DAPTs are created under state law, and currently approximately 20 states recognize DAPTs. One of the most popular states for DAPTs is Delaware. A recent case that supports the use of a “Delaware DAPT” is In the Matter of the CES 2007 Trust, C.A. No. 2023-0925-SEM (Del. Ch. May 2, 2025).

The background facts in the In the Matter of the CES 2007 Trust case are fairly typical for a “debtor creditor” dispute. In 2014, Can IV Packard Square, LLC (the “Petitioner”) loaned funds to one of the companies of Craig Schubiner (the “Respondent”) to finance a luxury retail and residential development project in Ann Arbor, Michigan (the “Loan”). However, apparently the Loan was not repaid, as on May 4, 2018, the Petitioner sued the Respondent in Oakland County Circuit Court in Michigan (the “Michigan Court”), for repayment and additional relief. On or around December 16, 2019, the Michigan Court entered a nearly $14 million judgment in favor of the Petitioner and against the Respondent (the “Judgment”). The In the Matter of the CES 2007 Trust case largely concerns the effort of the Petitioner to pierce into a trust established by the Respondent (the “CES 2007 Trust”) to satisfy the Judgment.

The CES 2007 Trust, apparently intended as a Delaware DAPT, was established by the Respondent, as grantor, in 2007 (and thus long before the Loan and the Judgment), with the following key provisions:

• U.S. Trust Company of Delaware was the initial trustee of the CES 2007 Trust. After U.S. Trust Company of Delaware resigned as trustee in 2017, First State Trust Company became trustee of the CES 2007 Trust. The Respondent could not act as trustee of the CES 2007 Trust.
• The beneficiaries of the CES 2007 Trust were “the Respondent’s wife (if any), parents, and issue thereof, if alive”.
• The trustee of the CES 2007 Trust had sole discretion at any time to distribute net income and principal as the trustee determines for the benefit of the beneficiaries.
• The Respondent retained (as the “Advisor”) “full power to manage the investments . . . in a fiduciary capacity” for the CES 2007 Trust.
• The Respondent’s brother (as the “initial Trust Protector”) had the power to remove the trustee, appoint a successor trustee, appoint a successor advisor, and appoint co-trustees or co-advisors, for the CES 2007 Trust.
• The CES 2007 Trust included a “spendthrift” provision, providing in part, “No beneficiary’s interest in any trust hereunder, whether in income or in principal, shall be subject to anticipation, assignment, pledge, hypothecation, sale or transfer in any manner, and no beneficiary of any such trust or other person interested therein shall have the power to anticipate, assign, pledge, hypothecate, sell, transfer, encumber or charge his or her interest therein, and no trust estate created hereunder shall be liable for or subject to the debts, contracts, obligations, liabilities or torts of any beneficiary of any such trust or other person interested therein”.
• The CES 2007 Trust was irrevocable, except that “the trustee(s) who are not related or subordinate to the Respondent, and who are not beneficiaries of the trust’s income or principal, may amend its terms in a manner that would not alter any beneficial interest in the Trust”.
• The CES 2007 Trust “shall be construed under, and all trusts created hereunder shall be governed by, the laws of Delaware. Any action or proceeding relating to this trust shall be brought and enforced in any state or federal court of competent jurisdiction in the State of Delaware”.

The assets of the CES 2007 Trust included 90% interests in three Delaware limited liability companies (the “LLCs”). The LLCs were each managed by the Respondent. The LLCs owned various real properties in Michigan and in Colorado. There was a history of various transfers of these real properties directly or indirectly involving the Respondent and the LLCs.

In the In the Matter of the CES 2007 Trust case, in response to a petition by the Petitioner to either void the “spendthrift” provision in the CES 2007 Trust or altogether invalidate the CES 2007 Trust, Senior Magistrate in Chancery Selena E. Molina, for the Court of Chancery of the State of Delaware, ruled:

“The Petitioner has failed to plead a reasonably conceivable claim for avoidance of the protections afforded to the Trust, and its beneficiaries, as an ‘Asset Protection Trust.’ As more fully explained herein, the Trust meets the statutory requirements for such protections, and the Petitioner has failed to plead facts which would overcome that showing, or affirmatively demonstrate that the trustees were not qualified, the Respondent was somehow a de facto trustee, or the spendthrift provision should be invalidated.”

The court first reviewed the qualification of the CES 2007 Trust under Delaware law (specifically 12 Delaware Code Sections 3570-3576). It stated:

“The parties agree that the Trust was intended to serve as an asset protection, or qualified disposition, trust. They disagree, however, regarding whether it truly meets the statutory mandates for such treatment. I find it does.

In 1997, Delaware codified the ability to create Delaware self-settled asset protection, or qualified disposition, trusts (Asset Protection Trusts). The Qualified Dispositions in Trust Act (the ‘Act’) permits someone to create an Asset Protection Trust, and irrevocably transfer assets to the trust, to protect those assets from claims against the grantor/former owner. For assets to be protected, however, the transfer must be a ‘qualified disposition’ to a ‘qualified trustee.’ The trust agreement must also invoke Delaware law, include a spendthrift provision, and be irrevocable. The Trust contains each of these requirements.”

