Asset Protection Trusts are a relatively new development and they are statutory. Some states offer these; some states do not. The requirements vary from state to state and I’m speaking only of Utah when I describe the asset protection trust concept.
A domestic protection trust is one in which a person or persons place assets in an irrevocable trust that meets the specific requirements of Utah law. Some of those requirements are that the grantor or creator of the trust has limited power over the trust after it is created. Often this trust will have more than one trustee.
Who should Consider Setting up a Utah Asset Protection Trust(UDAPT)?
You should consider a UDAPT if you are in a high-liability profession, or if you have a high net worth. It is also a good option if you just want to shield some of your hard-earned assets from creditors such as a home, investment accounts, a business, a cabin, a ranch, or other real estate from creditors.
UDAPTs are frequently used to protect a nest-egg. They help to ensure that you have enough assets protected to live a comfortable life, especially given the litigious and unpredictable world we live in where lawsuits can be brought against you for any reason or no reason at all.
How does a UDAPT Work?
Under Utah’s asset protection trust laws, you are allowed to fund a trust with any type of assets you want to protect. You maintain complete control over the investment of the assets in the trust, and you can name yourself, your spouse, and your family as beneficiaries of the trust to receive the assets if you need them in the future, so long as you have a co-trustee who makes distribution decisions. The statute does not prevent you from naming a trusted friend, family member, or advisor as the co-trustee.
For the trust to be effective in shielding your assets against creditors, the trust must have at least one Utah trustee, it must hold some Utah assets (but it can also hold assets in other states), and you must sign an affidavit declaring that you are still solvent (meaning you have more assets than liabilities) after making any contribution to the trust.
The trust must be irrevocable, but flexibility can be built into the trust to allow for the removal and replacement of trustees and to change the ultimate distribution of the assets upon your death. Once you have appropriately moved assets into your UDAPT, those assets are immediately protected against future involuntary creditors.
Existing creditors are limited to bringing a fraudulent conveyance claim within the later of two years after the property is transferred to the trust, or one year after the creditor reasonably could have discovered the transfer. This period can be reduced to 120 days by sending notice to known creditors, and by publishing notice for unknown creditors.
Often, it is good to establish a trust protector to assist in the management and oversight of trustees other than yourself.