A Domestic Asset Protection Trust is an irrevocable trust formed under the laws of certain states that allow a person to transfer assets into a trust for their own benefit while still receiving some degree of creditor protection—something not permitted under traditional irrevocable-trust principles. Because Texas does not authorize DAPTs, Texans must rely on another state’s statutes, which introduces significant legal uncertainty: non-DAPT states may refuse to honor the trust if doing so violates their public policy, federal bankruptcy courts have issued inconsistent rulings on the enforceability of DAPTs, and all transfers remain subject to strict fraudulent-transfer rules. As a result, while DAPTs can off er meaningful protection in the right circumstances, they carry real risks and should be used cautiously, typically only for clients with advanced planning needs and a clear understanding that creditor protection may not be absolute.
