Alaska Court Just KO'd Domestic Asset Protection Trusts
If you have assets you want to protect from lawsuits, you might want to try something other than a DAPT in the wake of a recent court ruling. A foreign asset protection trust will be safer, instead.


Over 15 million lawsuits are filed in the U.S. each year, so protecting your assets from a financially ruinous lawsuit has never been more important. But one common way of doing that — a domestic asset protection trust (DAPT) — just took a big hit in court.
Thanks to an Alaska Supreme Court ruling made on March 2, 2018, it’s become clear that if you are not a resident of the state under which you establish your DAPT, the DAPT may not be worth the paper it is written on.
The Tangwalls vs. the Wackers
The judgment stems from a series of lawsuits between two families, the Tangwalls and the Wackers, in Montana state court starting in 2007. Barbara and Donald Tangwall lost a lawsuit to the Wackers. But before any judgments were issued, Barbara Tangwall and her mother, Toni Bertran, transferred property assets to an Alaska DAPT to protect them. You see, Alaska was the first state to adopt what is commonly known as asset protection trust legislation. This was done to compete with the increase in overseas jurisdictions offering a special type of trust that protects assets placed inside from future, financially ruinous lawsuits.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Wackers then brought a fraudulent transfer case against the Tangwalls, Bertran and the trustees of the DAPT in Montana. They asserted that under Montana law the transfers were fraudulent. The Montana court agreed and set the transfers aside.
Before William Wacker could get his hands on the property, Bertran filed for Chapter 7 bankruptcy in Alaska. By filing for bankruptcy in Alaska, she brought the trust property under the jurisdiction of the Alaska Bankruptcy court, but she didn’t get far. The bankruptcy trustee subsequently successfully filed a fraudulent transfer action under §548 of the Bankruptcy Code.
The transfers to the DAPT had now been declared void by two courts.
Seeking refuge in Alaska, but failing
Donald Tangwall’s answer was to bring a suit in Alaska, seeking to have the Montana and federal judgments set aside under Alaska law.
The Alaska Supreme Court analyzed allegations of fraudulent transfer through the lens of AS § 34.40.110(k), which provides that Alaska courts have “exclusive jurisdiction” over all actions involving transfers to Alaska DAPTs. The ultimate question was, “Can Alaska compel federal courts or the courts of its sister states to recognize its declaration that questions involving Alaska DAPTs be solely heard by Alaska courts?” The Alaska Supreme Court held that it could not.
The court ruled that the Full Faith and Credit Clause of the U.S. Constitution does not require states to follow other states’ statutes claiming exclusive jurisdiction. It further found that, due to the Supremacy Clause of the Constitution, states cannot restrict federal jurisdiction, even in cases where the state itself created the right being litigated.
The Takeaway
The protections of state domestic asset protection trusts have always come with caveats. We didn’t know for sure whether they would actually work. Full faith and credit as between the states, along with supremacy of federal laws both were potential threats to any state’s asset protection laws.
The question of whether they’d work appears to have been answered by the Alaska Supreme Court. If you are not a resident of the state under which you establish your DAPT, unless the time within which a creditor may file a fraudulent transfer lawsuit has expired, the DAPT may not stand up.
2 Solutions to Consider
Foreign Asset Protection Trusts
So, if the DAPT is not an option, what can one do? Consider a foreign asset protection trust. The FAPT protects your assets without the major flaw of the domestic asset protection trust. Simply stated, a U.S. court having no jurisdiction over the trustee or the trust property may not enforce a judgment against a FAPT.
FAPTs are “battle tested” and have held up for decades as the most protective form of asset protection trusts that exists.
Overseas Asset Protection Trusts
Another option is to form your asset protection trust overseas, and when the statute of limitations for fraudulent transfers in your non-DAPT state expires, redomicile your trust to a DAPT state. This should eliminate the risks illuminated by the Alaska case that was just decided.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Jeffrey M. Verdon, Esq. is the lead asset protection and tax partner at the national full-service law firm of Falcon Rappaport & Berkman. With more than 30 years of experience in designing and implementing integrated estate planning and asset protection structures, Mr. Verdon serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives. Over the past four years, he has contributed 25 articles to the Kiplinger Building Wealth online platform.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summer
The Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? Wrong
The wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term Care
Many people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?
Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last Long
According to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond Investors
High-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance Agent
Your insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never Overlook
This estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.