In October 2014, Engel Law pc principal Edward D. Brown and attorney Chris Winton appeared before the West Virginia Joint Standing Committee on the Judiciary to discuss the benefits of West Virginia potentially joining other states in enacting self-settled spendthrift trust legislation. Please click the following link in order to see an article on our website regarding Mr. Brown’s appearance: www.engelreiman.com/pdf/Focus-On-article_0010.pdf
This began the process that, on March 23, 2016, resulted in Governor Earl Ray Tomblin approving Senate Bill 493, which allows for the creation of self-settled spendthrift trusts in West Virginia beginning this June. In this new statute, the settlor (trust-creator/ grantor/trustmaker) can name himself or herself, along with one or more other beneficiaries, as a discretionary beneficiary of the trust, and as such, be eligible to receive distributions from the trust. The trust would have the effect of providing lawsuit protection in the appropriate circumstances.
Any transfers to the trust will need to be accompanied by a signed affidavit averring, among other things, that the settlor has no pending creditor issues and does not anticipate bankruptcy. Among the statements to be made in the affidavit are that the settlor is not indebted on account of an agreement or order of court that is not specifically identified in the affidavit (i) for any property division from a divorce action, or (ii) for the payment of support or alimony for any spouse, ex-spouse or child of the settlor.
The law does not name any types of creditors as having any special access to the trust assets. This makes the trust all that more effective as a vehicle to protect assets. Of course, if the settlor is untruthful in the statements he or she makes in the above mentioned affidavit, then the protection for the trust assets is lost.
The law provides a four year period in which a creditor can challenge certain transfers of assets to the trust. Interestingly, the four year period seems to apply even if the creditor was not aware of the transfer until much later, meaning that, for example, if the creditor does not learn of the transfer until 5 years later, he may be barred from bringing an action against the settlor.
Perhaps the largest drawback of this law will be that the transfers to the trust may use some (or all, depending on the value of the assets) of the settlor’s available lifetime exemption from federal gift taxes. On the positive side, however, these trusts are intended to be effective in removing the transferred assets (and any subsequent appreciation thereon) from the settlor’s taxable estate.
- Edward D. Brown, Esq.