On December 5, 2016, Michigan joined Alaska, Delaware, Nevada, Utah and South Dakota as one of the 17 states that permit the use of irrevocable self-settled asset protection trusts for purposes of creditor protection planning. Michigan's Qualified Dispositions in Trusts Act (the "Act") provides individuals seeking to shelter assets from future third party creditors with the option of utilizing a Michigan domestic asset protection trust ("DAPT"). Prior to the enactment of the Act, which is due to become effective on February 5, 2017, an individual desiring to establish a DAPT had to transfer his or her assets to a self-settled trust established and administered in one of the 16 other states that permit the use of irrevocable self-settled asset protection trusts. 

A DAPT is an irrevocable self-settled trust which if established and funded properly will allow the grantor (the individual establishing the trust) of the DAPT to protect his or her property from the claims of future third party creditors, while at the same time maintaining a beneficial interest in the trust property. DAPTs are generally administered by an independent Trustee (in most instances a corporate Trustee) who is domiciled or has a business presence in the jurisdiction in which the grantor establishes the DAPT. The independent Trustee, or alternatively a friend or family member, has the absolute discretion to make distributions to a class of beneficiaries which may include the grantor. The ability to retain a beneficial interest in the trust property while maintaining protection from creditors makes a DAPT an extremely attractive planning device for many business professionals engaged in inherently risky business ventures and/or industries (i.e. physicians, real estate developers, business owners and/or entrepreneurs). Among the rights that the grantor may retain are the rights to:

• direct the investment decisions of the trust;
• veto a distribution from the trust;
• exercise a special power of appointment by will or other written instrument of the grantor effective only on the grantor's death;
• receive income, including rights to the income retained in the trust;
• receive income or principal from a charitable remainder unitrust or annuity trust; and the grantor's right to release the grantor's interest in the trust in favor of one or more charitable organizations with a succeeding beneficial interest in the trust;
• receive income or principal from a grantor retained annuity trust or grantor retained unitrust, or the grantor's receipt each year of a percentage, not to exceed 5%, as provided in the governing instrument, of the initial value of the trust property;
• receive or use of principal if it would be the result of a Trustee's acting under a discretionary trust provision, a support provision, or the direction of an advisor acting under a discretionary trust provision or support provision;
• use of real property held under a qualified personal residence trust, or the grantor's possession and enjoyment of a qualified annuity interest;
• receive income or principal to pay income taxes due on income of the trust, if the income or principal were under a provision in the trust instrument that expressly provided for the payment of those taxes;
• after the grantor's death, the power of a qualified Trustee to pay the grantor's debts, the expenses of administering the grantor's estate, or any estate or inheritance tax imposed on or with respect to the grantor's estate, without regard to the source of the payment; and
• receive a minimum required distribution with respect to a retirement benefit.

If properly established and funded, a creditor of the grantor will be foreclosed from maintaining an action to reach the trust assets commenced after the expiration of a two-year period beginning with the date the assets are transferred to the trust; provided, however, in certain instances where the transfer could otherwise become subject to claims relating to fraudulent conveyances, creditors will have additional time to pursue their claims.¹

¹ Please note that for bankruptcy, a longer statute of limitation may apply.