Michigan enacted the Qualified Dispositions in Trust Act in 2016, becoming the seventeenth state to permit domestic asset protection trusts. The law took effect on March 8, 2017, and was strengthened in 2022 when Public Act 145 aligned the Uniform Voidable Transactions Act with the DAPT statute. Michigan’s version includes some distinctive features, particularly regarding divorce protection, that set it apart from other DAPT jurisdictions.
Understanding how a domestic asset protection trust functions in Michigan helps determine whether a Michigan DAPT or another jurisdiction might better serve your asset protection goals.
The Basics of Michigan’s DAPT Statute
Michigan’s Qualified Dispositions in Trust Act is codified at MCL 700.1041 through 700.1050. The statute replaces Michigan’s traditional common law rule that allowed creditors to reach assets in any trust where the person who created it retained a beneficial interest.
Creditors have two years to challenge a transfer to a qualifying trust. For creditors who existed at the time of transfer, there is also a one-year discovery rule. This two-year statute of limitations is competitive with Nevada and South Dakota, and shorter than the four-year periods in Wyoming, Delaware, and Alaska.
To successfully challenge a transfer, a creditor must prove fraud by clear and convincing evidence. This elevated standard was clarified by the 2022 amendments.
Trustee Requirements
Michigan law requires that a DAPT have a qualified trustee. The person creating the trust cannot serve as their own trustee. The qualified trustee must be either a Michigan resident individual who is not related or subordinate to the transferor, or a corporate trustee authorized to conduct trust business in Michigan.
The trustee must maintain or arrange for custody of the trust property in Michigan and administer all or part of the trust within the state. This differs from Wyoming, which allows private family trust companies where the person who created the trust can serve as manager while still achieving asset protection.
Rights the Transferor Can Retain
Despite not being able to serve as trustee, the person creating a Michigan DAPT can retain significant rights under MCL 700.1044. These include the ability to receive discretionary distributions of income and principal, receive net income or an annuity of up to five percent, veto distributions, remove and replace the trustee, and direct how trust assets are invested.
The transferor can also retain a power of appointment to direct how assets are distributed at death, though this power cannot direct assets back to the transferor, the transferor’s creditors, or the transferor’s estate.
The Affidavit Requirement
Michigan requires the transferor to execute a qualified affidavit for each transfer to the trust. This affidavit must certify that the transfer will not render the transferor insolvent, that the transfer is not being made with intent to defraud any creditor, and that the transferor is not aware of any pending or threatened litigation except as disclosed.
A person cannot establish or fund a Michigan DAPT if they are more than thirty days behind on child support payments.
Michigan’s Unique Divorce Protection
One of Michigan’s most distinctive DAPT features involves divorce protection. Under MCL 700.1045, if a trust was created more than thirty days before a marriage, the trust assets are not considered marital property and cannot be awarded to the spouse in a divorce proceeding.
This provision gained significance after the Michigan Court of Appeals decision in Allard v. Allard in 2017, which questioned the scope of prenuptial agreements. A DAPT funded more than thirty days before marriage can serve as an alternative or supplement to a prenuptial agreement, and unlike a prenuptial agreement, does not require disclosure to or consent from the future spouse.
If the trust was created less than thirty days before marriage, this protection does not apply.
Limitations and Creditor Protections
Michigan’s DAPT statute does not provide absolute protection. Federal bankruptcy law includes a ten-year lookback for transfers to self-settled trusts under 11 U.S.C. Section 548(e). Creditors who can prove fraud by clear and convincing evidence can still reach trust assets.
If a creditor successfully challenges a transfer, the court orders the trustee to distribute assets sufficient to satisfy the claim. Michigan uses a last-in, first-out rule, meaning the most recently transferred assets are distributed first. The trust otherwise remains intact, and one creditor’s success cannot be used by another creditor.
Michigan also preserves tenancy by entireties protection for married couples who transfer entireties-owned assets to a DAPT.
Comparing Michigan to Wyoming
Wyoming offers the private family trust company structure, allowing the person who created the trust to serve as manager and maintain operational control over business assets. Michigan does not permit this arrangement.
Wyoming has no state income tax, while Michigan imposes a flat 4.25 percent income tax. For trusts generating significant income, this difference can be meaningful over time.
Both states have provisions addressing child support. Michigan prevents creation of a DAPT if the person is more than thirty days delinquent. Wyoming allows child support creditors to reach trust assets.
Choosing the Right Jurisdiction
A Michigan DAPT may be appropriate for Michigan residents with Michigan-based assets who want a shorter statute of limitations and strong divorce protection. The structure works well for those comfortable with a corporate trustee or an unrelated individual trustee.
Wyoming may be a better choice for those who need operational control over business assets, want to avoid state income tax, or prefer the private family trust company structure.
For guidance on whether Michigan, Wyoming, or another jurisdiction best fits your asset protection needs, consider consulting Mark Pierce and Matt Meuli at Wyoming Asset Protection Attorney.