Generally, assets in a “spendthrift” trust are protected from the creditors of the beneficiaries of the trust and cannot be alienated (given away or sold) by the beneficiaries. The creation of spendthrift trusts has been made simpler for beneficiaries other than the creator of the trust (called the settlor) under Virginia Code § 64.2-743. If a settlor wished to create a spendthrift trust for his child, he need only to declare it a “spendthrift trust” in the trust instrument.
However, historically, Virginia has not looked favorably upon self-settled spendthrift trusts. Self-settled trusts are those in which the settlor retains the right to income. In fact, the Code of Virginia specifically made a host of transfers to self-settled trusts subject to claw back provisions which allow the settlor’s creditors access to the assets of a self-settled trust. Va. Code § 64.2-747.
A new provision that became effective at the same time as the recent re-alignment of the estates and trusts provisions code significantly changes the landscape of private asset protection trusts. Under Virginia Code § 64.2-745.1, Virginia is now allowing the creation of self-settled spendthrift trusts. A self-settled spendthrift trust is one in which the settlor irrevocably grants ownership of assets to his trust and he retains some ability to receive income from the trust. Furthermore, the trust would, after some time, be protected from his creditors.
While these new vehicles for asset protection open up opportunities for individuals in the Commonwealth to protect their assets, the security comes with significant caveats which will require careful consideration and drafting. It is important that you obtain the assistance of a qualified attorney to help you avoid potential pitfalls – up to and including the disregard of Virginia Code § 64.2-745.1 altogether.
For a consultation and detailed review of your estate plan, including whether a self-settled spendthrift trust is appropriate for you, contact the law firm.
Hull Street Law
1010 Hull Street
Richmond, VA 23224
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The materials are prepared for information purposes only. The materials are not legal advice and you should not act upon the information without seeking the advice of an attorney. Nothing herein creates an attorney-client relationship.