Domestic Asset Protection Trusts (DAPTs) are promoted by some attorneys as a modern solution for individuals and families seeking to protect wealth while remaining within the United States. States. Domestic jurisdictions such as Nevada have enacted statutes allowing self-settled spendthrift trusts, enabling a settlor to establish a trust for their own benefit while still claiming protection from creditors. These structures are frequently marketed as a simple alternative to offshore asset protection trusts, which historically were the primary vehicles used for high-level creditor protection.
The federal decision in United States v. Huckaby (2026 WL 587784 (E.D.Cal., March 3, 2026)), demonstrates the limitations of this approach. In that case, a Nevada Domestic Asset Protection Trust failed to shield real estate located in California from a federal tax creditor. The ruling highlights a structural weakness inherent in many DAPTs: they rely on the continued application of the law of the trust jurisdiction, but courts may apply the law of another state when assets or parties are connected to that state.
The case therefore provides an instructive example of how jurisdictional conflicts can undermine domestic asset protection planning and why practitioners should still favor offshore strategies, particularly when combined with equity-stripping techniques.
How a Domestic Asset Protection Trust Failed: The Huckaby Case
The dispute arose from the ownership of a parcel of real estate in South Lake Tahoe, California. In 2005, attorney Robert Huckaby and his partner Joyce Tritsch acquired the property as joint tenants. Several years later, in 2011, they created a Nevada trust. Both individuals served as settlors, trustees, and beneficiaries of the trust. The Tahoe property was transferred into the trust shortly after its formation. The arrangement was clearly designed to take advantage of Nevada’s seemingly favorable asset protection laws, which allow self-settled trusts to include spendthrift provisions that can limit the ability of creditors to reach trust assets. However, the strategy encountered difficulty when the Internal Revenue Service obtained a judgment against Huckaby in 2018 for unpaid tax liabilities. By 2025, the remaining balance was approximately $87,959. The federal government sought to enforce its judgment against Huckaby’s interest in the Tahoe property, arguing that the transfer of the property to the trust did not eliminate his beneficial ownership. The government filed suit in the United States District Court for the Eastern District of California, requesting a declaration that its federal tax lien could attach to Huckaby’s interest in the property and that the property could be foreclosed to satisfy the debt.The Conflict-of-Laws Problem in Domestic Asset Protection Trust Planning
The key issue before the court was which state’s law governed the creditor’s rights. The defendants argued that the trust instrument stated Nevada law and that Nevada’s asset-protection statutes should therefore control the analysis. The government took a different position. Because the asset at issue was real property located in California, the government argued that California law should determine whether creditors could reach it. The court resolved the question by applying principles drawn from the Restatement (Second) of Conflict of Laws. While Nevada law governed the internal interpretation of the trust instrument, the dispute in the case did not concern how the trust document should be interpreted. Instead, the question was whether a creditor could reach the trust’s assets. Under well-established conflict-of-laws principles, questions involving real property are generally governed by the law of the state where the property is located. Because the property was located in California, the court held that California law controlled the creditor’s rights. This determination effectively neutralized the asset-protection benefits that Nevada law could otherwise have provided.Why the Nevada Domestic Asset Protection Trust Failed
The failure of the trust was largely the result of the stark differences between Nevada and California trust law. Nevada is among the minority of states that authorize self-settled spendthrift trusts. Under Nevada law, a person may establish a trust for their own benefit while restricting creditors from reaching trust assets after certain statutory conditions are met. California, by contrast, follows the traditional common-law rule that a settlor cannot use a trust to shield assets from their own creditors if they remain a beneficiary. When a settlor retains a beneficial interest in the trust, creditors may reach that interest. Applying California law, the court concluded that the trust’s spendthrift provisions could not protect Huckaby’s interest in the property. Since he served as both trustee and beneficiary, the court determined that he retained sufficient legal and equitable interests for the federal tax lien to attach. The court therefore allowed the IRS to enforce its judgment lien against Huckaby’s one-half interest in the property and permitted foreclosure of that interest.The Structural Limits of Domestic Asset Protection Trusts
The case highlights a fundamental limitation of DAPTs, their effectiveness is highly dependent on jurisdictional alignment. When the settlor, the trust, and the trust assets are all located within the same jurisdiction, courts are more likely to apply that jurisdiction’s protective laws. However, when assets are located in different states, or when creditors bring actions in those states, courts may and often do apply local law instead. Real estate is particularly susceptible to this problem because courts almost always apply the law of the state where the property is situated. This principle significantly limits the usefulness of domestic trusts when they hold real property outside the trust jurisdiction. The Huckaby structure also suffered from another weakness common in DAPT planning: the same individuals acted simultaneously as settlors, trustees, and beneficiaries. Such arrangements often create the perception that the trust is merely an extension of the debtor rather than an independent legal arrangement.What Is a Hybrid Domestic Asset Protection Trust?
