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In May 2013, an improved Utah trust statute went into effect, and it will provide great asset protection.  Titled the Domestic Asset Protection Trust, its purpose is simple: to help anyone protect assets from future creditors.  The trust protection is similar to that enjoyed by an LLC, or limited liability company, but the trust does not need a business purpose.  Or put another way, the trust protection is similar to that of an insurance policy on the property, but without having to pay any insurance premiums.  The trust is available to anyone, not just Utah residents, and the property in the trust can be anywhere, not just in Utah.  This post provides a general explanation of the Utah law and is for informational purposes only.  This post does not provide legal advice.  It should help the reader be able to consult with an attorney and have a more informed conversation.

 

A trust is a relationship between a creator of a trust, a trustee, and a beneficiary.  In the relationship, the creator—more often called the settlor—transfers legal title of property to a trustee.  The trustee has a fiduciary duty to hold the property for the benefit of the beneficiary.  When the trust is created, the settlor gives up the legal title to the property put into the trust.  The beneficiary only receives property or income from the trustee, who distributes property or income in accordance with the trust documents.

 

For the new Utah law, a person may transfer property into the trust that names that same person as the beneficiary of the trust.  But in order to be both the settlor and beneficiary and have the protection of the trust, the transfer of property must be irrevocable.

 

Who could benefit from making this new type of trust?  Really anyone who owns property could benefit.  For example, property could be an unencumbered primary residence, investment property or securities, or even ownership shares of a business or partnership.  Probably the best advantage of this law is realized when the property in the trust is a primary home or personal property.  In this case, the beneficiary may live in the home or use the personal property.  In other words, if a person wants a home to stay in the family, the person can put the home in a trust, keep the home protected from creditors, and still be able to live in the home.  In this regard, creating the trust would be similar to taking out an additional umbrella insurance policy on the home to protect it against future creditors.  But with a trust, the owner will never pay an insurance premium for this protection.  The only cost of the trust is the expense to set it up and any fees needed to maintain it, which could be minimal if the trust only covers a limited amount of property.

 

In order to get this protection from creditors, there are a few requirements to meet, and here are just a few.  The most important are the settlor cannot be insolvent, contemplating bankruptcy, or have any child support payments past-due when the trust is created.  The settlor must sign a sworn affidavit denying these when the trust is created.  The purpose of the trust is not to defraud past creditors, but to protect property from future creditors.  The next main requirement has already been stated: the trust must be irrevocable.  Finally, the last requirement is the settlor cannot have any discretion over the distributions made from the trust.  In other words, once the settlor transfers the property to the trust, any later distributions of property or income must be at the sole discretion of the trustee.

 

Now what makes Utah’s law different from other states’ laws?  First, if all the requirements set forth in the Utah law are met, any futurecreditor will be unable to reach the assets of the trust.  Most other states with similar laws have at least a couple exceptions for future creditors to reach the assets in the trust.

 

Second, Utah’s law has a shorter time for past creditors to satisfy their claims against the trust.  Specifically, any creditor of the settlor at the time the trust is created has either 2 years after the trust is created or 1 year after the creditor could have reasonably discovered the transfer, whichever is greater.  However, this time may be shortened to as little as 120 days if a notice is sent to known creditor or a notice is published to unknown creditors in a newspaper of general circulation in the county that the settlor lives.  So, if a creditor at the time the trust is created does not pursue a claim against the trust within 2 years or 120 days if notice is published, the creditor’s past claims may be forever barred.

 

In conclusion, the new Utah trust law may provide a great opportunity to protect property from creditors if all the requirements of the law are met.  This trust may be a part of larger estate planning, or the first trust someone sets up that will ensure a primary residence stays in the family.  Whether this trust is right for you will depend on your specific circumstances, and you should seek counsel from a qualified Utah attorney.