If you follow the procedures and create an irrevocable trust you can protect certain property from creditors in Mississippi but you must not create the trust with the specific purpose of defrauding creditors.

The law was created in 2014 by the Mississippi Legislature by the Mississippi Qualified Disposition in Trust Act.  The name of this type of trust is a Qualified Disposition Trust (QDT).

“Qualified disposition” means a disposition by or from a transferor to a qualified trustee or qualified trustees, with or without consideration, by means of a qualified disposition trust, after the transferor executes a qualified affidavit.

“Qualified disposition trust” means a trust instrument appointing a qualified trustee or qualified trustees for the property that is the subject of a disposition, which instrument: (1) Expressly incorporates the law of this state to govern the validity, construction and administration of the trust; (2) Is irrevocable; and (3) Provides that the interest of the transferor or other beneficiary in the trust property or the income from the trust property may not be transferred, assigned, pledged or mortgaged, whether voluntarily or involuntarily, before the qualified trustee or qualified trustees actually distribute the property or income from the property to the beneficiary.

The trustee of this trust cannot be the person creating the trust (Principal).

Tax returns are required to be filed for this type of trust.

This trust provides that the person making the trust and also any beneficiary cannot transfer, assign, pledge or mortgage, whether voluntarily or involuntarily, property of the trust until disbursed by the Trustee in accordance with the terms of the Trust.

A Qualified Affidavit must be signed by the person making the trust before making transfers.

The Qualified Affidavit must include the following:

A qualified affidavit shall state:

1. The transferor has full right, title, and authority to transfer the assets to the trust;
2. The transfer of the assets to the trust will not render the transferor insolvent;
3. The transferor does not intend to defraud a creditor by transferring the assets to the trust;
4. The transferor does not have any pending or threatened court actions against the transferor, except for those court actions identified by the transferor on an attachment to the affidavit;
5. The transferor is not involved in any administrative proceedings, except for those administrative proceedings identified on an attachment to the affidavit;
6. The transferor does not contemplate filing for relief under the provisions of the federal bankruptcy code;
7. The assets being transferred to the trust were not derived from unlawful activities; and
8. The transferor is a named insured of a general liability insurance policy and, if applicable, a professional liability insurance policy, with policy limits of at least One Million Dollars ($1,000,000.00) for each respective policy.

There can be not attachment of property in the qualified disposition trust unless there is fraud and actual intent to defraud creditors.  Also, no creditor shall bring an action with respect to property that is the subject of a qualified disposition unless that creditor proves by clear and convincing evidence that the settlor’s transfer of the property was made with the intent to defraud that specific creditor.

Generally, there can be no cause of action by a creditor, or other person, against the trustee, an advisor of a trust that is the subject of a qualified disposition, or against any person involved in the counseling, drafting, preparation, execution, or funding of a trust that is the subject of a qualified disposition. This includes creditors made before and after the transfer to the trust.

The person making the trust shall have only the powers and rights conferred by the qualified disposition trust. The powers and rights conferred by the qualified disposition trust upon the transferor are personal powers and rights that may not be exercised by a creditor or any other person, except as expressly permitted by the trust. Except as permitted by Sections 91-9-717 and 91-9-721, the transferor shall have no rights or authority with respect to the corpus of the trust or the income from the trust, and any agreement or understanding purporting to grant or permit the retention of any greater rights or authority shall be void.

If the qualified disposition is challenged, the qualified trustee shall have a lien against the property of the trust to pay costs, including attorneys’ fees, in the defense of the action or proceedings to avoid the qualified disposition.

Generally, the trustee must live in this state.  The person making the trust can appoint one or more advisors in the trust who have authority to remove and appoint qualified trustees or trust advisors; and who have authority to consent to or disapprove distributions from the trust, all as provided in the Trust.

The maker of the trust may serve as an investment advisor, but the person may not otherwise serve as advisor to a trust that is a qualified disposition trust except with respect to the retention of the veto right permitted by Section 91-9-721(a).