With respect to the “qualified disposition” issue, the court stated:

“A qualified disposition is a defined in the Act as an irrevocable transfer, conveyance, or assignment of real or personal property (or the interests therein) to one or more trustees, at least one of which is a ‘qualified trustee.’ . . .

A qualified disposition, made to a qualified trustee, may only be attached or avoided in limited circumstances. For pre-transfer creditors, their avenue is through [6 Delaware Code Sections 1304-1305] (fraudulent transfers); for post-transfer creditors, they must prove ‘the qualified disposition was made with actual intent to defraud such creditor.’ Both avenues have time limits. . . .

[T]he Petitioner invites me to conflate the real property, which is an asset of the LLCs, with the LLCs, which are assets of the Trust. I decline to do so. . . .

The Trust’s assets are the LLCs, for which the Trust has a ninety-percent interest. Under Delaware’s LLC Act: ‘ . . . A member has no interest in specific limited liability company property.’ Thus, the Trust, through its membership interest in the LLCs, has no interest in the specific real estate owned (or no longer owned) thereby. It would be inappropriate for this Court, through this type of proceeding, to adjudge the real estate transactions at the LLC level under the guise of potential fraudulent transfer sufficient to void the Trust’s spendthrift provision. There are, simply put, no transfers to/from the Trust which would give rise to such an inquiry, and the Petitioner has pled no basis on which this Court should engage in veil piercing.”

With respect to the “qualified trustee” issue, the court stated:

“The transferor/grantor cannot be a ‘qualified trustee,’ which must be either a Delaware resident or an entity authorized to act as a trustee in Delaware; a ‘qualified trustee’ must also be ‘subject to supervision by the Bank Commissioner of the State, the Federal Deposit Insurance Corporation, or the Comptroller of the Currency . . .

[T]he Petitioner argues that the Respondent’s retention and exercise of control over the real property undermines the role played by the trustees of the Trusts, rendering them not qualified and superfluous. I disagree. . . .

The Petitioner has also failed to plead a reasonably conceivable claim that the trustees of the Trust were not ‘qualified trustees.’ Both [U.S. Trust Company of Delaware and First State Trust Company] meet the statutory definition, and the Amended Petition does not provide any factual averments that would demonstrate that either of the trustees failed to ‘[m]aintain[] or arrange[] for custody in this State of some or all of the property that is the subject of the qualified disposition, maintain[] records for the [T]rust on an exclusive or nonexclusive basis, prepare[] or arrange[] for the preparation of fiduciary income tax returns for the [T]rust, or otherwise materially participate[] in the administration of the [T]rust [citing 12 Delaware Code Section 3570].’

It is the last clause to which the Petitioner grips, arguing the trustees were never intended to materially participate in the administration of the Trust. . . . At most, the Amended Petition reflects that little administration was necessary for the Trust; for a trust holding solely membership interests in the LLCs, it is not difficult to understand and appreciate such dormancy. . . .

The Petitioner further argues that the Respondent’s retention of control under the Trust’s agreement undermines the trustee’s authority. I disagree. As advisor, the Respondent has the power to manage investments and delegate authority in accordance with his fiduciary duties. Such is in line with what the Act, which permits the settlor/grantor to appoint advisors and protectors with rights, including but not limited to: (1) removing the trustee and appointing a new qualified trustee, and (2) directing, consenting to, or disapproving distributions.

The Petitioner argues that these statutorily permitted rights do not include the right of a settlor to continue to manage, control, and operate a business owned by the Trust. True, such is not explicitly spelled out in the Act. But it does not need to be, given the layers of protection inherent in such a setup. The Trust owns a ninety-percent interest in the LLCs. That membership interest does not, as already addressed, grant the Trust any right, claim, or title to the assets of the LLCs, but the LLC Act (and any LLC agreements) define the Trust’s rights, claims, and interests as a member. The Trust, through the Current Trustee, can invoke those rights as the trustee sees fit, subject to a beneficiary check on the Current Trustee’s exercise of its duties. To grant the relief the Petitioner seeks would be to ignore these layers of protection.

Finally, the Petitioner argues that the Respondent, regardless of the propriety of the rights retained in the Trust’s agreement, exercises near-complete dominion and control over the Trust, disregarding and failing (or refusing) to recognize its separate existence. This leap in logic is unsupported by the allegations in the Amended Petition, which is scant with any factual averments regarding how the Respondent acted regarding the Trust and management of the Trust’s assets. The Trust does not own or have a direct interest in the real estate at issue. It owns the LLCs, and its membership interests therein remain unchanged. To entertain the Petitioner’s theory would require this Court to disregard the layers of business entities and ignore the LLC Act’s and Act’s clear legislative intent. I decline to do so.”

After concluding that the CES 2007 Trust satisfied both the “qualified disposition” and the “qualified trustee” issues and qualified under Delaware law, the court then considered one additional argument from the Petitioner. It stated:

“The Petitioner argues that, even if the Trust is an Asset Protection Trust, the Act still permits this Court to invalidate the Trust or its spendthrift provision under common law. I agree that such an avenue exists, but it is not applicable here.

