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Effective July 1, 2012, Virginia will be the 13 state to allow self-settled Asset Protection Trusts. Self-settled Trusts allow an individual to transfer assets to a Trust, protect the transferred assets from lawsuit and the transferor's creditors, and yet receive assets from the Trust as a beneficiary under various conditions. This assumes that the asset transfer is not a "fraudulent conveyance," meaning the transfer did not render the transferor insolvent nor was it done with an intent to delay, hinder or defraud creditors. Thus, if the asset transfer is before a claim or the event leading to the claim, the assets are protected. Absent this legislation, you cannot protect assets from your creditors by transferring assets to a Trust where you are a beneficiary or Trustee.
Virginia residents can now avoid Delaware, Alaska, Nevada and other states that already allow self-settled Trust. There was uncertainty whether a Virginia resident with Virginia assets (or for that matter a resident of any state seeking to employ a Trust out of state) would receive asset protection from a self-settled Trust created in another state.
Self-settled Trusts do come with limitations, even for Virginia residents. Regardless, they should be considered in analyzing estate planning strategies. Self-settled Trusts can be structured so that the transfer constitutes a completed gift and removes the assets from the estate for federal estate tax purposes, or as an incomplete gift with the assets remaining in the transferor's estate. Once the law is enacted and these Trusts are utilized, Virginia residents can expect to see much discussion regarding self-settled Trusts.
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