Lately, I have received a number of questions from estate planners interested in learning more about the many benefits of Utah Domestic Asset Protection Trusts, also known as UDAPTs. So, we are going to address them today.
UDAPTs have become increasingly common in recent years as more people are learning the many benefits of having an asset protection trust. The question I get asked the most is: Is a UDAPT right for me? In order to answer this question, I need to know more information about your particular financial situation and goals for the present and future, and review your list of assets. But before we get to that point, let me tell you a little bit more about UDAPTs.
What is a UDAPT?
A UDAPT is an irrevocable trust that, as opposed to other types of trusts such as a Standard Living Trust, provides asset protection from creditors while still allowing the settlor to retain control over the trust assets. Or, in other words, a UDAPT allows the settlor of the trust to be the discretionary beneficiary, while still protecting the assets from creditors. The settlor is the individual who establishes and transfers assets into the trust. Most other types of trusts that allow you to retain the right to take assets out of the trust for your own benefit do not afford the same type of asset protection from creditors.
UDAPTs can be funded with any kind of asset. Although some formalities must be followed by the settlor to ensure all trust assets are shielded from creditors (like signing an affidavit of solvency for every transfer into the trust to show the settlor has more assets than liabilities and can cover his or her obligations), UDAPTs offer comprehensive asset protection from both existing and future creditors. Creditors existing at the time the trust is created are prevented from asserting claims against trust assets for 2 years after the property is transferred or 1 year from the date the creditor could have reasonably discovered the transfer, or 120 days by notifying known creditors and publishing notice for unknown creditors. In addition, future creditors are also barred from attaching property in or forcing distribution from the trust. Note that these protections do not apply in case of fraudulent transfers.
What are the requirements of a UDAPT?
UDAPT agreements need to contain specific language and at least one trustee must be a Utah resident. The trust must also include Utah assets but may include assets in other states as well. The same person may serve as both the settlor and co-trustee as long as the settlor is not involved in distribution decisions. In addition, the settlor cannot be financially insolvent at the time the UDAPT is created. And, finally, the trust must be irrevocable (but some flexibility can be added to the language of the trust agreement to allow, for example, for a trustee to be changed or removed).
How effective are UDAPTs?
Because UDAPTs are relatively new both in Utah and in other states, there are very few court cases addressing their effectiveness. In addition, only 17 states offer DAPTs. In Utah, DAPTs have been around since 2013 and every year more people turn to them to protect their assets. Alaska was the first state to make this type of trust available back in 1997.
Are there better options for me?
Properly implemented UDAPTs are great options for high net-worth individuals, high-risk professionals, and individuals seeking to shield their assets from creditors. However, UDAPTs are not a one-size-fits-all type of trust and there may be better options for you depending on your financial situation and goals for the future. If you are interested in learning more about other types of trusts and the common pitfalls of UDAPTs, stay tuned for upcoming articles about Section 541 Special Power of Appointment Trusts, Hybrid UDAPTs, and Dahl v. Dahl.
For more information regarding estate planning, please see the following articles by SKV:
How do I get started?
A good estate plan should be based on your unique set of assets and carefully designed by experienced attorneys to meet your goals and needs. If you’re trying to figure out how to put together your estate plan, call me at (801) 608-4706 or email me at randa@skvlegal.com today to set up a free initial consultation.
Komentáře