On April 23, 2014, Mississippi Governor Bryant signed House Bill 846, titled the “Mississippi Qualified Disposition in Trust Act.” The new act is codified in Mississippi Code Sections 91-9-701 et seq. and is effective July 1, 2014. With the enactment of this statute, Mississippi joins Alaska, Delaware, Hawaii, Missouri, Nevada, New Hampshire, Ohio, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and Wyoming as states with similar laws that permit settlors to create irrevocable trusts, be discretionary beneficiaries of the trusts, and receive spendthrift protection from creditors. In addition, Oklahoma has a more restrictive form of self-settled or domestic asset protection trust legislation, and some commentators believe that Colorado also offers some protection to settlors (who are also beneficiaries) of certain types of irrevocable trusts.
The Mississippi Act appears to follow the Tennessee Investment Services Trust Act, which was enacted in 2007. Under the Mississippi Act, a settlor who desires protection against creditors can transfer assets to an irrevocable trust that has an independent Mississippi trustee and is governed by Mississippi law with respect to its validity, construction, and administration, and the settlor may be a discretionary beneficiary of the income and principal of the trust. The Mississippi Act specifically provides for the appointment of advisers to make investment decisions. The Mississippi trustee must materially participate in the administration of the trust through such activities as (i) maintaining custody of some of the property in Mississippi, (ii) maintaining records of the trust on an exclusive or non-exclusive basis, and (iii) preparing or arranging for the preparation of income tax returns.
The settlor of a Mississippi Qualified Trust can retain the following powers or rights (among others) without losing spendthrift protection:
- The power to veto a distribution from the trust.
- A limited testamentary power of appointment.
- The right to receive a payment from a charitable remainder annuity trust or charitable remainder unitrust.
- The right to receive an annual unitrust payment from a private unitrust that is not in excess of five percent.
For a transfer to a Mississippi Qualified Trust to be effective, the settlor, before making the transfer to the trust, must sign a “Qualified Affidavit” which states:
- The transferor has full right, title, and authority to transfer the assets.
- The transfer will not render the transferor insolvent.
- The transferor does not intend to defraud a creditor by transferring assets to the trust.
- There are no unidentified pending or threatened court actions against the transferor.
- There are no unidentified pending or threatened administrative proceedings against the transferor.
- The transferor does not intend to file for bankruptcy.
- The assets being transferred were not derived from unlawful activities.
One unique feature of the Mississippi Act is that the settlor must secure and have in place before the transfer a general liability insurance policy and, if applicable, a professional liability policy, with policy limits of at least $1 million for each such policy.
The Mississippi Act provides a two-year statute of limitations period during which a creditor can bring an action against the trust. In addition, the Mississippi Act permits the following types of claims against a Mississippi Qualified Trust at any time:
- Claims for spousal support and alimony and for child support.
- Tort claims for death, personal injury, or property damage that occurs at any time and is caused by the settlor or for which the settlor is vicariously liable. This provision makes the spendthrift protection offered by the Mississippi Trust to settlors less effective than the protection provided by the domestic asset protection trust laws of other states. This provision may owe its inclusion in part to the aftermath of the decision of the Mississippi Supreme Court in Sligh v. First National Bank of Holmes County, 704 So. 2d 1020 (1997), in which it undermined the protection conferred by a spendthrift trust by ruling that the assets of a spendthrift trust for a third party beneficiary may be reached by a beneficiary’s tort creditors. This decision was overturned by the Mississippi legislature in 1998. The inclusion of this provision may also reflect the strength of the plaintiffs’ bar in Mississippi.
- Claims of the State of Mississippi or any political subdivision, including court restitution in a criminal matter.
- Claims of a creditor up to $1.5 million if the transferor fails to maintain the required $1 million general liability or professional liability policies.
The Mississippi Act specifically provides liability protection to the trustee, advisers to the trust, and any person involved in the counseling, drafting, preparation, execution, or funding of a Mississippi Trust. This protection extends to the creation and funding of limited partnerships and limited liability companies, the units in which are subsequently transferred to the Mississippi Trust.
Several provisions of the Mississippi Act or other Mississippi law make the Mississippi Qualified Trust less attractive than the domestic asset protection trusts in other jurisdictions. For one, Mississippi has the common law Rule Against Perpetuities, while other domestic asset protection states have either extended or eliminated the Rule Against Perpetuities. Mississippi has a state income tax, unlike many of the other domestic asset protection states. Finally, some commentators have noted that the possible loss of protection against creditors if the settlor fails to maintain the required liability insurance may prevent a transfer to the Mississippi Qualified Trust from being a completed gift.