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H.B. 222 Enrolled

             1     

DOMESTIC ASSET PROTECTION TRUST AMENDMENTS

             2     
2013 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Derek E. Brown

             5     
Senate Sponsor: John L. Valentine

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill creates a domestic Asset Protection Trust statute.
             10      Highlighted Provisions:
             11          This bill:
             12          .    defines terms;
             13          .    provides a framework for an Asset Protection Trust in this state;
             14          .    requires that the majority of the assets be in this state;
             15          .    excludes the trust assets from the settlor's estate for federal estate tax purposes;
             16          .    establishes a two year statute of limitations for bringing a fraudulent transfer claim;
             17      and
             18          .    requires notification to a child support judgment holder before a distribution is
             19      made.
             20      Money Appropriated in this Bill:
             21          None
             22      Other Special Clauses:
             23          None
             24      Utah Code Sections Affected:
             25      REPEALS AND REENACTS:
             26          25-6-14, as last amended by Laws of Utah 2004, Chapter 89
             27     
             28      Be it enacted by the Legislature of the state of Utah:
             29          Section 1. Section 25-6-14 is repealed and reenacted to read:


             30          25-6-14. Asset Protection Trust.
             31          (1) As used in this section:
             32          (a) "Creditor" means:
             33          (i) a creditor or other claimant of the settlor existing when the trust is created; or
             34          (ii) a person who subsequently becomes a creditor, including, whether or not reduced
             35      to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
             36      undisputed, legal, equitable, secured, or unsecured:
             37          (A) one holding or seeking to enforce a judgment entered by a court or other body
             38      having adjudicative authority; or
             39          (B) one with a right to payment.
             40          (b) "Property" means real property, personal property, and interests in real or personal
             41      property.
             42          (c) "Settlor" means a person who transfers property in trust.
             43          (d) "Transfer" means any form of transfer of property, including gratuitous transfers,
             44      whether by deed, conveyance, or assignment.
             45          (e) "Trust" has the same meaning as in Section 75-1-201 .
             46          (2) "Paid and delivered" to the settlor, as beneficiary, does not include the settlor's use
             47      or occupancy of real property or tangible personal property owned by the trust if the use or
             48      occupancy is in accordance with the trustee's discretionary authority under the trust instrument.
             49          (3) If the settlor of an irrevocable trust is also a beneficiary of the trust, and if the
             50      requirements of Subsection (5) are satisfied, a creditor of the settlor may not:
             51          (a) satisfy a claim or liability of the settlor in either law or equity out of the settlor's
             52      transfer to the trust or the settlor's beneficial interest in the trust;
             53          (b) force or require the trustee to make a distribution to the settlor, as beneficiary; or
             54          (c) require the trustee to pay any distribution directly to the creditor, or otherwise
             55      attach the distribution before it has been paid or delivered by the trustee to the settlor, as
             56      beneficiary.
             57          (4) Notwithstanding Subsection (3), nothing in this section prohibits a creditor from


             58      satisfying a claim or liability from the distribution once it has been paid or delivered by the
             59      trustee to the settlor, as beneficiary.
             60          (5) In order for Subsection (3) to apply, the conditions in this Subsection (5) shall be
             61      satisfied. Where this Subsection (5) requires that a provision be included in the trust
             62      instrument, no particular language need be used in the trust instrument if the meaning of the
             63      trust provision otherwise complies with this Subsection (5).
             64          (a) The trust instrument shall provide that the trust is governed by Utah law and is
             65      established pursuant to this section.
             66          (b) The trust instrument shall require that at all times at least one trustee shall be a
             67      Utah resident or Utah trust company, as the term "trust company" is defined in Section 7-5-1 .
             68          (c) The trust instrument shall provide that neither the interest of the settlor, as
             69      beneficiary, nor the income or principal of the trust may be voluntarily or involuntarily
             70      transferred by the settlor, as beneficiary. The provision shall be considered to be a restriction
             71      on the transfer of the settlor's beneficial interest in the trust that is enforceable under applicable
             72      nonbankruptcy law within the meaning of Section 541(c)(2) of the Bankruptcy Code.
             73          (d) The settlor may not have the ability under the trust instrument to revoke, amend, or
             74      terminate all or any part of the trust, or to withdraw property from the trust, without the consent
             75      of a person who has a substantial beneficial interest in the trust, which interest would be
             76      adversely affected by the exercise of the power held by the settlor.
             77          (e) The trust instrument may not provide for any mandatory distributions of either
             78      income or principal to the settlor, as beneficiary, except as provided in Subsection (7)(f).
             79          (f) The settlor may not benefit from, direct a distribution of, or use trust property
             80      except as stated in the trust instrument. An agreement or understanding, express or implied,
             81      between the settlor and the trustee that attempts to grant or permit the retention of greater rights
             82      or authority than is stated in the trust instrument is void.
             83          (g) The trust instrument shall require that, at least 30 days before making any
             84      distribution to the settlor, as beneficiary, the trustee notify in writing every person who has a
             85      child support judgment or order against the settlor. The trust instrument shall require that the