A more recent development in domestic asset protection planning is the Hybrid Domestic Asset Protection Trust, often referred to as a “Hybrid DAPT.” These structures attempt to mitigate one of the main legal vulnerabilities associated with traditional self-settled asset protection trusts. In a conventional Domestic Asset Protection Trust, the settlor establishes the trust and is listed as a discretionary beneficiary. While certain jurisdictions, such as Nevada and South Dakota, permit this arrangement, courts in non-DAPT states often remain skeptical of structures in which the settlor appears to retain beneficial access to assets they placed into trust. A Hybrid DAPT attempts to address this issue by changing the initial design of the trust. At the time the trust is created, the settlor is not a beneficiary. Instead, the trust is structured as a third-party discretionary trust for the benefit of other individuals, such as the settlor’s spouse, children, or other family members. Because the settlor is not a beneficiary at the time the trust is created, the trust is not technically self-settled under traditional trust law principles. However, the trust instrument includes a provision allowing a designated independent party, often referred to as a trust protector or independent trustee, to add the settlor as a discretionary beneficiary at a later date. This power can only be exercised by someone who is not under the settlor’s control. The theory behind this structure is that if the settlor is not initially a beneficiary, creditors cannot argue that the settlor transferred assets into a trust for their own benefit. If circumstances later change, the trust protector may add the settlor as a beneficiary, thereby restoring potential access to trust distributions. This design is intended to reduce the risk that courts will characterize the trust as a self-settled spendthrift trust subject to creditor claims.Hybrid Domestic Asset Protection Trust Limitations
Despite their creative design, Hybrid DAPTs still face many of the same structural issues highlighted in United States v. Huckaby. First, courts may examine the practical realities of the arrangement rather than relying solely on the formal structure of the trust instrument. If a court believes that the settlor effectively retained indirect access to the assets or maintained significant influence over the trust protector, the trust may still be treated as functionally self-settled. Second, the conflict-of-laws problem remains. If assets are located in jurisdictions that reject self-settled spendthrift trusts, such as California, courts may still apply local law to determine creditor rights. Even though the settlor was not originally a beneficiary, courts could examine the totality of the circumstances when determining whether the trust assets should remain protected. Finally, Hybrid DAPTs rely heavily on the discretion and independence of the trust protector or trustee. If that independence is questioned, the protective value of the structure may be diminished.Offshore Trust with Equity Stripping vs. Hybrid Domestic Asset Protection Trust
For these reasons, some planners argue that offshore asset protection trusts combined with equity-stripping strategies may offer protection that is as strong as, or in many cases stronger than, Hybrid Domestic Asset Protection Trusts. An offshore asset protection trust established in jurisdictions such as the Cook Islands or Nevis is governed by legal systems specifically designed to resist foreign creditor claims. These jurisdictions often require creditors to litigate locally, impose short statutes of limitation on fraudulent transfer claims, and apply demanding evidentiary standards. These features create significant procedural and financial barriers for creditors attempting to pursue claims against trust assets. However, offshore trusts are often most effective when combined with an additional strategy known as equity stripping. Equity stripping is a technique designed to reduce or eliminate the visible equity in valuable assets such as real estate. Instead of holding property free and clear, the owner encumbers the property with a secured loan held by an entity associated with the offshore trust. When combined with equity stripping, the effectiveness of such structures increases further. Equity stripping reduces the visible value of domestic assets by encumbering them with secured debt. As a result, even if a creditor obtains a lien on the asset, the creditor may find that little or no recoverable equity remains. In practice, the structure might operate as follows. The real estate would first be held by a domestic entity, such as an LLC. That LLC would then execute a mortgagein favor of an offshore entity. The secured debt would absorb most of the property’s equity. From the perspective of a creditor, the property would appear heavily encumbered. Even if a creditor successfully obtained a lien against the property, the creditor would have to satisfy the secured debt before receiving any proceeds from the asset. Because the secured creditor has priority over the proceeds from a liquidation or enforced sale, the economic value of the property has effectively been shifted outside the United States. This structure changes the litigation dynamics dramatically. Instead of pursuing valuable unencumbered property, the creditor is left with an asset that has little remaining equity. To reach the real economic value of the asset, the creditor would need to challenge the loan or pursue claims against the offshore trust itself, an endeavor that typically requires litigation in the foreign jurisdiction. This combination of jurisdictional separation and economic restructuring creates multiple barriers to creditor recovery. Creditors must not only overcome the offshore jurisdiction’s legal protections but also confront the practical reality that the debtor’s domestic assets appear to hold minimal net value. In comparison, Hybrid DAPTs primarily rely on careful trust drafting and the absence of an initial beneficial interest by the settlor. While this approach can improve the defensibility of a domestic trust, it does not eliminate the jurisdictional vulnerabilities that arise when assets or litigation occur in states hostile to self-settled trust protections.Broader Lessons from the Huckaby Asset Protection Case
The Huckaby case illustrates that a purely domestic asset protection trust may fail when courts apply the law of a different state. Hybrid domestic trusts attempt to address this risk by allowing a transition to offshore protection if litigation arises. However, an offshore asset protection trust combined with equity stripping can provide protection that is often stronger than that offered by hybrid domestic trusts. The offshore trust begins under the protection of foreign law. The equity stripping reduces the economic incentive for creditors to pursue the property in the first place. If most of the asset’s value is represented by a secured loan, creditors may find that litigation yields little practical recovery. The offshore jurisdiction’s legal framework creates additional barriers to creditor enforcement. Creditors typically must litigate locally under unfamiliar legal standards and within short statutory deadlines. The ruling in United States v. Huckaby reinforces several long-standing principles in asset protection planning.- Jurisdiction matters. Courts frequently apply the law of the state where assets are located, particularly when those assets are real property.
- Control matters. When a settlor retains extensive control over trust assets, courts are more likely to treat the trust as an extension of the debtor rather than a separate entity.
- Structure matters. Effective asset protection often requires layered strategies that combine trusts, entities, and secured lending arrangements.