CONTRIBUTED CONTENT — We live and work in an exceptionally litigious culture. From car collisions to dog bites to unfruitful business deals, potential liabilities constantly swirl around us like a cyclone.

Home values have risen drastically in the past few years, and the increase in our home’s equity can be very attractive for potential creditors. Such fears can often keep individuals up at night. Consumers and homeowners maintain insurance on their homes and personal property to ward off potential loss. Most professionals maintain some form of errors and omission insurance should liability rear its ugly head through professional endeavors.

Setting aside proper business entity selection and the protection that affords, however, can we protect our assets from the liabilities surrounding us? One answer comes to us via the asset protection trust statute in the Utah Code. 

How do you know if an asset protection trust is right for you?

If you’re already contemplating bankruptcy or find yourself embroiled in litigation, it’s likely too late to take advantage of the protection offered by this statute. Likewise, if you’re seeking to avoid child support or protect assets derived from unlawful activities, an asset protection trust won’t be of much help.

However, if you’re looking to protect a portion of your hard-earned assets from potential future creditors, then an asset protection trust is likely the perfect tool for you. 

One of the first questions individuals ask about these trusts is, “What kind of protection will I have, and from whom?” The statute defines the term “creditor” as a “creditor or other claimant of the settlor existing when the trust is created; or a person who subsequently becomes a creditor … one holding or seeking to enforce a judgment … or one with a right to payment.” This definition is quite broad, yet quite beneficial to those employing the statute’s protection.

Providing the trust is correctly established and complies with the statute, the creator, or settlor, of the trust will enjoy almost blanket-like protection of a portion of his or her assets going forward. To illustrate, the trust could benefit a doctor by protecting his or her assets from a malpractice lawsuit, a business owner by protecting his or her assets from bankruptcy, or a homeowner by protecting his or her property from litigation resultant from a car crash. 

Many people ask, “Isn’t this the reason we buy insurance?” The answer is yes and no. Insurance is essential, but is it enough? Most insurances will protect us from some creditors, but it won’t be of much use in the event of bankruptcy or other insolvency issues. I like to say that insurance helps us protect our assets much like an umbrella protects us from a rain storm. An asset protection trust takes this protection a step further by eliminating access to some assets completely, thus removing them from the path of the storm entirely. 

Real-life application of an asset protection trust usually centers around protecting most people’s largest asset: their home. A home with considerable equity is the perfect asset to place in an asset protection trust. Consider the difference between a business owner who takes out bankruptcy and loses all of his assets and the business owner who walks away after bankruptcy with his home, and all its equity, still intact. With a bit of foresight and some strategic planning, individuals can save themselves from a tremendous loss. 

When considering whether an asset protection trust may be of value to you, consult your estate planning attorney and be forthright regarding your current financial situation. For an asset protection trust to be of value, certain requirements must be met. For example, placing your assets in an asset protection trust cannot render you insolvent, nor can you transfer assets with the intention to hinder, delay or defraud a known creditor.

However, the statute sanctions other transfers should individuals wish to protect assets from potential future creditors. 

An asset protection trust is more than just an umbrella in life’s turbulent storms. It can provide you the security and assurance you need to weather potential financial disasters. Consult with your estate planning attorney about whether an asset protection trust is the right precautionary measure for you.

Like Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” 

Written by ANDREW S. MCCULLOUGH, associate attorney with the firm of Brindley Sullivan. Contact him today for a free consultation. 

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