             86      notice state the date the distribution will be made and the amount of the distribution.
             87          (h) At the time that the settlor transfers any assets to the trust, the settlor may not be in
             88      default of making a payment due under any child support judgment or order.
             89          (i) A transfer of assets to the trust may not render the settlor insolvent.
             90          (j) At the time the settlor transfers any assets to the trust, the settlor may not intend to
             91      hinder, delay, or defraud a known creditor by transferring the assets to the trust. A settlor's
             92      expressed intention to protect trust assets from the settlor's potential future creditors is not
             93      evidence of an intent to hinder, delay, or defraud a known creditor.
             94          (k) At the time that the settlor transfers any assets to the trust, the settlor may not be
             95      contemplating filing for relief under the provisions of the Bankruptcy Code.
             96          (l) Assets transferred to the trust may not be derived from unlawful activities.
             97          (m) At the time the settlor transfers any assets to the trust, the settlor shall sign a sworn
             98      affidavit stating that:
             99          (i) the settlor has full right, title, and authority to transfer the assets to the trust;
             100          (ii) the transfer of the assets to the trust will not render the settlor insolvent;
             101          (iii) the settlor does not intend to hinder, delay, or defraud a known creditor by
             102      transferring the assets to the trust;
             103          (iv) there are no pending or threatened court actions against the settlor, except for those
             104      court actions identified by the settlor on an attachment to the affidavit;
             105          (v) the settlor is not involved in any administrative proceedings, except those
             106      administrative proceedings identified on an attachment to the affidavit;
             107          (vi) at the time of the transfer of the assets to the trust, the settlor is not in default of a
             108      child support obligation;
             109          (vii) the settlor does not contemplate filing for relief under the provisions of the
             110      Bankruptcy Code; and
             111          (viii) the assets being transferred to the trust were not derived from unlawful activities.
             112          (6) Failure to satisfy the requirements of Subsection (5) shall result in the
             113      consequences described in this Subsection (6).


             114          (a) If any requirement of Subsections (5)(a) through (g) is not satisfied, none of the
             115      property held in the trust will at any time have the benefit of the protections described in
             116      Subsection (3).
             117          (b) If the trustee does not send the notice required under Subsection (5)(g), the court
             118      may authorize any person with a child support judgment or order against the settlor to whom
             119      notice was not sent to attach the distribution or future distributions, but the person may not:
             120          (i) satisfy a claim or liability in either law or equity out of the settlor's transfer to the
             121      trust or the settlor's beneficial interest in the trust; or
             122          (ii) force or require the trustee to make a distribution to the settlor, as beneficiary.
             123          (c) If any requirement set forth in Subsections (5)(h) through (m) is not satisfied, the
             124      property transferred to the trust that does not satisfy the requirement may not have the benefit
             125      of the protections described in Subsection (3).
             126          (7) The provisions of Subsection (3) may apply to a trust even if:
             127          (a) the settlor serves as a cotrustee or as an advisor to the trustee, provided that the
             128      settlor may not participate in the determination as to whether a discretionary distribution will
             129      be made;
             130          (b) the settlor has the authority under the terms of the trust instrument to appoint
             131      nonsubordinate advisors or trust protectors who can remove and appoint trustees and who can
             132      direct, consent to, or disapprove distributions;
             133          (c) the settlor has the power under the terms of the trust instrument to serve as an
             134      investment director or to appoint an investment director under Section 75-7-906 ;
             135          (d) the trust instrument gives the settlor the power to veto a distribution from the trust;
             136          (e) the trust instrument gives the settlor a testamentary nongeneral power of
             137      appointment or similar power;
             138          (f) the trust instrument gives the settlor the right to receive the following types of
             139      distributions:
             140          (i) income, principal, or both in the discretion of a person, including a trustee, other
             141      than the settlor;