The maker cannot revoke the trust. It must be irrevocable.

The provisions can allow provisions in the trust to allow the maker:

1. to veto a distribution from the trust;
2. to change beneficiaries of the trust in the maker’s Will or other valid document effective at death.  The maker cannot change a beneficiary to appoint to the transferor, the transferor’s creditors, the transferor’s estate or the creditors of the transferor’s estate;
3. The transferor’s potential or actual receipt of income, including rights to the income retained in the trust;
4. The transferor’s potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust as those terms are defined in Section 664 of the Internal Revenue Code of 1986, codified in 26 USCS Section 664, and any successor provision;
5. The transferor’s receipt each year of an amount specified in the trust instrument, the amount not to exceed five percent (5%) of the initial value of the trust or its value determined, from time to time, pursuant to the trust;
6. The transferor’s potential or actual receipt or use of principal if the potential or actual receipt or use of principal would be the result of a qualified trustee’s or qualified trustees’ acting:

 

1. 1. In the qualified trustee’s or qualified trustees’ discretion. For purposes of this section, a qualified trustee is presumed to have discretion with respect to the distribution of principal unless the discretion is expressly denied to the trustee by the terms of the trust;
   2. Pursuant to a standard that governs the distribution of principal and does not confer upon the transferor a power to consume, invade, or appropriate property for the benefit of the transferor, unless the power of the transferor is limited by an ascertainable standard relating to the health, education, support, or maintenance within the meaning of Section 2041(b)(1)(A) or Section 2514(c)(1) of the Internal Revenue Code of 1986, codified in 26 USCS Section 2041(b)(1)(A) or 26 USCS Section 2514(c)(1), as in effect on July 1, 2014, or as later amended; or
   3. At the direction of an advisor described in Section 91-9-715 who is acting:

7.In the advisor’s discretion; or

 

1. 1. Pursuant to a standard that governs the distribution of principal and does not confer upon the transferor a power to consume, invade, or appropriate property for the benefit of the transferor, unless the power of the transferor is limited by an ascertainable standard relating to the health, education, support, or maintenance within the meaning of Section 2041(b)(1)(A) or Section 2514(c)(1) of the Internal Revenue Code of 1986, 26 USCS Section 2041(b)(1)(A) or 26 USCS Section 2514(c)(1), as in effect on July 1, 2010, or as later amended;
   2. The transferor’s right to remove a trustee or advisor and to appoint a new trustee or advisor; however, the right shall not include the appointment of a person who is a related or subordinate party with respect to the transferor within the meaning of Section 672(c) of the Internal Revenue Code of 1986, 26 USCS Section 672(c), and any successor provision;
   3. The transferor’s potential or actual use of real property held under a qualified personal residence trust within the meaning of the term as described in Section 2702(c) of the Internal Revenue Code of 1986, codified in 26 USCS Section 2702(c), and any successor provision;
   4. The transferor’s potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on income of the trust if the potential or actual receipt of income or principal is pursuant to a provision in the qualified disposition trust that expressly permits a distribution to the transferor as reimbursement for the taxes and if the distribution would be the result of a qualified trustee’s or qualified trustees’ acting:
   5. In the qualified trustee’s or qualified trustees’ discretion or pursuant to a mandatory direction in the qualified disposition trust; or
   6. At the direction of an advisor described in Section 91-9-717, who is acting in the advisor’s discretion;
   7. The ability, whether pursuant to direction in the qualified disposition trust or discretion of a qualified trustee to pay, after the death of the transferor, all or any part of the debts of the transferor outstanding at the time of the transferor’s death, the expenses of administering the transferor’s estate, or any estate or inheritance tax imposed on or with respect to the transferor’s estate; and
   8. A qualified trustee’s or qualified trustees’ authority to make distributions to pay taxes in lieu of or in addition to the power to make a distribution for taxes pursuant to subsection (c), (f), (i), or (j) by direct payment to the taxing authorities.

Actions by creditors for fraud have a statute of limitations usually 2 years after the transfer was made.