Issue 26.13
In May, Utah enacted an asset protection trust law that makes a lot of sense. Before this new law, asset protection through a trust was full of speculation and hoping for the best. But the new law provides specific directions about how to properly set up an asset protection trust that works. Finally, we have laws that give us specific protections upon which we can rely.
If the asset protection trust (“APT”) is properly prepared, your creditors cannot get your assets that have been placed in your APT. Creditors in the past have argued that “well, if I can’t get your money out of the trust, then I want your interest in the trust instead” – essentially making an end-run around the trust protection to get the benefit of your property if not the property itself. But that approach doesn’t work anymore for creditors if your assets are placed in an APT. The new law specifically says that not only your assets, but your very interest in the trust itself is absolutely protected too.
Another trick creditors have used is to force the trust to make distributions to you so the money comes out of the trust’s protection and into your hands where the creditors can legally get it. But the new law specifically denies creditors the ability to even do that – offering another layer of protection.
Creditors in the past have also argued that your mere use of property that is in a trust (such staying from time to time in a cabin or second home) is the same thing as a distribution to you, so they should be able to get to that property to satisfy their claim against you. But the new law says ‘not so fast,’ and allows you to use and occupy all of the real or personal property (so long as it stays in the trust’s name) without that use being treated as a distribution to you. Again, you win and your creditors lose.
The law makes it clear that an APT cannot be used if your liabilities are greater than your assets, and it has very limited protection against existing creditors who already have a claim against you. But for future creditors, the APT cannot be beat. An APT must be established with care to be sure all of the legal requirements are met. Once it is set up and you transfer your assets to it, it offers some of the best, if not the best, asset protection in the country.
M. Sean Sullivan is a shareholder with the law firm of Brindley Sullivan, PLLC, located at 382 South Bluff, Ste. 150, St. George, UT 84770. A free consultation may be set by calling (435) 673-9220.