The State of Utah recently passed a unique and powerful asset protection statute. This new statute is special since only a handful of other states have similar laws. Further, it has been argued that, out of the States which do have these laws, Utah’s provides the best protection against creditors.
Generally, it is illegal to intentionally move or hide assets for the purpose of hindering, delaying or defrauding a current creditor. A current creditor is an individual or entity that is owed money for any variety of reasons, secured or unsecured. It should be kept in mind that moving assets to avoid a current known creditor is prohibited and even this new law specifically forbids such.
The unique aspect of this law is that it allows the creation of a trust for the express purpose of avoiding unknown or anticipated creditors and to help avoid bankruptcy, while still allowing the potential debtor to maintain some control over the assets. Once the trust is created and funded, the protection is immediate.
In the past, a potential debtor could sometimes avoid seizure of assets by transferring the assets outside of their control such as selling the assets (for fair market value) or transferring the assets into an irrevocable trust. Both scenarios resulted in the potential debtor losing complete control and ownership over the assets.
Utah’s new law allows a trust to be created wherein the potential debtor can create the terms of the Trust, transfer assets into the Trust and then serve as (at least) a co-trustee. Although these factors could exist in an old-fashioned irrevocable trust, the important component is the trust terms that the law allows the potential debtor to create.
First, the statute allows the debtor to create a term for modification, amendment and/or revocation of the trust. It should be noted that this term is only effective given that it is accompanied by the requirement that such action can only be taken with the express consent of all adversely affected trust beneficiaries. Even with such a restriction, the ability to include such a term is unique and can be advantageous.
Second, the statute allows the debtor to create a term wherein they, as co-trustee, can distribute trust principal to themselves given that distributions are tied to an ascertainable standard such as “education, health and accustomed manner of living.” This allowance is unique in that the debtor still has access to assets to pay for their general living expenses as long as those expenses are within the bounds of the given standard. No approval or oversight is required.
Third, the statute allows the debtor to transfer assets into the trust when none of those assets are held in Utah. This allows for non-resident citizens to create Utah trusts without any assets located within the State.
Essentially, Utah’s new law provides immediate protection from all future creditors. In addition, it protects assets from current unknown creditors within two years. This period can, in some cases, be shortened to as little as 120 days. Creation of a trust under this statute can be extremely helpful to potential debtors and should be considered as a valuable new tool in Utah estate and asset protection planning.