Asset protection is one of the most important goals of estate planning for individuals, families, and business owners. An asset protection trust can help you protect your home, retirement funds, personal property, and other assets from potential creditors’ claims. Mississippi residents can create an irrevocable “Qualified Disposition Trust” (QDIT) to protect domestic assets from the trust creator’s creditors.
The estate planning attorneys at Palmer & Slay, PLLC, have an in-depth knowledge of Mississippi QDIT trust creation and enforcement. After learning more about your financial situation, needs, and goals, you will be able to identify the best way to protect your assets from a variety of creditors legally. Contact Palmer & Slay, PLLC today to schedule an initial consultation.
What Is a Qualified Disposition Trust (QDIT)?
In 2014, the legislature passed a law allowing Mississippi residents to create qualified disposition trusts. These asset protection trusts involve a new method through which Mississippi residents can protect their assets from potential creditors’ claims and lawsuits. However, to benefit from the extensive asset protection provided by QDIT trusts, you will need to ensure that the trust meets all of the legal requirements outlined in the Mississippi Qualified Disposition in Trust Act.
For example, the trust agreement must state that the QDIT trust is irrevocable and include a spendthrift provision. These trusts incorporate Mississippi law to govern the creation and administration of the trust. With limited exceptions, the assets transferred into the QDIT trust will be protected from seizure by the creator’s future creditors.
Requirements for Asset Protection Trusts
For a qualified disposition trust to be enforceable, it must meet all the requirements under Mississippi law. First, at least one of the trustees needs to be an individual who is considered a legal resident of Mississippi or a Mississippi trust company or bank. The trustee is required to take the following actions:
- Maintain all required records for the trust
- Prepare or range for the preparation of all of the required income tax forms for the trust, or
- Otherwise materially participate in the trust administration.
How to Create an Asset Protection Trust in Mississippi
If you are creating an asset protection trust, you cannot appoint yourself as a trustee. However, you can still retain certain rights and control related to the assets in the trust. For example, you could designate that you will receive income from interest generated by the trust’s assets now or in the future. You can also retain the right to receive payments from the trust’s principal assets. However, the assets will be distributed according to an ascertainable standard or at the trustee’s discretion. You can name other family members as beneficiaries of the trust. Before you can legally transfer assets into the trust, you will need to sign an affidavit stating:
- You have the legal right to transfer assets into the trust
- The transfer won’t render you insolvent
- You don’t intend to defraud a creditor by the transfer
- You don’t have any threatened or pending court action against you
- You are not contemplating filing for bankruptcy
- The assets you’ll transfer into the trust weren’t gained from unlawful activities
- You are insured through a general liability policy and, when applicable, a commercial liability insurance policy of at least $1 million per policy
The trust agreement needs to state that Mississippi law will govern the trust’s validity, construction, and administration. The trust must be irrevocable and must contain a spendthrift clause. A spendthrift clause ensures that the trust’s creator doesn’t have the power or authority to assign the assets or benefits from the trust to another person. Spendthrift clauses are intended to prevent the assets in the trust from the trust creator’s creditors. For example, if the trust creator ends up owing a significant debt to creditors, he or she cannot use the assets in the trust to pay his or her creditors.
Asset Protection Trusts Are Irrevocable
After assets have been transferred into the trust, the trust creator cannot remove them from the trust because it is an irrevocable trust. Additionally, the trust’s creator cannot revoke or terminate the trust once it has been formed and funded with assets. In exchange for creating an irrevocable trust and limiting your control over your assets, your assets will be protected from creditors to a higher degree than with a revocable living trust.
How Will a QDIT Protect My Assets?
When the trust creator has met all the legal requirements and signed the affidavit, he or she can begin funding the trust. Funding the trust involves transferring assets into the trust. Once the trust has been funded, creditors cannot take any action against the trust assets. Creditors cannot take action to enforce a judgment entered by a court order administrative body. Asset protection trust provides the trustee, advisers to the trust, and any person involved in the counseling, drafting, preparation, execution, or funding of the trust with liability protection. This protection extends to the creation and funding of limited liability companies and limited partnerships which may be subsequently transferred into the trust.
When Can Creditors Access My Assets?
Creditors can try to bring a claim against the trust. However, there is a two-year statute of limitations in which the creditor must file a claim. There are also some exceptions to the general rule that creditors cannot see his assets within the trust, including the following:
- Claims for spousal support and child support
- Claims of the state of Mississippi, including court restitution in a criminal matter
- Claims of a creditor of up to $1.5 million if the trust creator fails to maintain the required general liability or professional liability policies
- Unpaid personal injury judgments for death, personal injury, or property damage when the tortious act occurred before the date of the property transfer into the QDIT
Discuss Your Case with a Skilled Estate Planning Attorney
If you’re interested in protecting your assets with a QDIT trust, the attorneys at Palmer & Slay, PLLC, are here to help. The exact strategies that will work best for you depend on the nature of your assets and the tax regulations that apply to those assets. Contact Palmer & Slay, PLLC today to schedule your initial consultation and learn more about how we can help you protect your assets through a well-drafted trust.