Utah is one of 17 states that has a type of trust that allows you to place assets into that trust and protect them from creditors in some fashion. A Utah Domestic Asset Protection Trust or UDAPT trust is irrevocable, so once you place assets into the trust, you cannot remove them. The trust provides the trustee with asset protection, control of their assets, and access to those assets. In Utah, you can set yourself as the beneficiary of the UDAPT.
UDAPTs are often used by individuals who are in high-liability professions or who are risk-averse. It is a great way to protect valuable assets and serve as part of your estate plan. The settlor retains control, though there must be a non-beneficiary co-trustee who is involved when making decisions regarding distributions.
Protecting Assets from Creditors
The trust protects the assets from potential future creditors and current creditors face a statute of limitations on their claims. Existing creditors cannot make a claim after one year has passed from when they reasonably should have known that the assets were transferred into a trust. If notice is provided to existing creditors and published, then this statute is shortened to 120 days.
When you go to transfer assets into the UDAPT, you sign an affidavit stating that you are solvent at the time of the transfer, a formality that is designed to ensure you are not using the UDAPT to hide all of your assets and income from legitimate creditors. Failure to follow this formality, or to lie on your affidavit, could give the creditors cause to sue the trust.
Further, if you end up needing to go through bankruptcy, a federal bankruptcy court can reach into the UDAPT and access assets that were transferred into the trust in the preceding ten years. Again, this prevents individuals from using UDAPTs to shield assets from bankruptcy and taking advantage of the system.
Since only 17 states recognize DAPTs, there is little case law testing the effectiveness of a UDAPT in shielding assets from creditors, especially from out-of-state creditors. There are other statutes addressing the transfer of real property into trusts that have also not been tested in the court system. This does not mean that you shouldn’t use a UDAPT if it’s the right vehicle for you, just know that there might be areas around the edges of the statute that are still unclear as to how the courts will interpret the rules.
The team at Dunn Law Firm works regularly to help individuals with a wide variety of assets, family structures, and estate goals to set up and review estates. To learn more, reach out to the Utah and Nevada estate planning attorneys at Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.