A limited liability entity (i.e., a limited liability company, limited partnership, or corporation) is a business structure that protects its owners from personal responsibility for its debts or liabilities. The type of entity to use depends upon the owners, the type of business activity the company will engage in, the desired tax structure of the entity, etc.

If properly established and operated, a limited liability entity can protect its owners from the obligations and liabilities of the entity. If the entity is not operated correctly, if the owners are somehow negligent, or if the owners attempt to use the entity to engage in fraud while trying to hide behind the shield of limited liability, a court may hold the owners of the limited liability entity personally liable to a third party. This is referred to as piercing the corporate veil.

A Utah Asset Protection Trust is an irrevocable trust into which you may place assets to shield them from creditors. With any Asset Protection Trust, there is some sacrifice in control over the assets placed into trust. For example, in a Utah Domestic Asset Protection Trust, you cannot serve as the sole trustee over your own trust. By statute, you may serve as a co-trustee, but even that is discouraged by many practitioners. This means that somebody else must serve as the trustee over the management of assets and over distributions.

Utah law bars future creditors from accessing the assets in a Utah Domestic Asset Protection Trust almost immediately. After an asset is transferred into a trust, current creditors generally have two years to challenge the transfer, but this period can be reduced to just 120 days with notice to the creditor.

Key Requirements

The following requirements apply to Utah asset protection trusts:

• The trust must have at least one Utah trustee.
• The trust must hold some Utah assets (it can also hold assets in other states).
• After making a contribution to the trust, you must sign an affidavit that you are still financially solvent (that you have more assets than liabilities). The affidavit must certify that:
  • The trustmaker has full right, title, and authority to transfer the assets to the trust.
  • The transfer of the assets to the trust will not render the trustmaker insolvent.
  • The trustmaker does not intend to defraud a known creditor by transferring the assets to a trust.
  • There are no pending or threatened court actions against the trustmaker.
  • The trustmaker does not currently intend to file for bankruptcy.
• The trust must be irrevocable, but you can build some flexibility into the trust that would allow you to remove or change trustees, which could influence the final distribution of the trust.