Thanks to the Mississippi Qualified Disposition in Trust Law, you are actually able to create a trust for yourself that is protected from the claims of your creditors.

Specifically, rather than merely being the beneficiary of a trust that someone else created (such as a parent), you can actually establish it on your own. It’s commonly called the Domestic Asset Protection Trust, but in Mississippi we call it a Qualified Disposition in Trust Trust.

So, what is a domestic asset protection trust and why would anyone bother creating one?

Creating Your Own Trust

Here’s how it works. If you have a lot of assets and you’re afraid of the potential liability of having all that money lying around, you can put it into a domestic asset protection trust that’s designed to shield assets from creditors. As a discretionary beneficiary of the trust, you’ll be allowed to control the principal and income!

It sounds like a great deal–and it is–but there are some exceptions, provisos, and caveats to consider!

1) You can’t have existing liabilities. Nice try. If you have creditors coming after you right now, you can’t siphon all of your money into a brand-new trust and breathe a sigh of relief. This trust only protects you against future liability, so if you try to use it to avoid your current creditors, that constitutes a fraudulent transfer.

2) You can’t be the trustee. You thought you could have your cake and eat it too? Well, the domestic asset protection trust doesn’t allow you to be the one in charge of the trust. It’s not as bad as it sounds–you can still retain power over the investments contained with the trust. But don’t expect to have the same autonomy over the trust as you would with the money outside of the trust.

A separate trustee must materially participate in administering the trust for it to be valid. The trustee can either be an individual or an institution, but in either case must be a Mississippi resident.

3) You can’t reserve the right to amend the trust. The domestic asset protection trust is an irrevocable trust, which means you don’t have control of the entity itself. That’s what makes it work to shield you from creditors, because creditors can access any assets that you yourself have control over. In establishing this trust, you relinquish those rights to distribute assets so that a creditor can’t force you to distribute them.

A Few More Points

In addition to these limitations, you must have and maintain a liability insurance policy of at least $1 million. This means that the trust only really makes sense for assets in the range of $1 million or more. Typically, I see about $1 to $3 million in most domestic asset protection trusts, but some are much larger.

You should also note that Mississippi has a two-year statute of limitations period before the transferred assets will be protected from your creditors inside the trust. That gives any existing creditors the chance to claim what they’re owed.

As a side note, there are exceptions that can’t be dodged in Mississippi, even if the trust and its assets are completely legal and valid. These include alimony and child support and pre-existing tort claims.

This type of trust can be complicated, so I welcome any and all questions on it!

~ Ronald Morton