Trusts & Asset Protection Trusts
Home / Legal Services / Trusts & Asset Protection Trusts
TRUSTS & ASSET PROTECTION TRUSTS IN KENTUCKY
Trusts and Asset Protection Trusts for Kentucky Families
Trusts have a reputation problem in Kentucky. Half the people who come to us think a trust is something only wealthy families need, and the other half think a trust is a single product that solves everything — probate, taxes, nursing home costs, difficult in-laws. Neither is right, and the gap between them costs families real money.
A trust is a tool. Which trust, drafted how, holding what, and controlled by whom are the questions that decide whether it does anything useful. A revocable living trust and an irrevocable asset protection trust share a name and almost nothing else — one keeps your control and protects nothing from long-term care costs; the other protects property precisely because you gave up some control over it.
This page explains the trusts Kentucky families actually use, what each one can and cannot do, and the one feature of Kentucky law that surprises almost everyone who has read about asset protection online. If you would rather talk through your own situation, request a consultation — or start with our estate planning services for the wider picture.
A trust is only as good as its terms, its funding, and its timing. All three are fixable now and difficult to fix later.
What Is a Trust?
A trust is a legal arrangement in which one party — the trustee — holds and manages property under written terms for the benefit of someone else. Three roles matter: the person who creates it and puts property in, the trustee who manages it, and the beneficiaries who receive from it. One person can hold more than one of those roles, and which roles overlap is often what determines whether the trust protects anything.
Kentucky trusts are governed by the Kentucky Uniform Trust Code (KRS Chapter 386B), which sets out the trustee’s duties — loyalty, prudence, impartiality, recordkeeping — and what the trust document is and is not allowed to override. Some of those duties are default rules a well-drafted trust can adjust. Others are mandatory no matter what the document says.
Signing a trust is the smallest part of the job. A trust only controls what is actually transferred into it, and it only performs the way its terms are administered. Both of those failures are common, and both are avoidable.
Revocable and Irrevocable — the Distinction That Decides Everything
Nearly every question about what a trust can do resolves to this one difference. It is worth being clear about before looking at any particular trust.
Revocable trusts
You can amend or revoke it, serve as your own trustee, and use the property freely. That flexibility is exactly why it works well for avoiding probate, managing property if you become incapacitated, and keeping your affairs private. And it is exactly why it protects nothing from long-term care costs or creditors — if you can reach the property, so can they.
Irrevocable trusts
You give up defined rights over the property, usually the right to take principal back. In exchange, after enough time has passed, the property can stop being counted as yours — for Medicaid eligibility and, depending on the design, for other purposes. The trade is real, and it is the whole basis of the protection. Anyone offering you the protection without the trade is selling something that does not exist.
Both types have a legitimate place, and many families end up with one of each. What matters is not choosing the “better” trust but matching the instrument to the objective — and being honest about which objective you are actually buying.
The Trusts Kentucky Families Actually Use
There are dozens of trust structures in the literature. In practice, most Kentucky plans are built from a handful.
Revocable living trust
Holds your property during life, lets a successor trustee take over seamlessly if you become incapacitated, and passes what is left without probate. The workhorse of ordinary estate planning — and, again, not an asset protection device.
Irrevocable Medicaid asset protection trust
Designed to hold selected property — often the home or land — under terms that, given enough time, keep it from being treated as an available resource for long-term care Medicaid. Discussed in detail further down this page.
Testamentary trust
Created by your will and funded at your death rather than during life. Common where the goal is to hold an inheritance for a young beneficiary rather than to avoid probate, since the will itself still goes through probate.
Special needs trust
Provides supplemental support for a beneficiary with a disability without displacing means-tested public benefits. Highly technical, and it has to be coordinated with the benefits that beneficiary already receives or expects to receive.
