Michigan previously enacted the Qualified Dispositions in Trust Act of 2016 which allowed for the creation of Domestic Asset Protection Trusts (“DAPT”). A DAPT is an irrevocable trust that, if certain conditions are met, can shield assets from the claims of a person’s creditors. Individuals who are in professions or businesses with high liability exposure should consider a DAPT. Under the Act, assets can be transferred to a Trustee. The transferor cannot be the trustee, but can be a beneficiary of the trust. Among the rights that a transferor can retain are the rights to:

  • Direct trust investment decisions;
  • Remove and replace trustees;
  • Veto distributions from the trust;
  • Receive discretionary distributions of income and/or principal;
  • Receive the income from the trust;
  • Direct how the assets are to be distributed on the transferor’s death provided that the assets may not be transferred to the transferor, the transferor’s creditors, the transferor’s estate, or the creditors of the transferor’s estate;
  • Receive the annuity or unitrust payments from a charitable remainder trust;
  • Receive the annuity or unitrust payments from a grantor retained annuity trust; and
  • Receive an annuity from the trust of not more than 5 percent of the trust’s initial value.

DAPTs also have a requirement of an affidavit of solvency in which the transferor must certify that the transfer will not render the transferor insolvent, that the transfer is not being executed with the intent to defraud any creditor, and the transferor is not aware of any pending or threatened litigation. If properly funded and established, the transferor’s creditors may not reach the assets after the expiration of a two-year period.

However, when the 2016 Act was signed, no changes were made to the Uniform Voidable Transactions Act. Thus, professionals in Michigan were reluctant to use the Michigan statute. On July 19, 2022, Public Act 145 of 2022 was signed. The Act updated the Uniform Voidable Transactions Act to coincide with the Qualified Dispositions in Trust Act. The Act can be found at Michigan Complied Laws section 566.31. The new legislation makes it clear that a “qualified disposition” into a trust can only be overturned by a creditor with clear and convincing evidence of a fraudulent transfer, thereby creating a much higher standard of evidence for the creditor to overcome. Thus, Michigan is now a more favorable jurisdiction in which to create a DAPT. Additionally, a Michigan trustee will be able to serve as trustee for an out-of-state grantor of a DAPT.

Greenleaf Trust also has a Delaware Trust Charter which allows for additional DAPT opportunities. Delaware has a robust DAPT statute and has long been a favorable jurisdiction. Neither state allows shielding of assets for child support, but Delaware does permit shielding of assets for alimony under certain circumstances.

To make certain that your estate plan optimizes your goals, we recommend that you consult with your estate planning counsel, your accountant, and your team at Greenleaf Trust and Greenleaf Trust Delaware.