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When a person receives a settlement, inheritance, or other lump sum of money, future financial issues could put their assets at risk down the road. Dissipation can happen over time through life events such as divorce or starting a business. On the other hand, catastrophic loss, like bankruptcy, is immediate and impactful. Either situation could mean benefitting far less from your money than you should have.

To protect against these risks, an expert financial planner may suggest establishing a domestic asset protection trust (DAPT). A DAPT is an irrevocable trust that offers an opportunity for lifelong planning and protection of assets.

Protecting assets from catastrophic loss is like buying an insurance policy for your home. When a settlement is meant to cover the expenses for an injured person’s lifetime, establishing a DAPT should protect against judgments, creditors, bankruptcy, divorce, business failure, and liability from accidents. It offers peace of mind that an unexpected situation in the future won’t threaten your assets.

It is important to know that fewer than half of the states in the U.S. allow the creation of a DAPT. Forbes’ graphic to the right lists the states that permit them. DAPTs must be created in one of these states using a trustee in that state.

With the right plan and trustee, a DAPT can be an effective planning option. This kind of trust can also be useful in protecting the assets for young adults, as a DAPT can protect against most catastrophic losses to which young people are particularly vulnerable.

Making informed choices with your money will ensure you get the most from it, and that you are receiving necessary protections into the future. To determine if a DAPT or other planning option is the right move for you, speak with an experienced planner. That way, when the money arrives, you’ve already got a plan in place that will secure your future.

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