             142          (ii) principal, subject to an ascertainable standard set forth in the trust;
             143          (iii) income or principal from a charitable remainder annuity trust or charitable
             144      remainder unitrust, as defined in 26 U.S.C. 664;
             145          (iv) a percentage of the value of the trust each year as determined under the trust
             146      instrument, but not exceeding the amount that may be defined as income under 26 U.S.C.
             147      643(b);
             148          (v) the transferor's potential or actual use of real property held under a qualified
             149      personal residence trust, or potential or actual possession of a qualified annuity interest, within
             150      the meaning of 26 U.S.C. 2702 and the accompanying regulations; and
             151          (vi) income or principal from a grantor retained annuity trust or grantor retained
             152      unitrust that is allowed under 26 U.S.C. 2702; or
             153          (g) the trust instrument authorizes the settlor to use real or personal property owned by
             154      the trust.
             155          (8) If a trust instrument contains the provisions described in Subsections (5)(a) through
             156      (g), the transfer restrictions prevent a creditor or other person from asserting any cause of
             157      action or claim for relief against a trustee of the trust or against others involved in the
             158      counseling, drafting, preparation, execution, or funding of the trust for conspiracy to commit
             159      fraudulent conveyance, aiding and abetting a fraudulent conveyance, participation in the trust
             160      transaction, or similar cause of action or claim for relief. For purposes of this subsection,
             161      counseling, drafting, preparation, execution, or funding of the trust includes the preparation and
             162      funding of a limited partnership, a limited liability company, or other entity if interests in the
             163      entity are subsequently transferred to the trust. The creditor and other person prevented from
             164      asserting a cause of action or claim for relief may assert a cause of action against, and are
             165      limited to recourse against, only:
             166          (a) the trust and the trust assets; and
             167          (b) the settlor, to the extent otherwise allowed in this section.
             168          (9) A cause of action or claim for relief regarding a fraudulent transfer of a settlor's
             169      assets under Subsection (5)(j) is extinguished unless the action under Subsection (5)(k) is


             170      brought by a creditor of the settlor who was a creditor of the settlor before the assets referred to
             171      in Subsection (5)(j) were transferred to the trust and the action under Subsection (5)(j) is
             172      brought within the earlier of:
             173          (a) the later of:
             174          (i) two years after the transfer is made; or
             175          (ii) one year after the transfer is or reasonably could have been discovered by the
             176      creditor if the creditor:
             177          (A) can demonstrate, by a preponderance of the evidence, that the creditor asserted a
             178      specific claim against the settlor before the transfer; or
             179          (B) files another action, other than an action under Subsection (5)(j), against the settlor
             180      that asserts a claim based on an act or omission of the settlor that occurred before the transfer,
             181      and the action described in this Subsection (9) is filed within two years after the transfer.
             182          (b) (i) with respect to a creditor known to the settlor, 120 days after the date on which
             183      notice of the transfer is mailed to the creditor, which notice shall state the name and address of
             184      the settlor, the name and address of the trustee, and also describe the assets that were
             185      transferred, but does not need to state the value of those assets if the assets are other than cash,
             186      and which shall inform the creditor that he is required to present his claim to both the settlor
             187      and the trustee within 120 days from the mailing of the notice or be forever barred; or
             188          (ii) with respect to a creditor not known to the settlor, 120 days after the date on which
             189      notice of the transfer is first published in a newspaper of general circulation in the county in
             190      which the settlor then resides, which notice shall state the name and address of the settlor, the
             191      name and address of the trustee, and also describe the assets that were transferred, but does not
             192      need to state the value of those assets if the assets are other than cash.
             193          (10) The notice required in Subsection (9)(b) shall be published in accordance with the
             194      provisions of Section 45-1-101 for three consecutive weeks and inform creditors that they are
             195      required to present claims within 120 days from the first publication of the notice or be forever
             196      barred.
             197          (11) (a) A trust is subject to this section if it is governed by Utah law, as provided in


             198      Section 75-7-107 , and if it otherwise meets the requirements of this section.
             199          (b) A court of this state has exclusive jurisdiction over an action or claim for relief that
             200      is based on a transfer of property to a trust that is the subject of this section.


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