DAPT in the US for Brazilians: How It Works and Its Limits

A DAPT is an irrevocable trust set up under the law of a U.S. state that allows the settlor to remain a possible beneficiary and limits creditor actions. For a Brazilian resident, Brazilian law treats it as a foreign trust: the assets remain the settlor's and the income is taxed in the settlor's name.

The basis is Law No. 14,754/2023 (Lei 14.754/2023), arts. 10 to 13.

What is a DAPT and how does it work?

DAPT stands for Domestic Asset Protection Trust. In Delaware, the law calls the transfer a "qualified disposition" (12 Del. C., ch. 35, subchapter VI). The trust must:

• •expressly choose the state's law for validity, interpretation and administration (§ 3570(11)a);
• •be irrevocable, even though the law allows the settlor to keep some limited powers (§ 3570(11)b);
• •have a clause preventing the beneficiary's interest from being transferred, assigned or pledged before distribution (§ 3570(11)c);
• •have a trustee qualified in the state.

The settlor cannot be the trustee. In Delaware, the "qualified trustee" is an individual resident in the state (other than the settlor) or an entity authorized and supervised there, which keeps custody, records or relevant administration in the state (§ 3570(8)). In South Dakota, a non-resident individual and the settlor also do not count as a "qualified person" (SDCL 55-16-4).

What sets the DAPT apart from an ordinary trust is that the state's law lets the settlor receive income and, under certain conditions, principal. In Delaware, this applies when the trustee acts at its own discretion or under a standard that does not give the settlor a "substantially unrestricted" right to principal (§ 3570(11)b.6).

How do Delaware and South Dakota treat creditors?

Both limit creditor actions and set deadlines. Both require the creditor to prove fraud by clear and convincing evidence, and both except child support and division of property tied to a spouse or children.

Nevada regulates the topic in NRS chapter 166. The Nevada legislature's official website blocked automatic access while this article was being prepared. For that reason we do not state here Nevada's deadlines, requirements or exceptions: they must be checked in the official text before any decision.

These deadlines describe what state law says about creditor actions. They are not a guarantee of outcome, and none of them applies by itself in Brazil.

How does Law 14,754 treat a DAPT of a Brazilian resident?

As a foreign trust. Art. 12 defines a trust as a contractual arrangement governed by foreign law, and art. 13 extends the rules to similar foreign contracts. For a Brazilian, a Delaware or South Dakota trust is "abroad," and the rules of art. 10 apply:

1. •the assets remain under the settlor's ownership after the trust is created (art. 10, I);
2. •they pass to the beneficiary on distribution or on the settlor's death, whichever occurs first (art. 10, II);
3. •income and capital gains are considered the owner's and subject to individual income tax (IRPF) under the owner's rules (art. 10, § 3º);
4. •the change of ownership counts as a gift, if during life, or a transfer causa mortis, if on death (art. 10, § 2º);
5. •if the trust holds a controlled company abroad, it is treated as held directly by the owner of the assets (art. 10, § 4º).

The settlor must request from the trustee the resources and information needed to pay the tax and comply with obligations in Brazil (art. 10, § 5º). If the trustee does not cooperate, the duty to report remains with the settlor or the beneficiary (art. 10, § 8º). Art. 11 also required that the trust's assets and rights be reported on the DAA (annual income tax return), with a base date of December 31, 2023, directly by the owner, at acquisition cost.

BCB Resolution 279/2022 makes no mention of trusts. Since art. 10 keeps the assets with the settlor for purposes of that law, confirm with a specialist whether the assets in the DAPT count toward the CBE (Brazilian Capital Abroad report), which is required when capital abroad reaches US$ 1,000,000.00 on December 31 (art. 10 of the resolution; CBE page at the Central Bank).

For an overview of the trust from the Brazilian perspective, see offshore trust for Brazilians. On another type of trust, see blind trust: what it is for and when to use it.

Does the DAPT protect against creditors in Brazil?

There is no guarantee, and the U.S. state's law is not the only filter. A Brazilian creditor may invoke the Civil Code and the Code of Civil Procedure (CPC), which look at the timing and intent of the act.

• •Fraud against creditors (Civil Code). A gratuitous transfer of assets made by a debtor who is already insolvent, or who is made insolvent by it, can be annulled by unsecured creditors (art. 158). Only creditors who already were creditors at the time of the act can request annulment (art. 158, § 2º). The deadline to request it is 4 years, counted from the day the transaction was made (art. 178, II).
• •Fraud against enforcement (CPC). The disposal or encumbrance of an asset is fraud against enforcement, among other cases, when, at the time of the act, a lawsuit capable of reducing the debtor to insolvency was pending against the debtor (art. 792, IV). The act is ineffective with respect to the enforcing creditor (art. 792, § 1º).

In practice: anyone who sets up a DAPT with existing debts, a pending lawsuit or a risk of insolvency runs the risk of seeing the transfer attacked, in Brazil or in the U.S. How a Brazilian judge deals with assets held in a U.S. trust is an analysis that depends on the case and on a lawyer in both countries. For the general picture of asset shielding, see the comparison of holding, trust and offshore.

What about ITCMD on gifts or succession?

Creating the trust does not, by itself, change ownership: art. 10, I, keeps the assets with the settlor. The tax applies when ownership changes, which art. 10, § 2º, characterizes as a gift or a transfer causa mortis. ITCMD is Brazil's state inheritance and gift tax.

The Constitution provides that, for a donor or deceased with a connection to a foreign country, the power to institute ITCMD is regulated by complementary law (art. 155, § 1º, III). Constitutional Amendment 132/2023 set provisional rules until that law exists (art. 16). Rates and collection rules depend on the State. Consult your State's Treasury Department (Secretaria da Fazenda) and a tax lawyer before planning succession. See also the succession planning service.

When does a DAPT not make sense?

When the goal is to escape a debt that already exists, the DAPT does not solve it and still creates a risk of annulment. It also makes no sense if you will not comply with the filings in Brazil, or if the assets are small compared with maintenance costs, which vary by trustee and are not addressed here for lack of an official source.

Before deciding, define the risk you want to cover (professional litigation, personal liability, succession), check the text of the chosen state and ask for the Brazilian analysis in parallel. The corporate structures and tax planning services start with this diagnosis.