On April 23, 2014, Mississippi State Governor Bryant signed into law House Bill 846, titled the “Mississippi Qualified Disposition in Trust Act (the Act) (Mississippi Code Sections 91-9-701 et seq.). The Act took effect on July 1, 2014. Mississippi now joins 14 other states—Alaska, Delaware, Hawaii, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia and Wyoming—that permit the creation of certain grantor “self-settled trusts.” The trusts permit the grantors to be discretionary beneficiaries of the trusts and to receive spendthrift protection from creditors with certain exceptions.
Under the Act, a settlor who desires protection against creditors while still retaining a beneficial interest, can transfer assets to an irrevocable trust. That trust must have an independent Mississippi trustee who must materially participate in the administration of the trust through such activities as: (1) maintaining custody of some of the property in Mississippi, (2) maintaining records of the trust on an exclusive or non-exclusive basis, and (3) preparing or arranging for the preparation of income tax returns.
The trust must be governed and administered under Mississippi law. The settlor may be a discretionary beneficiary with respect to both the income and principal of the trust. The Act permits the appointment of a trust advisor who may make investment decisions.
In addition, the settlor of a Mississippi self-settled trust may retain the following interests without losing spendthrift protection: (1) The power to veto a distribution from the trust; (2) a limited testamentary power of appointment; (3) the right to receive a payment from a charitable remainder annuity trust or charitable remainder unitrust; and (4) the right to receive an annual unitrust payment from a private unitrust that’s not in excess of 5 percent.
For a transfer to a qualified trust to be effective, the settlor must sign a “qualified affidavit” that provides that: (1) the transferor has full right and title to transfer the assets; (2) the transfer won’t render the transferor insolvent; (3) the transferor doesn’t intend to defraud a creditor by transferring assets to the trust; (4) there are no unidentified pending or threatened court or administrative actions against the transferor; (5) the transferor doesn’t intend to file for bankruptcy; and (6) the assets being transferred weren’t derived from unlawful activities.
The Act requires the settlor to secure a general liability insurance policy and, if applicable, a professional liability policy, with policy limits of at least $1 million for each such policy before the trust is settled.
In addition, the Act has four exception creditors claims that may always be brought against the trust:
- Spousal claims for support, alimony and child support.
- Tort claims for death, personal injury or property damage that occurs before the transfer and is caused by the settlor or for which the settlor is vicariously liable.
- Claims of the State of Mississippi or any political subdivision, including court restitution in a criminal matter.
- Creditor claims of of up to $1.5 million if the transferor fails to maintain the required $1 million general liability or professional liability policies.
The Act specifically provides liability protection to the trustee, trust advisors and any person involved in the counseling, drafting, preparation, execution or funding of a Mississippi trust. This liability protection extends to the creation and funding of limited partnerships and limited liability companies, the units in which are subsequently transferred to the Mississippi trust.
Comparison to Other States
The Act has several aspects that are found in favorable domestic asset protection trust statutes, such as the only remedy a creditor has is a fraudulent conveyance and a fraudulent conveyance is limited to actual fraud that must be proved by clear and convincing evidence. The Act also has a 2-year statute of limitations for a creditor to bring a claim. When compared to lead trust jurisdictions such as Alaska, Nevada and South Dakota, the Act doesn’t have a discretionary trust statute codifying the benefits of the Restatement (Second) of Trusts. Further, it has a more inclusive list of exception creditors as well as the requirement to maintain personal liability insurance.