Domestic asset protection trusts, also known as qualified self-settled spendthrift trusts (“QSSSTs”), are now available to citizens of Virginia as of July 1, 2012. To provide for this new method of asset security, the Virginia Assembly revised and recreated a pre-existing portion of the Virginia Code and introduced new sections. Virginia now joins a group of 12 other states that allow such trusts. People interested in drawing a QSSST should always take legal help from trust and estate attorney to avoid pitfalls.
The QSSST is an irreversible, self-settled spendthrift trust in which the settlor retains productive interests that are typically not vulnerable to creditor acquisition. A profligate trust is one in which the beneficiary is prohibited from reducing the debt of the trust’s resources or borrowing unwisely against the trust’s assets. In principle, it safeguards the recipient against oneself and some creditors. A QSSST ought to be an unchangeable trust to be protected against creditors. Irrevocable indicates that once a trust is established, it cannot be altered or cancelled by the settlor unless there are exceptional reasons. The phrase “irrevocable” has an exact meaning under the new Virginia legislation.
A QSSST may be especially attractive for those who work in fields where litigation is common, such as construction contractors, physicians, or even lawyers. After a five-year adjustment period, it provides insurance against both prospective and current liabilities. Future lenders may still file claims against property deposited into a QSSST throughout the five-year transitional stage. The Virginia Act provides a lengthier transitional time than most other states’ regulations allow.
Prospective customers would not be able to obtain a judgment against the property in the QSSST after the five-year changeover period has passed, provided they can establish that the trust was established to postpone, impede, or cheat the lenders under Virginia’s Fraudulent Conveyances Act. Merely setting a QSSST is not proof of such purpose. The trust may be cast aside if a lender can charge a fraudulent transfer, and legal costs may be granted to the lender who can demonstrate such malicious purpose. Before any civil cases are submitted, or debts obliged to be paid have not become unrealistic, it is perfect to set up a QSSST. When dealing with QSSST, one should get in touch with trust litigation lawyers to fully understand its provisions and functioning.
For a QSSST to be legitimate, it must meet several specified characteristics. If any criteria are not satisfied, the trust will not be classified as a QSSST, and creditor coverage will be compromised. The law is brand new, and it’s pretty long and complicated. Briefly, the prerequisites are as follows:
- The trust must be irrevocable, as described by Section 55-454.03:03 of the legislation;
- The trust must be established during the settlor’s lifetime, and the tenant must administer the trust;
- A recipient other than the trustor must be named in the trust.
- Discretionary compensation based exclusively on observable criteria or 5 and 5 powers;
- Must appoint at least one competent, independent trustee in accordance with the legislation;
- You must be interested in Virginia real estate.
- Virginia legislation must be followed;
- Should provide a mechanism for a profligate trust; and
- The trustee may not exercise a veto over any of the trust’s payouts.