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 as a Trust beneficiary. This assumes that the asset transfer is not a “fraudulent conveyance,” i.e., a transfer that 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 yet available for the beneficiary.
Absent state legislation approving self-settled trusts, you cannot protect assets from your creditors by transferring assets to a Trust where you remain a beneficiary. Many states have enacted legislation approving self-settled Trusts if only to compete with other states and countries that have done so to attract and retain trust assets.
Virginia enacted its self-settled statute almost six years ago, effective July 1, 2012. Section 64.2-745.1. There are roughly a dozen other states that also have done so. Prior to Section 64.2-745.1., there was uncertainty whether a Virginia resident with Virginia assets (or for that matter a resident of any state seeking to utilize a self-settled Trust when his own state does not recognize the concept) would receive asset protection from a self-settled Trust created in another state, such as Nevada or Delaware. Now, there is not a public policy argument precluding Virginia residents from taking advantage of self-settled Trusts.
