Asset protection trusts (APTs) are designed to protect a settlor’s assets from creditors while allowing the settlor to benefit from the trust. Here are key points about how they work:
- Creditor Protection: APTs typically include provisions that prevent trust assets from being reached by creditors of the beneficiaries. This is a fundamental feature of APTs, ensuring that the assets within the trust are shielded from claims by creditors.
- Intent and Fraudulent Transfers: When transferring assets to an APT, the settlor must not intend to hinder, delay, or defraud known creditors. However, an expressed intention to protect assets from potential unknown creditors is not considered evidence of fraudulent intent. This distinction is crucial for the legality and enforceability of the trust.
- Offshore Trusts: Offshore APTs can move assets beyond the jurisdiction of domestic courts, complicating enforcement actions by creditors. However, if the settlor retains sufficient control over the trust, they may still be subject to court orders to repatriate the assets.
- Legal Framework: Specific statutes, such as Utah’s provisions for asset protection trusts, outline the requirements and restrictions for creating and maintaining APTs. For example, real property titled in an APT must include specific language indicating its status as an asset protection trust.