You may have heard about families or individuals in Utah who lost their wealth or their home due to a lawsuit or creditors. The effects of such situations can be devastating, and perhaps they’ve caused you to reflect on ways you can better protect your own assets.
To protect your home or other important assets, the best solution is an Asset Protection Trust. Not all trusts are the same, and that is also true for Asset Protection Trusts. We’ve outlined information that can help you understand more about Asset Protection Trusts in Utah and your options for establishing one:
Asset Protection Trusts Are Irrevocable (and That’s Okay)
Trusts are either revocable or irrevocable. A revocable trust is one where the Settlor (also called a Grantor or Trustor) retains powers to amend or revoke the trust. This is the most common type of trust people create for estate planning.
An irrevocable trust is one where the Settlor does NOT retain powers to revoke or amend the trust. But this doesn’t mean that the trust cannot be modified, it just means some other mechanism is required to add flexibility to the trust. Asset protection is one of many reasons to create an irrevocable trust. When prepared properly, creditors cannot reach into the trust AND you maintain broad flexibility.
What Is an Asset Protection Trust?
An Asset Protection Trust is an irrevocable trust established for estate planning and to protect trust assets from personal liabilities and helps influence outcomes in settlement negotiations.
The goal of a properly prepared Asset Protection Trust is to allow the beneficiary access to the assets and funds while keeping creditors out. The most important rule of asset protection is, “If you do not own it, it cannot be taken away from you.” Timing is also crucial. Assets must be transferred to the Asset Protection Trust in advance of creditor problems. If you already have a pending claim, it’s too late.
As the Settlor of the trust, you get to choose the beneficiaries; these can be your spouse, your children, another appointed individual, and in some cases even yourself. Successful asset protection will protect your assets against lawsuits, bankruptcies, IRS audits, and other creditors.
Your situation and assets are unique, and your Asset Protection Trust should be individually tailored to suit your needs. The following two types of Asset Protection Trust fit most needs and both can be specifically tailored to you.
Utah Domestic Asset Protection Trust (UDAPT)
A Utah Domestic Asset Protection Trust (UDAPT) is a self-settled spendthrift trust. Self-settled means that you are the beneficiary of a trust which you created and funded. Generations of laws previously stated that your creditor can get access assets in your trust to the extent that you’re a beneficiary.
Utah is one of a minority of US States that turned the tables allowing creditor protection for a self-settled trust (a trust whose settlor is also a permissible beneficiary). UDAPTs work well in many situations, and have many advantages as well as possible disadvantages. It is advisable to consult your attorney before deciding on this as your choice of asset protection.
A 541 TrustⓇ is a third-party irrevocable trust (non-self-settled) meaning that it is established by the Settlor and names individuals other than themself as the beneficiaries. This type of trust works in all 50 States and under the Federal Bankruptcy Code. A 541 TrustⓇ allows the Settlor enormous flexibility to change the terms of the trust while maintaining maximum asset protection. It is simple to understand, modify, and even unwind.
There are many ways to protect your assets. At McCullough Sparks, we work to tailor a unique strategy that suits you and your assets. We specialize in creating customized plans and flexible irrevocable trusts. Protect your assets for you and your future generations by contacting us today.