorter period means protection vests more quickly.
On exception creditors, Delaware is less protective than Nevada, which has no exception creditors at all. Once Nevada’s two-year period passes, no creditor category retains special access. Delaware’s exceptions for divorcing spouses and tort creditors create vulnerabilities Nevada does not have.
Delaware does not tax trust income for non-resident beneficiaries, which can provide tax advantages. Wyoming and Nevada also have no state income tax, so this benefit is not unique to Delaware.
Trustee Requirements: Delaware vs. Wyoming
One of the most significant practical differences between Delaware and Wyoming involves trustee requirements and grantor control.
Delaware requires a qualified trustee that is either a Delaware resident individual (other than the grantor) or a Delaware-regulated trust company. In practice, this typically means using an institutional trustee such as a bank or professional trust company. While the statute does not technically prohibit all private arrangements, the regulatory requirements make institutional trustees the norm.
Wyoming allows private family trust companies, which are LLCs that serve as trustee for family trusts without the same regulatory oversight as public trust companies. You can serve as manager of your private family trust company and make day-to-day decisions about investments and business operations. Distributions remain discretionary through an independent committee, preserving asset protection benefits.
For business owners who need quick decisions, Delaware’s structure can be limiting. Banks are methodical, require extensive documentation, move slowly, and have no knowledge of your particular business. Wyoming’s private family trust company structure allows operational control while still achieving asset protection.
Why Some Choose Delaware, and Why Others Look Elsewhere
Delaware’s Court of Chancery has upheld DAPT protections in cases where creditors claimed fraudulent transfer, providing comfort about judicial interpretation. The state’s history in corporate and trust law means practitioners and judges are familiar with sophisticated structures.
However, the four-year statute of limitations, exception creditors, and practical requirement of institutional trustees make Delaware less attractive than it once was. States that enacted DAPT legislation more recently have improved upon Delaware’s model.
Business owners who need operational control often find Wyoming’s private family trust company structure more practical. Those prioritizing the shortest limitations period may prefer Nevada or Ohio. Those concerned about exception creditors may favor Nevada.
Choosing the Right Jurisdiction
Delaware remains a viable option with strong legal infrastructure. The Court of Chancery is sophisticated, and Delaware’s trust law is well developed. For grantors with passive investment portfolios and no need for operational control, Delaware may serve well.
However, the DAPT landscape has evolved since 1997. Other states offer shorter limitations periods, fewer exception creditors, and more flexible trustee arrangements. The right choice depends on your specific priorities.
This is a complex area with significant nuance. For guidance tailored to your situation, consider consulting experienced counsel like Mark Pierce and Matt Meuli at Wyoming Asset Protection Attorney to evaluate which jurisdiction best fits your needs.