by Geoff N. Germane of Kirton McConkie
ggermane@kmclaw.com
Utah is technically not new to the asset protection game—it has had a law allowing for self-settled trusts with some creditor protection on the books since 2003. The protection provided by that statute, however, was subject to so many restrictions and exceptions that practitioners rarely (if ever) relied on it. The 2013 General Session of the Utah Legislature saw the enactment of a new domestic “Asset Protection Trust” statute (replacing the current Utah Code Annotated 25-6-14, referred to hereinafter as the “DAPT Law”) that not only addressed the deficiencies of the 2003 law, it also authorized the creation of trusts with such significant asset protection features that Utah should now be considered among the best jurisdictions in the nation for self-settled spendthrift trusts. In recent years, Nevada, South Dakota, Alaska and Delaware have largely been considered the states of choice in this area. Utah’s new law, however, should earn it an invitation into the upper echelon of asset protection rust jurisdictions. The following article will discuss some of the features of the new DAPT Law, set to take effect on May 14, 2013.
What the DAPT Law Requires, and What it Doesn’t:
While the new DAPT Law allows for a broad array of scenarios and settlors, there are certain minimum requirements (some rather obvious, some less so) that must be met by every trust seeking the law’s protection. Here is a sampling of the “musts”:
? The trust instrument must provide that the trust is governed by Utah law and established under the DAPT Law.
? The settlor must not be insolvent or become insolvent by funding the trust, and must not be in default of making a payment due under any child support judgment or order at the time of funding.
? At least one trustee must be a Utah resident or a Utah trust company. Note that the 2003 law required that a Utah trust company be used; this departure from the requirement for an institutional trustee is not insignificant.
? The trust must contain a spendthrift provision.
? The settlor must not have the ability to revoke, amend, or terminate the trust (or any part), or withdraw property from the trust without the consent of a person whose interest in the trust would be adversely affected by the exercise of the power by the settlor.
? The trust may not give the settlor discretion over distributions of trust property.
? The trust instrument must require that, at least 30 days before making any distribution to the settlor as beneficiary, the trustee notify in writing every person who has a child support judgment or order against the settlor.
? The settlor may not be contemplating filing for bankruptcy at the time of funding the trust.
? The settlor may not intend to hinder, delay, or defraud a known creditor by transferring assets to the trust.
? The settlor must sign a sworn affidavit whenever funding the trust, attesting to compliance with many of the above requirements as well as a few others.
Interestingly, the DAPT Law does not include several requirements one might expect to see:
? There is no requirement that the trust hold any assets in Utah. An earlier draft of the statute contained such a requirement, but it was removed in creating the version that was passed by the legislature.
? There is no requirement that the settlor not fund the trust with the intent to hinder, delay, or defraud a future creditor. What’s more, the statute specifically provides that a settlor’s expressed intention to protect trust assets from potential future creditors is not evidence of an intent to hinder, delay, or defraud a known creditor.
Other Notable Features:
The protection offered by the DAPT Law is highlighted by a number of very interesting pr