Special Power of Appointment Trusts (SPATs) in Utah: An Advanced Asset Protection Strategy
Introduction
For Utah residents and others seeking asset protection, one common tool is the Domestic Asset Protection Trust (DAPT). However, not everyone qualifies for a DAPT — for example, if you would be considered insolvent after transferring assets, or if you own property outside Utah.
An emerging alternative is the Special Power of Appointment Trust (SPAT). This advanced planning strategy is designed to provide creditor protection while keeping a pathway open for future access to assets if life circumstances change.
At Cutler | Riley Law, we help clients explore whether a SPAT may fit into their estate and asset protection goals.
What Is a SPAT?
A Special Power of Appointment Trust (SPAT) is an irrevocable trust designed for creditor protection planning.
Unlike a DAPT, a SPAT is not self-settled:
The settlor (person creating the trust) is not a beneficiary.
Instead, the settlor is only a potential appointee through a special power of appointment, held by someone else (often a trust protector).
Because the settlor is not a direct beneficiary, the trust is designed to avoid certain federal bankruptcy clawback rules — particularly the 10-year look-back period under Bankruptcy Code §548(e) that applies to self-settled trusts like DAPTs.
How a SPAT Works
The Settlor funds the trust with assets (cash, investments, real estate).
The Trustee manages the trust and makes discretionary distributions to named beneficiaries (other than the settlor, e.g., spouse, children, charities).
The Trust Protector holds a special power of appointment — the authority to add, remove, or redirect beneficiaries. In some designs, the protector may even add the settlor back later.
Beneficiaries receive distributions at the trustee’s discretion, consistent with the trust’s terms.
Why Consider a SPAT?
Alternative to DAPT – Useful if you don’t qualify for a Utah DAPT (e.g., insolvency issues, non-Utah property).
Potential Bankruptcy Advantage – Structured to avoid the 10-year §548(e) clawback that applies to self-settled trusts.
Flexibility – Through the special power of appointment, assets could be redirected if circumstances change.
No Utah Residency Requirement – Unlike DAPTs, SPATs are not limited to Utah trustees or residents.
Limitations and Risks
SPATs are a cutting-edge strategy, and with that comes uncertainty:
Unsettled Case Law – Courts have not definitively ruled on SPAT protections. Results may depend on the facts and the judge.
State Law Challenges – Transfers may still be challenged under the Uniform Voidable Transfer Act (UVTA), which has a 4-year look-back period.
Bankruptcy Risks Remain – While designed to avoid §548(e), bankruptcy courts may still scrutinize SPATs.
Estate Tax Uncertainty – It is unclear whether SPAT assets will be excluded from the settlor’s estate for estate tax purposes.
No Guarantees – The Utah State Bar emphasizes that this is an uncertain area of law.
Comparison: SPAT vs. Utah DAPT
A Utah Domestic Asset Protection Trust (DAPT) and a Special Power of Appointment Trust (SPAT) share the same goal of shielding assets from future creditors, but they work in very different ways. In a DAPT, the settlor (the person creating the trust) can also be a beneficiary, but that means transfers are subject to the Bankruptcy Code’s 10-year clawback period under §548(e). A SPAT, on the other hand, is structured so the settlor is not a beneficiary, which is why it’s designed to avoid that clawback rule. DAPTs also require a Utah connection, such as a Utah trustee, while SPATs have no residency requirement. When it comes to certainty, DAPTs have statutory protection under Utah law, whereas SPATs remain less settled, with limited case law and some open questions about their effectiveness. Still, SPATs offer greater flexibility, since a trust protector can use a special power of appointment to adjust beneficiaries in ways that may preserve future access.
When to Consider a SPAT
A SPAT may be appropriate if you:
Don’t qualify for a Utah DAPT (due to solvency issues or property outside Utah).
Want creditor protection but still want the possibility of future access.
Already have other planning in place and want to diversify strategies (many practitioners recommend combining techniques).
Understand that this is an uncertain area of law and are comfortable balancing risk vs. protection.
Our Role as Trust Protector
At Cutler | Riley Law, we can serve as Trust Protector for SPATs, holding the special power of appointment and helping ensure your trust is administered properly. This role provides oversight and preserves flexibility within the limits of the law.
Key Takeaways
A SPAT is an irrevocable, not-self-settled trust that relies on a special power of appointment to offer creditor protection and flexibility.
It is designed to sidestep the 10-year bankruptcy clawback that applies to self-settled trusts.
It is not a guaranteed solution — creditor protection, estate tax outcomes, and bankruptcy treatment remain uncertain.
Best used as part of a diversified asset protection strategy alongside other planning tools.
Next Steps
If you’re exploring advanced asset protection planning and want to learn whether a Special Power of Appointment Trust is right for you, we can help.
Schedule your free consultation today to discuss your options with Cutler | Riley Law.