Unveiling Domestic Asset Protection Trusts with Act 291 and Act 293

During the 2023 regular session of the Arkansas General Assembly, RMP attorneys worked hand in hand with several state legislators to draft, garner support for, and pass several important acts that greatly improve trust planning and asset protection in Arkansas. This article highlights two of those Acts —Act 291 and Act 293. Act 291 amends the law regarding spendthrift trusts and allows for the creation of domestic asset protection trusts (DAPTs). Act 293 amends the Arkansas Trust Code to allow for decanting of trusts.
Act 291—Spendthrift Trusts and Domestic Asset Protection Trusts
DAPTs allow individuals to transfer their assets to a trust for their own benefit and protect such assets from creditors. Prior to Act 291, trusts created for the benefit of the settlor did not provide the settlor with any creditor protection. Although no specific language is necessary to create a DAPT, the trust must: (1) be irrevocable; (2) give discretionary authority over distributions for the benefit of the settlor to a qualified trustee; and (3) not be created to hinder, delay, or defraud any known creditors. While the settlor cannot serve as trustee, the settlor is able to retain some powers over the trust, including the power to: (1) remove and replace a trustee; (2) direct trust investments; and (3) execute other management powers. Act 291 limits the time period during which a creditor can bring an action against the transfer of property to a DAPT. For existing creditors, Act 291 requires that a claim be brought within 2 years of the transfer of property, or within 6 months after the creditor discovers or reasonably should have discovered the transfer, whichever is later. For creditors arising after property is transferred to the trust, Act 291 requires the claim be brought within 2 years of the transfer. A creditor cannot prevail on any action with respect to a transfer of property to a DAPT unless it presents clear and convincing evidence that the transfer of property: (1) was a fraudulent transfer under the Uniform Voidable Transactions Act, or (2) the transfer violates a legal obligation owed to the creditor under a contract or court order that is legally enforceable. DAPTs are a powerful planning tool that can provide individuals working in high-liability fields with a way to shield their personal assets from creditor claims while maintaining a beneficial interest in those assets.
Act 293—Decanting of Trusts
Decanting allows a trustee to transfer trust assets to one or more new trusts with improved designs. To take advantage of the statutory authority to decant, the trustee must have discretionary authority to distribute trust income or principal to or for a beneficiary. The second trust cannot have any new beneficiaries, and the beneficiaries of the new trust must be beneficiaries of the old trust to or for whom a distribution of income or principal may be made currently or in the future. Decanting is a powerful tool that can provide trustees of old, irrevocable trusts a means to update the administrative and/or tax planning provisions of a trust without seeking court approval.
Please reach out to RMP’s experienced estate planning attorneys for assistance in taking advantage of the benefits these new Acts provide.