As of July 1, 2012, revisions to Virginia state trust law now permit the use of Asset Protection Trusts, otherwise known as Self-Settled Spendthrift Trusts (SSST). A Spendthrift Trust is a trust created with an additional clause that seeks to restrict the ability of the beneficiary’s creditors from reaching the trust assets. When the Settlor (creator) of the trust is also the Beneficiary of the Trust as well as the Trustee of the trust, it is deemed to be Self-Settled. By becoming the 13th state to allow for Asset Protection Trusts, Virginia has codified the ability of an individual to create a trust that makes them the beneficiary and trustee of a Trust while also protecting those assets from their creditors. This is a policy shift in Virginia, as previously, Virginia only upheld those Spendthrift Trusts which were not self-settled.
There are specific requirements which must be met when creating such an SSST. It is important to note that an SSST will not protect assets if it is determined to be fraudulent: the asset transfer to the trust must not render the transferor insolvent and it must not hinder or defraud creditors. Therefore, persons are well-advised to consider (or seek counsel regarding) whether an Asset Protection Trust would be beneficial to their own estate planning design.
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