Changes to Utah Law May Make Utah Domestic Asset Protection Trust More Appealing
Self-settled asset protection trusts are irrevocable trusts where the person creating the trust continues to have some access to the assets held by the trust. These come in two forms: domestic asset protection trusts (DAPTs) and foreign, or off-shore, asset protection trusts (FAPTs). DAPTs are trusts established under the laws of a particular state, whereas FAPTs are organized under the laws of a foreign country. Utah is one of several states that allow for DAPTs by statute.
With a DAPT, you irrevocably transfer assets to the trust and often name yourself as a beneficiary to receive distributions within the discretion of the trustee. With some limitations, you may retain certain rights, including the right to remove and replace the trustee. This strategy becomes particularly powerful when coupled with entity planning. This is done when the DAPT is the owner of an LLC. DAPTs are only effective for future creditors, as the fraudulent transfer laws of all states prohibit transfers to avoid existing creditors. Also, bankruptcy laws should be considered when forming a DAPT.
The self-settled asset protection trust laws vary from state to state. Therefore, there may be advantages to selecting one state's laws over another in your particular circumstances. Like all trusts, a DAPT, to be effective, must be funded with assets. Some of the best assets for a DAPT include: cash, securities, LLC interests, real estate, and recreational assets such as aircraft and boats. An analysis of each asset should be undertaken to look at the consequences of transferring the asset to the DAPT, including tax and business consequences.
According to Utah law, to be valid the DAPT must meet the following requirements:
The trust must be irrevocable.
The trust must be governed by Utah law.
The trust must require that at all times at least one trustee be a Utah resident or Utah trust company.
The trust must provide that the grantor, as a beneficiary, may not voluntarily or involuntarily transfer: (a) the income or principal of the asset protection trust; or (b) any other beneficial interest of the grantor.
The trust must require that the trustee notify in writing every person who has a domestic support obligation against the grantor at least 30 days before paying and delivering any distribution to the grantor of the date that the distribution will be paid and the amount of the distribution.
The grantor may not have the ability, without the consent of a person who has a substantial beneficial interest in the trust to (a) revoke, amend, or terminate all or any part of the trust; or (b) withdraw any property from the trust (the grantor may be given the power under the trust to substitute assets).
Generally, the trust may not provide for any mandatory distributions of either income or principal to the grantor, as a beneficiary.
At the time the grantor transfers any assets to the trust, the grantor may not be in default of making a payment due under a domestic support obligation, or intend to hinder, delay, or defraud a known creditor by transferring the assets to the trust.
A transfer of assets to the trust may not render the grantor insolvent or be derived from unlawful activities.
While the grantor can serve as a co-trustee, the grantor cannot determine whether a discretionary distribution will be made. Even with this limitation, the grantor can participate in a determination regarding whether a discretionary distribution is made to the grantor by:
requesting a distribution from the trust;
consulting with the trustees regarding whether a discretionary distribution will be made;
exercising a right to consent to or veto the distribution under a power described in the statute;
signing documentation in the grantor's capacity as a co-trustee that implements a distribution when the other trustees use discretionary power to independently authorize a distribution; or
participating in an action authorizing a distribution if the other trustees can authorize the distribution without the grantor's participation.
There were a few significant changes to the Utah DAPT statute in 2025 that may make establishing a Utah DAPT more appealing.
It is now clear that a Utah DAPT can be drafted as a “hybrid DAPT”. A hybrid DAPT is a DAPT where the grantor is not initially a beneficiary of the trust but can be added later by trustee or a trust protector. This gives the trust the superior protection against the grantor’s creditors while allowing for the future ability to access funds.
Though recommended and though solvency is still required, the affidavit of solvency is no longer mandatory, just discretionary.
A claim can be made under the Utah Voidable Transfers Act to set aside a transfer within the later of two years after the transfer is made, or one year after the transfer is or reasonably could have been discovered by the creditor. This can be shortened even further to 120 days upon the publication of a notice to creditors. The statute now provides that property can be distributed from the trust for lending purposes and so long as it is reconveyed within 60 days it does not trigger a new running of the foregoing statute of limitations.
The ability to establish a hybrid DAPT coupled with the ability to move assets in and out for lending purposes may make a Utah DAPT an appealing asset protection tool where before it was not. If you would like to learn more about establishing a Utah DAPT please contact our office to set up a consultation to discuss whether you might benefit from such a trust.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.