Indiana Legacy Trust

Legacy Trust

Effective July 1, 2019, Indiana allows a self settled spendthrift trust that provides protection to qualified dispositions from most claims of creditors.[1] This is true even if distributions may be made to the transferor. The Indiana Legacy Trust is a domestic asset protection trust.

There are specific requirements to create the trust.

1. The trust must be in writing signed by the Transferor.[2]

2. The trust must designate that it is a Legacy Trust established under I.C. 30-4-8.[3]

3. The trust must include the following terms:

3.1. The appointment and acceptance of a Qualified Trustee which is either an individual, not the Transferor, who is an Indiana resident or any other Person subject to the supervision of the state department of financial institutions; or the federal Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System or any other successor to these agencies;

3.2. Indiana law governs the validity, construction and administration of the trust;

3.3. The Legacy Trust is irrevocable; and

3.4. The interest of the Transferor or beneficiary in the trust property or the income from the trust property may not voluntarily or involuntarily be transferred, assigned, pledged, or mortgaged before the Qualified Trustee actually distributes the property or income to the beneficiary.[4]

4. The Transferor must execute and deliver to the Qualified Trustee a Qualified Affidavit which provides under penalties of perjury that:

4.1. The Transferor has full right, title, and authority to transfer the property to the Legacy Trust,

4.2. The Transferor of the property to the Legacy Trust will not render the Transferor insolvent,

4.3. The Transferor does not intend to defraud a Creditor by transferring the property to the Legacy Trust,

4.4. There are no pending or threatened court actions against the Transferor other than the court actions identified by the Transferor and attached to the Qualified Affidavit,

4.5. The Transferor is not involved in any administrative proceedings other than the administrative proceedings identified by the Transferor and attached to the Qualified Affidavit,

4.6. The Transferor does not contemplate filing for relief under the federal bankruptcy code, and

4.7. The property transferred to the Legacy Trust is not derived from unlawful activities.[5]

5. If Transferor is a trustee of another existing trust, a Qualified Affidavit must be signed by the Transferor who funded that trust.[6]

6. If the Transferor is a married individual when the Qualified Affidavit is signed, a copy of the Qualified Affidavit must be given to Transferor’s spouse.[7]

7. If Qualified Disposition is made within thirty (30) days before the date of marriage, notice of the Qualified Disposition must be given to the intended spouse three (3) days before the Disposition.[8]

Assets listed on a financial statement of Transferor to get a loan are not protected by the Legacy Trust and notice to Lender must be given if those assets are transferred to the Legacy Trust even though the assets are not protected. This notice should not be required to create a Legacy Trust but cautious planners should provide the notice if required.

Once a Legacy Trust is created, later transfers can be made to the Legacy Trust. The statutes only require a Qualified Affidavit be prepared to establish a Legacy Trust. However, it would be prudent to prepare a Qualified Affidavit under Item 6 with each Qualified Disposition to the Legacy Trust.

If properly implemented, the trust provides broad protection from creditors except for creditors specified in the statute. For Uniform Fraudulent Transfers, the statute of limitations has been shortened for non-governmental creditors and the burden of proof has been increased to clear and convincing. Child support, whether arising before or after the qualified disposition, is still a creditor exception. If the transferor is married, then the qualified dispositions are subject to division on divorce. Also, if the qualified disposition is to be made within thirty (30) days of the date of the marriage, the assets are subject to division unless notice is given at least three (3) days before making the qualified disposition to the intended spouse.

There is a bankruptcy clawback provision which allows a trustee in bankruptcy to retrieve assets transferred to a self-settled spendthrift trust if the transfer is made within ten (10) years of the bankruptcy with the actual intent to hinder or delay or defraud any entity to which the debtor was or became on or after the date of such transfer indebted.

[1] I.C. 30-4-8

[2] I.C. 30-4-8-3(1)

[3] I.C. 30-4-8-3(1)

[4] I.C. 30-4-8-4

[5] I.C. 30-4-8-5

[6] I.C. 30-4-8-5(c)

[7] I.C. 30-4-8-8(d)

[8] I.C. 30-4-8-8(a)(3)