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Missouri Makes Dramatic Change to Asset Protection Law for Married Couples

Missouri Makes Dramatic Change to Asset Protection Law for Married Couples

New qualified spousal trust requirements have significant benefits

On July 10, 2015, Governor Jay Nixon of Missouri signed Senate Bill No. 164, which dramatically changes the Missouri qualified spousal trust (QST) requirements and, as a consequence, the entire asset protection landscape for Missouri married couples.  The new law takes effect on Aug. 28, 2015 and should apply to traditional as well as same sex- marriages.1   As discussed at the end of this article, in certain circumstances married couples who aren’t Missouri residents may be able to utilize the Missouri law in their asset protection planning.

What New Law Does

On its face, the new law allows either spouse to transfer separately-owned assets directly to a joint QST, or directly to a separate share of a QST for his own benefit and revocable by him alone, and have those assets completely insulated from all but joint lawsuits against the husband and wife.  This change follows on the heels of last year’s related change that allowed a married couple to transfer jointly-owned property that wasn’t owned as tenancy-by-the-entirety (TBE) to the QST and gain TBE-type asset protection as a result of the transfer.

Apparently, the 2015 amendment was passed in large part to take the pressure off of banks, brokers and other advisors who are required to make the transfers to the QST and who don’t wish to be responsible for making determinations ensuring that only TBE (or jointly-owned) assets are or have been transferred to the QST.  

Significant Benefits

The purported benefits of the new law are dramatic.  Married couples (including second marriages) with separately-owned assets may now take full advantage of the significant asset protection offered by the QST, without having to first retitle their assets into joint names, which, at best, is a significant inconvenience and, at worst, carries with it potentially adverse marital property consequences in the event of divorce.  This two-step process can also result in potential adverse estate-tax consequences, if either the husband or wife dies while the property is still jointly-owned. Under the new law, these couples may now transfer their separate assets directly to their respective shares of a QST, without granting the other spouse any rights in the property and, as a result, be protected from all but joint lawsuits against both spouses.

Married couples who, under the original version of the QST, needed to retitle separately-owned assets into joint names prior to transferring the same to the QST and then be concerned about how long the assets needed to remain in joint names prior to transferring them to the QST (that is, because of step-transaction doctrine fears) no longer need to worry about this two-step process and its attendant “waiting period” issues.  

The new law also creates a huge benefit for married couples who’ve already established and funded a joint revocable trust.  As alluded to above, the couple or their financial advisors no longer need to determine whether the assets owned by the joint trust have as their source assets that were originally titled in TBE form (or under last year’s formulation, joint tenancy form).  Assets could have been transferred to the trust directly via deposits of paychecks or bonus checks, individual retirement account or 401k distributions or inheritance or gift receipts. 

Three Areas of Potential Challenge

The question is whether the 2015 amendments will actually protect transfers of separately owned property from the claims of future unknown creditors of the transferor spouse.  There appear to be at least three areas of potential challenge.

1. Federal constitutional law. The equal protection clause is located at the end of Section 1 of the fourteenth amendment:   “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”  (Emphasis supplied.)

As currently crafted, a married individual may transfer his separate assets to his separate share of a QST, totally controlled and revocable by said individual, have those separate assets protected from all separate claims against the individual and only be subject to joint claims against the married couple.  A single individual, on the other hand, won’t receive equal protection under Missouri law.  If the single individual transfers his assets to a revocable trust, they remain completely subject to his individual creditors. (After 2014, the same principle applied under Missouri law to property jointly owned by a husband and wife, but not as tenants by the entirety, as contrasted with the treatment of property jointly owned by two individuals who aren’t married to each other.)

Not being a federal constitutional law expert, I can only present this issue for consideration.  The concern, of course, is that if the relevant 2014 and 2015 amendments to the Missouri QST law are void under federal constitutional law, as not being supported by a rational basis (or whatever intermediate level of scrutiny the court should decide applies), then arguably, at least, they’re also void as to potential future creditors of the spouse making the separate transfers.  I tend to doubt that passing a law primarily as a matter of convenience for married couples and their advisors would be sufficient to satisfy the rational basis, etc. tests.

A court would hopefully at least “blue pencil” the Missouri QST statute, however, to continue to protect transfers of TBE property to a QST and only strike down transfers made under the offending amendments to the original statute.

