A Utah Domestic Asset Protection Trust allows a person to create a trust, be a beneficiary of the trust, and still receive asset protection from creditors. Typically a revocable trust does not provide any asset protection to the creator of the trust. An Irrevocable trust provides asset protection to the creator of the trust but it also requires the creator of the trust to lose control of the assets, he or she cannot revoke it, and to not be a beneficiary of the trust. A Utah Asset Protection Trust remedies both of these problems.
Trustee Utah Resident.
At all times, at least one trustee will remain a Utah resident or Utah Trust company.
Restriction on Transfer of Settlors Beneficial Interest.
Neither the interest of the settlor, as beneficiary, nor the income or principal of the trust may be voluntarily or involuntarily transferred by the settlor, as beneficiary. This provision is a restriction on the transfer of the settlor’s beneficial interest in the trust that is enforceable under applicable non-bankruptcy law within the meaning of Section 541(c)(2) of the Bankruptcy Code.
Prohibition of Settlor to Revoke Amend or Terminate Trust or Trust Provisions
The settlor may not revoke, amend, or terminate all or any part of this trust, or withdraw property from the trust, without the consent of a person who has a substantial beneficial interest in the trust, which interest would be adversely affected by the exercise of the power held by the settlor.
Prohibition of Mandatory Distributions to Settlor
The trust instrument may not provide for any mandatory distributions of either income or principal to the settlor, as beneficiary, except as follows:
The settlor of a Utah Domestic Asset Protection Trust has the right to receive the following types of distributions:
- income, principal, or both in the discretion of a person, including a trustee, other than the settlor;
- principal, subject to an ascertainable standard set forth in the trust;
- income or principal from a charitable remainder annuity trust or charitable remainder unitrust, as defined in 26 U.S.C. 664;
- a percentage of the value of the trust each year as determined under the trust instrument, but not exceeding the amount that may be defined as income under 26 U.S.C. 643(b);
- the transferor’s potential or actual use of real property held under a qualified personal residence trust, or potential or actual possession of a qualified annuity interest, within the meaning of 26 U.S.C. 2702 and the accompanying regulations; and
- income or principal from a grantor retained annuity trust or grantor retained unitrust that is allowed under 26 U.S.C. 2702; or
- the trust instrument authorizes the settlor to use real or personal property owned by the trust.
The settlor may not benefit from, direct a distribution of, or use trust property except as stated in the trust instrument. An agreement or understanding, express or implied, between the settlor and the trustee that attempts to grant or permit the retention of greater rights or authority than is stated in the trust instrument is void.
Notification of Distribution to Settlor as Beneficiary
At least 30 days before making any distribution to the settlor, as beneficiary, the trustee must notify in writing every person who has a child support judgment or order against the settlor. The notice must state the date the distribution will be made and the amount of the distribution.
Transferring Assets into the Utah Domestic Asset Protection Trust
At the time that the settlor transfers any assets to the Utah Domestic Asset Protection Trust, the settlor may not be in default of making a payment due under any child support judgment or order.
A transfer of assets to the trust may not render the settlor insolvent.
At the time the settlor transfers any assets to the trust, the settlor may not intend to hinder, delay, or defraud a known creditor by transferring the assets to the trust. A settlor’s expressed intention to protect trust assets from the settlor’s potential future creditors is not evidence of an intent to hinder, delay, or defraud a known creditor.
At the time that the settlor transfers any assets to the trust, the settlor may not be contemplating filing for relief under the provisions of the Bankruptcy Code.
Assets transferred to the trust may not be derived from unlawful activities.
Transferring Assets Into the Trust – Sworn Affidavit
At the time the settlor transfers any assets to the trust, the settlor shall sign a sworn affidavit stating that:
- the settlor has full right, title, and authority to transfer the assets to the trust;
- the transfer of the assets to the trust will not render the settlor insolvent;
- the settlor does not intend to hinder, delay, or defraud a known creditor by transferring the assets to the trust;
- there are no pending or threatened court actions against the settlor, except for those court actions identified by the settlor on an attachment to the affidavit;
- the settlor is not involved in any administrative proceedings, except those administrative proceedings identified on an attachment to the affidavit;
- at the time of the transfer of the assets to the trust, the settlor is not in default of a child support obligation;
- the settlor does not contemplate filing for relief under the provisions of the Bankruptcy Code; and
- the assets being transferred to the trust were not derived from unlawful activities.
Trustee of Utah Domestic Asset Protection Trust
The Settlor may serve as a co-trustee or advisor to the trustee, but may not participate in the determination as to whether a discretionary distribution will be made.
If you are interested in protecting your assets from future creditors, you are willing to relinquish some control over the assets to a trustee or co-trustee, and still want to be a beneficiary of the trust or use the trust assets, then give us a call at Vault Estate Planning.