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Top 5 Fundamentals for Asset Protection: Part 4

Asset Protection, Part 4

I am often asked for legal advice on asset protection topics. Though there are myriads of ways to protect assets, in this series of articles I am discussing my “Top 5 Fundamentals for Asset Protection”. Most of these topics fit for people who have some assets, but some topics fit everyone, yes even the person who owns nothing. What does that person have to protect?  Wages. We do not need to spend money on every form of asset protection. Some of the suggestions in this series are free or nearly free.

Part 1 discusses acting in an ethical and conscientious manner.

Part 2 discusses insurance.

Part 3 discusses business entities.

Protecting Assets Through Domestic Asset Protection Trusts

Domestic Asset Protection Trusts are a relatively new form of trusts, but the concept of holding property in trust to protect it has been around for centuries. The modern asset protection trust was first codified in the late 1990’s, and has been further developed since. In this author’s opinion, Utah currently has the best asset protection trust laws.

Utah Trusts

A Utah Domestic Asset Protection Trust lets a person transfer money and other property into a trust untouchable by their present and future creditors. Utah allows a person to transfer property into a trust and immediately receive protection for the property transferred. Most states, including Nevada, require a long waiting period after the transfer before the assets receive full protection. No state permits transfers into an asset protection trust that make the person insolvent.

Some limitations that apply, but the concept is that if Joe (a fictitious person) has a house worth $350,000 and savings worth $150,000, and credit card owing $100,000, then Joe can move up to $400,000 worth of assets into his trust. Let’s say Joe wanted to protect his house and some cash. He may move the house into the trust, and another $50,000 in cash as well. Joe still has $100,000 in cash in his personal name so that he can cover his credit card bill without becoming insolvent. The trust protects Joe’s assets from problems in the future.

Bankruptcy

In theory, if Joe transferred his assets into his trust as described above, even though he files for bankruptcy in the future, the trust preserves the assets for Joe. Under Section 541(c)(2) of the Bankruptcy Code certain beneficial interests transferred to a Utah Asset Protection Trust are enforceable in bankruptcy courts as well.

Unlimited Assets Protected

One of the best features of Utah’s trust law is that one may protect a virtually unlimited amount of assets. This protection even extends to a person’s home. Imagine that, you can live in your mortgage free house and none of your creditors can touch it! Can it get better than that?

Drawbacks

The downside to a Utah Asset Protection Trust is the complexity of setup and administration. To properly protect assets in the trust, the trust needs to be drafted with accompanying affidavits, notices, and other documents. Thus the legal costs to form the trust often run in the thousands of dollars. The administration is also difficult as third parties must be trustees. You cannot be the sole trustee of your own asset protection trust here in Utah. We can help walk you through the complexities.

Even though Utah law permits the use of trusts to immediately protect your property from creditors and potential creditors, if a problem has already arisen, it may be too late to do anything about it. Most people who inquire about asset protection trusts do so only after a lawsuit. Trusts in general are used as a preventative measure. Protect your assets now.

Part 5 – Fundamentals for Asset Protection