2. Missouri Uniform Fraudulent Transfer Act. The 2015 amendments specify that “no transfer to a qualified spousal trust shall avoid or defeat the Missouri Uniform Fraudulent Transfer Act” (UFTA).2  This provision was presumably added to the QST law as a necessary consequence of generally permitting transfers of separately-owned property and property jointly owned by a married couple but not as a TBE, to a QST, with the same protections as TBE property.   A husband or wife with existing or reasonably anticipated and specific future claimants obviously can’t expect to avoid the existing or potential separate claims by transferring his/her  separate assets to a QST.

The question becomes, how will the UFTA apply to future separate claims against either spouse, for transfers of separately-owned property directly to a QST?  Again, not being a creditors’ rights expert, I can only surmise based on the statements of legal experts in the area.  

In the April 29, 2015 issue of Forbes, Jay Adkisson asserts that, “if a person makes a transfer with the intent of defeating a future creditor, even if that creditor is totally unknown [to] the debtor and doesn’t even have a claim at the time of transfer, then under Section 43 that transfer is a fraudulent transfer.”   Adkisson bases his conclusion in large part on the title to Section 4  - “Transfers fraudulent as to present and future creditors.” (Emphasis supplied.)

The problem with focusing largely on the title to a statute is that the actual body of the statute may be much more limiting than the title.  For example, the body of RSMo Section 428.024 is arguably only applying to certain future creditors, specifically the type of future creditors referred to in subsection 1(2), not future creditors generally.

What is a "Future Creditor?"

Many creditors’ rights experts also make the distinction (not found in the title to the UFTA itself) between future creditors and future potential creditors.  For example, Jacob Stein defines a “future creditor” as a creditor whose claim arose after the transfer in question, but a foreseeable connection between the creditor and the debtor existed at the time. Generally, a future creditor is one who holds a contingent, unliquidated or unmatured claim against the debtor.  A transfer is fraudulent as to a future creditor if there’s a fraudulent intent directed at the creditor at the time of the transfer.  For example, if a debtor is about to default on a personal guaranty and transfers his assets in anticipation of such default, the holder of the guarantee is a future creditor, and the transfer is made with the intent to defraud the creditor.4  

There’s also a theory under the UFTA in which even a mere potential future creditor may be able to recover against a transferor, if the prerequisites of the case by a past existing or anticipated future creditor were or could have been proven.  (This may be referred to as the “tacking” or “piggyback” argument.)

One potential way to avoid the assertion that the transfer of separately owned property to a QST was intended to defraud a specific present or future creditor of the transferor spouse is to specifically provide in the QST document that all assets transferred to the trust (including the proceeds and reinvested proceeds of the same) at a time when there are creditors of the transferor holding present, contingent, unliquidated or unmatured claims against the transferor, shall continue to be subject to the claims of all of these present or future creditors and shall be paid by the trustee when due.

3. Federal bankruptcy law. Missouri estate-planning attorneys need to be cautioned regarding the potential federal bankruptcy law aspects of transferring a spouse’s individually-owned assets directly to his separate share of a QST.  This is despite the fact that the 2015 amendments to the QST statute provide that the property owned by the trust is to be treated as TBE property for federal bankruptcy purposes.

Although, without a change in the federal bankruptcy law, the bankruptcy judge would be bound by the Missouri law and its asset protection statutes, the bankruptcy court judge is free to apply its own construction of the Bankruptcy Code’s fraudulent transfer “actual intent” language, under 11 U.S.C. Section 548.  

Whereas a two-year bankruptcy recapture period applies to transfers to third parties generally, if actual intent to defraud is found, under Section 548(e) of the FBC an extended 10-year recapture period applies to transfers to self-settled trusts and similar devices, that is, trusts and other devices in which the settlor has retained an interest as beneficiary, but only if “the debtor made such transfer with actual intent to hinder, delay, or defraud any entity which the debtor was or became, or after the date that such transfer was made, indebted.” (Emphasis supplied.)

Somewhat similar to the above-described attorney debate over the precise meaning of the UFTA “actual intent” language, over the last 10 years attorneys have debated whether this new 10-year federal bankruptcy recapture period was intended to apply to all transfers to domestic asset protection trusts, even if there’s no finding of an actual intent at the time of creation of the trust to avoid the rights of a specific (that is, known) existing or future creditor of the settlor.  