The Petitioner sees this avenue in Section 3536(a) of the Act which retains creditors’ rights against a beneficiary’s interest in an Asset Protection Trust as otherwise provided ‘by the laws of this State.’ Then Vice Chancellor Jacobs analyzed this language in 2002 in Kulp v. Timmons [944 A.2d 1023 (Del. Ch. 2002)]. Therein, the Vice Chancellor found that this language clarified that common law on voiding a trust was not statutorily displaced. That common law, in the Asset Protection Trust realm, he held ‘clearly reflect[ed] a basic principle: our courts will not give effect to a spendthrift trust that has no economic reality and whose only function is to enable the settlor to control and enjoy the trust property without limitations or restraints, as was done before the trust was created.’ The Vice Chancellor went on to explain the two primary doctrines underlying such principle.

The first: public policy. As he explained, public policy will not permit someone to create a spendthrift trust solely for their own benefit because where ‘the trustee controls the assets and income of the trust for his own benefit, unconstrained by any fiduciary duties owed to others, the purpose of a spendthrift trust – to protect the beneficiary from his or her own improvidence – is lost.’ The second underlying doctrine is that of merger. ‘Under that doctrine, a trust becomes void where the interests of the beneficiaries and the interests of the settlors are identical.’

Neither doctrine supports the Petitioner’s request for relief in this action. The Trust’s assets are its membership interests in the LLCs, which a qualified trustee holds for the benefits of all the beneficiaries of the Trust. As already explained, I decline to pierce down, treat the LLCs as shams or alter egos of the Respondent, and convert the Trust’s membership interests therein to real property interests. Kulp does not support the Petitioner’s claims, which should be dismissed at the pleading stage.”

The court, in the In the Matter of the CES 2007 Trust case, concluded:

“For the foregoing reasons, the Petitioner has failed to state a claim to void the spendthrift provision of the Trust or invalidate the Trust altogether. Accordingly, the Respondent’s motion to dismiss the Amended Petition should be granted, and the Amended Petition should be dismissed.”

Reality Check – CES 2007 Trust Case

The victory for the Respondent in the In the Matter of the CES 2007 Trust case clearly is also a victory for the use of a Delaware DAPT for asset protection. However, two important points should also be made concerning the In the Matter of the CES 2007 Trust case and the use of a Delaware DAPT.

First, the precedential impact of the In the Matter of the CES 2007 Trust case, as for any asset protection litigation case, is highly “case specific”, both in terms of the facts of the case and how the court interpreted and applied Delaware law. There were certain favorable facts in the In the Matter of the CES 2007 Trust case, including the timing of the establishment of the CES 2007 Trust relative to the timing of the Loan and the Judgment, the rights under the CES 2007 Trust retained (and not retained) by the Respondent as grantor, and the combination of the LLCs with the CES 2007 Trust to create a stronger aggregate asset protection structure, that should be followed in other Delaware DAPT cases. The point is that the facts described and language used in the In the Matter of the CES 2007 Trust case should be carefully reviewed (and thus much of the decision in the case is expressly quoted here) to create a ”roadmap” to follow to achieve victory in other Delaware DAPT cases.

Second, it is important to remember that the Delaware DAPT may not be for everyone. In particular, the “qualified trustee” requirement for a Delaware DAPT will generally require the use of a Delaware institutional trustee (such as U.S. Trust Company of Delaware and First State Trust Company in the In the Matter of the CES 2007 Trust case), which could result in negative consequences for many persons from higher trustee costs and greater loss of control over trust assets. The point is that an “asset protection” victory for each person may not require the use of a Delaware DAPT, as asset protection may be able to be achieved through other, possibly more favorable, techniques for such person, including without limitation, a “spendthrift” trust for a child or grandchild (with gifting, as described below), an irrevocable life insurance trust, a tenancy by the entirety trust, a limited liability company, a series limited liability company, a Delaware “two class of stock” corporation, a Nevada “charging order” corporation, and/or a “multiple entity, tiered” asset protection structure.

If you have any questions concerning the In the Matter of the CES 2007 Trust case, or the use of Delaware DAPTs in asset protection, please discuss these issues with your advisers.

Note – Annual Gift Tax Exclusion for 2026

On October 9, 2025, the Internal Revenue Service announced that the annual gift tax exclusion will remain at $19,000 for taxable year 2026. The annual gift tax exclusion had increased (based on an inflation adjustment) from $15,000 in taxable year 2021, to $16,000 in taxable year 2022, to $17,000 in taxable year 2023, to $18,000 in taxable year 2024, and to $19,000 in taxable year 2025, but will remain unchanged for taxable year 2026. The annual gift tax exclusion allows each person (donor) to gift to each person (donee) $19,000 per year, free of gift tax liability. Gifting pursuant to the annual gift tax exclusion should be considered (subject to other possible issues including future income tax liability) for persons who may exceed the Federal estate tax exclusion amount of $15,000,000, or any applicable state estate tax exclusion amount (such as $4,000,000 in Illinois), or who are seeking asset protection.

If you have any questions concerning the annual gift tax exclusion for taxable year 2026, or gifting in general, please discuss these issues with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.