By: Eric R. Kaplan, Esq.
On March 12, 2024, Wisconsin enacted 2023 Senate Bill 667, in which a new Chapter 699 was inserted into the Wisconsin Statutes (the “Act”), allowing it to become the twenty-second state to institute self-settled spendthrift trust legislation (also known as domestic asset protection trust legislation) under which a transferor (also known as either a settlor or grantor) can name himself or herself, along with one or more additional beneficiaries, as a discretionary beneficiary of the trust as well as be eligible to receive distributions from such trust (hereinafter referred to as a “Legacy Trust”).
Wisconsin Statutes Section 699.01(9) defines a “Legacy Trust” as “a trust created by written instrument, the terms of which: (a) appoint at least one qualified trustee to accept property that is subject of a disposition, regardless of whether the terms of the trust also appoint a nonqualified trustee; (b) expressly designate the laws of [Wisconsin] to govern the meaning and effect of the terms of the trust, in whole or in part; (c) expressly provide that the trust is irrevocable; and (d) include a spendthrift provision that applies to an interest of a beneficiary in trust property, including an interest of a transferor who is a beneficiary.”
The Act governs the construction, operation, and enforcement of all Legacy Trusts in the State of Wisconsin, regardless of whether the trust was created in or outside Wisconsin, if any of the following apply: (i) any of the lands, rents, issues or profits that are subject of a qualified disposition are located in Wisconsin; (ii) any portion of personal property, interest of money, or dividends of stock that is the subject of a qualified disposition is located in Wisconsin; (iii) the transferor’s domicile is in Wisconsin; or (iv) a qualified trustee of the legacy trust has the power to maintain records and prepare income tax returns for the trust, and all or part of the trust’s administration is in Wisconsin.[1]
A “disposition” is defined as a “transfer, conveyance, or assignment of a property interest, including a partial, contingent, undivided, or co-ownership property interest.”[2] A “qualified trustee” is defined as “a trustee who is not a transferor and to whom one of the following applies: (a) if the trustee is an individual, the individual resides and is domiciled in [Wisconsin]; and (b) if the trustee is a trust company or a bank, the trust company or bank is organized under federal law, state law, of the laws of another state, and the trust company or bank maintains an office in [Wisconsin].”[3]
A Legacy Trust may grant the transferor the authority to: (a) remove and replace a trustee; (b) remove and replace an advisor; (c) direct trust investments; and/or (d) execute any other managerial duties.[4] Further, a Legacy Trust remains valid even if the transferor has, among other powers: (a) the power to veto a distribution of income or principal; (b) the power to exercise a special power of appointment that is effective either during the transferor’s lifetime or upon the transferor’s death; or (c) the right to receive income.[5]
Similar to other states with a self-settled spendthrift trust statute, a creditor generally may not bring an action of any kind against the transferor, the trustee, or against any assets held by a Legacy Trust. Pursuant to the Act, there are exceptions to this prohibition. An action may be brought if the transfer of an asset was made to either hinder, delay, or defraud a creditor. Such action may be brought by a creditor who was a creditor of the transferor when the disposition was made if the creditor commences the action within the later of: (a) 18 months after the transfer; or (b) 6 months after the creditor discovers or reasonably should have discovered the transfer. Additionally, an action may be brought by a creditor who becomes a creditor after the transfer occurs if the creditor commences the action no later than 18 months after the date of transfer.[6]
A creditor has the burden of proof, by clear and convincing evidence , that the transferor made the qualified disposition with the intent to hinder, delay, or defraud a creditor. Further, proof by one creditor that a transferor made a qualified disposition with the intent to hinder, delay, or defraud that creditor is not proof that the transferor made a qualified disposition with the intent to hinder, delay, or defraud any other creditor. It also does not invalidate any other transfer of property to the Legacy Trust.[7]
If more than one qualified disposition is made to a Legacy Trust, then all of the following apply: (a) each qualified disposition shall be individually evaluated when determining whether a creditor’s claim against a qualified disposition is barred without regard to any subsequently qualified disposition; and (b) for purposes of determining the order in which property is paid, applied or distributed from a Legacy Trust: (i) a payment or distribution of money is considered to be made from or with the money most recently received or acquired by the trustee except to the extent that it is proven otherwise beyond a reasonable doubt; (ii) a payment or distribution of a fungible asset is considered to be made with the fungible asset most recently received or acquired by the trustee except to the extent that it is proven otherwise by clear and convincing evidence; and (iii) a distribution to a beneficiary is considered to have been made from the most recent transfer to the Legacy Trust.[8]
Pursuant to Section 699.09, no person (including a beneficiary) has a property interest in the property of a Legacy Trust to the extent that the distribution of that property is subject to the discretion of a qualified trustee or advisor, whether acting alone or in conjunction with another person, including a person authorized to veto a distribution from the Legacy Trust.
A trust administered under the laws of another state or foreign jurisdiction is considered to be a Legacy Trust if: (a) the trustee complies with the requirements in the trust instrument and any applicable requirements under the laws of such state or foreign jurisdiction in which the trust is being administered; (b) the trustee or other person having the power to transfer the domicile of the trust declares in writing of such intention to transfer the domicile of the trust to Wisconsin and; (c) at the time of or immediately following the transfer of the trustee to Wisconsin, the trust satisfies the definition of the term “Legacy Trust”.
Wisconsin now joins the select group of domestic jurisdictions allowing asset-preservation-minded individuals to consider settling a self-settled spendthrift trust and receive creditor protection.
[1] Wis. Stat. § 699.015. [2] Id . at § 699.01(7). [3] Id . at § 699.01(17). [4] Id . at § 699.04(2). [5] Id . at § 699.03(1)-(3). [6] Id . at § 699.05(3). [7] Id . at § 699.05(4). [8] Id . at § 699.05(9).