Significant Risk

Many believe that there’s a significant risk of the 10-year “recapture period” applying to transfers to any “self-settled trust or similar device,” as long as at least one of the purposes of the transfer is to avoid creditors, whether they be present or future, and whether the present or future creditors are specifically identifiable at the time of the transfer.5  

Some may argue Section 548(e) is only intended to apply to irrevocable trusts, but the FBC itself doesn’t so provide, nor does the Congressional Record discussion, and even if either did, clients and their advisors would still need to deal with the “or similar device” language of the FBC. See Quality Meat Products LLC. V Porco, Inc. and Amy Bouvet,6 in which the court ruled only that the term “similar device,” as employed in 11 U.S.C. 548(e), required some form of an express trust, never mentioning that the express trust needed to be revocable.

Others may attempt to argue that the term “self-settled trust” can’t possibly apply to a QST, because a QST requires two settlors to establish, not just one, thus emphasizing the word “self.”  Again, however, there’s no direct authority for this position, and it would seem unlikely Congress would have intended the new law to be avoided so simply. 

Still a third argument against the application of Section 548(e) in the QST context might be that, because joint creditors of the husband and wife can reach the assets of a QST, transfers to a QST aren’t the type of transfers envisioned by the Bankruptcy Code.  Again, however, the federal Bankruptcy Code itself doesn’t contain such limiting language.  In fact, a contrary argument can be formulated as a result of the Bankruptcy Code’s use of the phrases “debtor made such transfer” and “debtor . . . became . . . indebted,” as opposed to two debtors jointly made such transfer and jointly became indebted. 

Section 548(e) wasn’t an issue prior to the 2014 and 2015 amendments to the Missouri QST law because only TBE property could be transferred to the QST under the original law.  Because TBE property was already protected from all but joint claims against both spouses, and because a QST by definition preserves joint claims against both spouses, transfers to a QST cannot be made with the required Section 548(e) actual intent to hinder future joint creditors of the couple.  The situation as far as creditors’ rights isn’t changed after the TBE assets are transferred to the QST.  With the total elimination of any prior titling requirements for property owned by a QST, however, transfers of assets owned separately by a husband or wife to a QST now at least potentially fall within the scope of 11 U.S.C. Section 548(e) and the 10-year waiting period for claims in bankruptcy.

Finally, and perhaps most importantly, the legislative history to Section 548(e) leads one fairly clearly to the conclusion that Section 548(e) was not designed to reach legitimate asset protection planning aimed at unknown potential future creditors, such as the planning a physician might do when concerned about potential future unknown malpractice claims, or which any other individual might undergo when concerned about a potential unanticipated and large automobile accident judgment.  See Congressional Record, 109th Congress, March 7, 2005, page S2137 and March 10, 2005, pages S2427 - S2428.   

What to Do Now?

If married couples and their advisors are concerned that a broad construction of the “actual intent” standard will apply for state or federal fraudulent transfer purposes (including claims in bankruptcy), it may be wise not to reference the Missouri QST statute in the trust document or anywhere else.  This should minimize any evidence that one of the purposes for the trust is to insulate assets from potential future creditors.  Whereas when the QST statute was first passed in 2011, it contained several ambiguities that required a statement of the couple’s intent to comply with Section 456.950 (as outlined in my 2012 Journal of the Missouri Bar article on the topic), because most of these ambiguities have now been resolved by statutory amendment (including as a result of a 2015 amendment clarifying that a QST may contain a discretionary power to distribute trust property to a person in addition to a settlor), continued references to Section 456.950 aren’t as necessary as they once were and may no longer be advisable.

Already Funded Joint Trusts

Subject to the potential equal protection clause objection outlined above, in situations in which a joint trust meeting the requirements of a QST has already been funded, and it’s thus difficult to prove all assets transferred to the trust were owned as TBE at the time they were transferred to the joint trust, the clients may choose to simply leave the assets in the trust.  It would be much more difficult for a claimant to successfully argue the existence of the requisite fraudulent “actual intent” if the assets at issue were transferred to the joint trust before Missouri even passed a law protecting separately-owned assets owned by a QST.  The couple merely elected to continue on with its existing joint revocable trust (amending the trust instrument in the unlikely event it doesn’t already comply with RSMo Section 456.950) and chose not to be burdened by transferring assets out of the trust and into TBE form, only to have to transfer the assets back to the trust, later on.

Even if the trust is later divided into separate shares for the husband and wife, it could still be argued that, because the joint share QST trust assets were already protected as a result of the 2015 amendments and not as a result of any action by the couple, this protection should continue to apply to the new separate shares, that is, because the spouses aren’t creating any additional protections by the division.  Of course, a like argument couldn’t be made as to any subsequent transfers of separately-owned assets to the husband’s and/or wife’s respective separate shares.

