Asset Protection Planning for Professionals and Business Owners

asset protectionIf you are a Utah business owner, an individual in a high liability profession (like a physician or contractor), or if you are an individual with a high net worth, a Utah asset protection trust can help protect you and your family. In today's litigious society, asset protection has become one of the most important things to implement when creating your estate plan. A practical and powerful asset protection tool is the Domestic Asset Protection Trust ("DAPT"). In 2013, Utah established a new asset protection trust statute that provides guidance for creating a Utah DAPT and is one of the most effective DAPT statutes in the country.

In accordance with Utah's current law governing DAPTs, you can create and fund an irrevocable asset protection trust with your own property and also be both a beneficiary and a co-trustee of the trust. As long as the requirements of the statute are satisfied, your future creditors should not be able to reach the trust assets. Utah law allows you to create a trust for the benefit of yourself and your family, to fund it with a substantial portion of your assets, and in so doing protect the trust assets from future, involuntary creditors. You will be a beneficiary of the trust during your lifetime, and the trust can continue for the benefit of your children and grandchildren after your death. 1

There are currently 15 states that allow DAPTs, and Utah's and Nevada's DAPT statutes are arguably two of the best. After approximately 17 years since the first DAPT legislation passed, no non-bankruptcy creditor has challenged a DAPT all the way through the court system and been able to access any DAPT assets. Most likely this is because such a large majority believes that, if tested, the DAPT will work to protect its assets from a creditor of the settlor. However, despite the very high likelihood of protection, if there is a way to increase the odds of success even more, then such a strategy should be utilized whenever possible. 2

The Hybrid DAPT is an estate planning tool that should increase the probability that the trust assets will be protected. The Hybrid DAPT is just like a regular DAPT except the settlor is not an initial discretionary beneficiary of the trust but can be added later by the trust protector. As an example, the trust can initially be set up for the benefit of your spouse and your children but will not include you as a named beneficiary. By not including yourself as a beneficiary, the Hybrid DAPT is by definition a third party trust and therefore almost certainly avoids the potential risk of uncertainty of a regular DAPT and adds extra layers of asset protection. In the event you need to be added as a discretionary beneficiary of the Hybrid DAPT sometime in the future, the trust agreement provides that the trust protector can add additional beneficiaries, including yourself (as the settlor). Once you as the settlor are added in as a beneficiary then the Hybrid DAPT automatically transforms into a regular DAPT. Although a Hybrid DAPT offers more asset protection, the traditional DAPT still offers significant protection.

Your estate planning profession should always consider and look at ways to maximize the effectiveness of your plan, including the strength of the asset protection strategy. One way to provide additional protection with the Hybrid Trust is to split the Hybrid Trust into two separate trusts before the settlor is added as a discretionary beneficiary. Following the division into two separate trusts, the trust protector can name the settlor as the dictionary beneficiary of only one of the two trusts. In this case, the settlor will only have access to the assets to the separate trust that lists him as the beneficiary. The other separate trust (and its assets) retains the protection of the Hybrid DAPT. 3

Many professionals and business owners fail to think about asset protection until they actually need it. An essential part of estate planning is the preservation of assets for your family and loved ones. It is important that your estate planner create an asset protection plan with the highest probability of success. The DAPT and Hybrid DAPT are two valuable tools to consider when creating your estate plan and preserving your assets. In addition to these valuable tools, there are other important considerations that business owners and professionals should consider in the context of their estate plan. These considerations include business succession plans, buy-sell agreements with partners, and planning for assets held in limited liability companies or corporations.

Quoted Sources

1. Utah Estate Planning Blog - by Russ Tipett

2. The Physician Hybrid Domestic Asset Protection Trust - April 2018, Steven J. Oshins

3. The Physician Hybrid Domestic Asset Protection Trust - April 2018, Steven J. Oshins

Daren R. Barney is a local attorney whose practice has been focused on Business, Estate Planning, and Real Estate Law for over 20 years. He is licensed and serves clients in Utah, Colorado and Nevada. He is a shareholder at the law firm of Barney McKenna & Olmstead, P.C. He has been awarded a peer review rating of AV Preeminent from Martindale-Hubbell, which is the highest possible rating in both legal ability and ethical standards. If you have questions, please feel free to contact him at 435-628-1711.