On March 28, 2013, Governor Herbert signed into law H.B. 222, Utah’s new self-settled asset protection trust statute. The new law arguably provides the greatest measure of asset protection of any such law in the country. It will replace the existing self-settled asset protection trust statute that appears at Utah Code section 25-6-14. The bill was sponsored by Rep. Derek Brown in the House and Sen. John Valentine in the Senate. Rust Tippett was the author of the bill.
Prior to the enactment of H.B. 222, Utah’s self-settled asset protection trust statute was generally thought to be unattractive, and very few trusts were created under it. There were two principal reasons for this. First, the statute required that any self-settled asset protection trust have a corporate trustee, and many families do not want to pay the fees charged by corporate trustees. Second, the statute described several types of creditors who would be able to access the trust property, notwithstanding the other protections offered by the statute. Not only did the presence of these “exception creditors” trim back the protection provided by the statute, but they also increased the risk that the trust property would be included in the estate of the settlor for federal estate tax purposes at death under I.R.C. section 2036.
The new law corrects both of these perceived deficiencies. It neither requires that a self-settled asset protection trust have a corporate trustee, nor does it have any exception creditors.
Under the new law, the settlor’s future creditors will not be able to reach the trust assets, will not be able to force distributions from the trust, and will not be able to require the trustee to pay directly to the creditor distributions that would otherwise be made to the settlor. As long as the requirements of the statute are satisfied, the creditor must wait until the trust distribution is in the hands of the settlor.
In order for the trust to qualify under the new law, the trust must have at least one trustee who is a Utah resident or that is a Utah trust company. The settlor may serve as a co-trustee, as long as he or she does not have the ability to participate in distribution decisions. All distributions from the trust must be discretionary.
The statute does contain a provision assisting child support creditors. At least 30 days before making a distribution to the settlor, the trustee must send notice of the proposed distribution to any child support creditor of the settlor.
The trust does not protect any property that was transferred to the trust fraudulently. A creditor of the settlor who exists at the time the trust is created must bring an action to enforce his claim within the later of two years after the property is transferred to the trust or one year after the creditor could have reasonably discovered the transfer. However, the settlor may shorten this limitations period to 120 days by sending notice to known creditors and publishing notice in a newspaper of general circulation in the county in which he or she lives.
For more information on asset protection in Utah, see the home page on this site.
Rust Tippett is the author of this blog post.
Copyright 2013 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.