The only approach that addresses the above-raised equal protection argument, however, will be to transfer the existing assets of a joint revocable trust out of the trust and into TBE form, to the extent there’s any question about the ability to prove the origin of the assets at the time they were transferred to the trust.  It will also require that any assets that are re-transferred into TBE form, with the eventual goal of gaining the protections of the QST, be held in TBE form for a sufficient period ranging from 90 to 180 days, to minimize the effect of step-transaction arguments of a claimant.  

Additional Planning for New Transfers

When assets are to be transferred to an existing or new QST, whether for the sole or added purpose of asset protection, the safest planning would be to ensure that only TBE property is transferred to the QST, whether to the joint share or to either spouse’s separate share.  If separate property is transferred to the QST, but it’s not intended that the protections of Section 456.950 apply to it, prepare the trust document to allow for these separate “non-protected” shares.  You can do this by labeling the shares H-1 and W-1, as opposed to shares H and W, which would be intended as the QST-protected shares, and the 2014 amendments to the Missouri QST statute confirm this is permissible.

Based on the above-referenced holding in the Quality Meat Products case, which required that transfers to an express trust exist for the 10-year bankruptcy recapture period to apply, it would seem that transfers of separately owned or jointly owned assets into protected tenancy by the entirety form wouldn’t be subject to the 10-year bankruptcy rule. Of course, such transfers would still be subject to the general 2-year bankruptcy rule for fraudulent transfers generally, as well as any separate state law fraudulent transfer claim still open under the applicable statute of limitations.

Although Missouri state law isn’t completely clear on the point, it would appear that a married couple may enter into a valid agreement declaring that, when assets are transferred into TBE form, the marital and non-marital property attributes of the property aren’t changed, as long as all independent counsel and full disclosure requirements are satisfied.  It would also appear that the tax law has developed sufficiently that such an agreement won’t constitute an estate tax including “string” over the new TBE property, primarily because of the requirement that a spouse/transferor would need to act against his own interest to have his full interest in the transferred property returned.

Nonresident Issues

What if a nonresident of Missouri brings a claim against a Missouri resident who’s established and funded a QST?   Although not free from doubt, it’s likely Missouri would have the strongest contacts to the matter at issue, and therefore, the protection of the Missouri law would be upheld, notwithstanding a strong state policy of the forum jurisdiction in opposition to the Missouri law.  

Can a nonresident of the state of Missouri establish a qualified personal residence under Missouri law, which will be enforceable under the laws of the nonresident’s jurisdiction, especially if it can be demonstrated that the nonresident’s jurisdiction has a strong public policy against asset protection planning?  The Missouri statutes, Section 456.1-107, provide that a mere choice of law clause wouldn’t be sufficient, and a recent federal bankruptcy decision out of the state of Washington, In re Huber,7  supports this position.  As alluded to above, however, if only tenancy by the entirety property is transferred to the trust, it may be possible to overcome the strong public policy argument, i.e., because the transferred property was already protected at the time it was transferred to the trust.

Finally, if the nonresident client is able to move the trust's principal place of administration to Missouri (for example, by using a Missouri corporate trustee), there would at least be a strong argument that Missouri law should govern the administration of the trust and, therefore, creditors’ rights against the trust corpus.8  


1.    You can find background on the QST – including all of the original qualification requirements of the same –my 2012 Journal of the Missouri Bar article on the topic, as well as in my other articles written for non-lawyers, which are linked on my website,

2.     RSMo Section 428.024. [Now the “Uniform Voidable Transfers Act,” in some states] 

3.     Ibid.

4.     Jacob Stein, “Fraudulent Transfers in Asset Protection,” JDSupra Business Advisor (July 27, 2010).

5.     11 U.S.C. Section 548(a)(1).  

6.     Quality Meat Products, LLC v. Porco, Inc. and Amy Bouvet, Case No. 09-31587 (Bank. Ct. Southern Dist. Ill., filed March 30, 2011).  

7.     In re Huber, 201 B.R. 685 (Bankr. W.D. WA May 17, 2013).

8.     See Comment to Section 107 of the Uniform Trust Code (UTC) and Gideon Rothschild and Daniel S. Rubin,  “Alaska Asset Protection Trust Deemed Invalid Under Washington Law,” (May 29, 2013).  Note that the Comment to Section 107 of the Uniform Trust Code actually lists preserving creditors rights among its list of potential public policy concerns. 

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