Beneficiary protection (spendthrift) trust
Instead of handing a child a check, the inheritance stays in trust with terms that govern how and when it is used. Kentucky expressly recognizes spendthrift provisions for beneficiaries other than the person who created the trust (KRS 386B.5-020), which is what gives this structure its teeth against a beneficiary’s creditors and divorcing spouse.
Trusts for a second marriage
Where there are children from a prior marriage, a trust can provide for a surviving spouse for life while guaranteeing that what remains goes to the children rather than to the spouse’s later beneficiaries. Outright bequests cannot promise that.
What a Trust Can and Cannot Protect in Kentucky
This is the section we would most like people to read before they buy a trust from an out-of-state website.
Kentucky law on self-settled trusts changed on July 15, 2026. For years Kentucky had no domestic asset protection trust statute, unlike Nevada, Delaware, Ohio and others. That changed when the Kentucky Qualified Dispositions in Trust Act, KRS 386.601 to 386.619, took effect. Kentucky now permits a self-settled spendthrift trust, called a qualified trust, provided it is irrevocable, expressly governed by Kentucky law, administered by a qualified trustee who is not the person creating it, and funded by a qualified disposition made after a sworn qualified affidavit. Once the statutory period has run, two years for later creditors and, for existing creditors, the later of two years or six months after discovery, the transferred property is beyond the reach of most claims. Protection is not absolute: past-due child support, past-due spousal maintenance, written marital property division obligations, and debts secured before the transfer all remain enforceable.
Outside that statute, the general Kentucky rule is unchanged. Under KRS 386B.5-020(7)(a), a person who creates a trust for their own benefit holds an interest that “shall be subject to alienation by operation of law or legal process.” An ordinary self-settled trust that does not meet the requirements of the new Act still does not shield property from the settlor’s creditors. And a qualified trust is not a Medicaid planning device: it does not shorten the sixty-month look-back and does not make a self-settled trust non-countable for eligibility.
What follows from that is the single most important design point in Kentucky asset protection: protection comes from genuinely giving something up. An irrevocable trust that keeps your access to principal is not protective, whatever it is called. One that gives up access to principal — while, in the right design, preserving your right to live in the home and to receive income — can be.
Two other limits are worth stating plainly. Transfers can be challenged as fraudulent for years after the fact, so a trust funded once a claim is already on the horizon is unlikely to help. And Kentucky’s homestead exemption is $5,000 — a figure set long ago and not remotely enough to protect a paid-off house on its own. Planning is what protects the house here; the exemption does not.
Trusts also do not do everything. Medicaid planning, business liability planning, professional malpractice exposure, and general creditor protection are related but distinct problems, and no single instrument answers all of them. We would rather tell you that at the first meeting than have you find out later.
How a Kentucky Trust Is Built and Funded
The order matters. Most failed trusts went wrong at step one or step four.
01
Decide what the trust must actually do
Probate avoidance, incapacity management, long-term care protection, controlling an inheritance, providing for a beneficiary with a disability — these call for different structures. Starting with the objective rather than the product is what keeps families from buying a trust that cannot do the thing they bought it for.
02
Choose the trustee carefully
For an irrevocable protective trust, the settlor usually cannot serve as trustee without undermining the protection. That means naming an adult child, another trusted individual, or a corporate trustee — and thinking honestly about capability, longevity, and family dynamics before the document is signed rather than after.
03
Draft terms that match Kentucky law
The Kentucky Uniform Trust Code sets out what a trust document can adjust and what it cannot. Distribution standards, the trustee’s powers, successor provisions, and the settlor’s retained rights all have to be drawn deliberately — these are the clauses that determine both the tax treatment and whether the protection holds.
04
Fund it — the step most often skipped
An unfunded trust protects nothing and avoids no probate. Real estate needs a new deed prepared and recorded with the county clerk. Bank and brokerage accounts have to be retitled. Beneficiary designations have to be reviewed so they do not contradict the trust. We treat funding as part of the engagement, not homework.
05
Administer it the way it is written
Trusts fail in administration as often as in drafting. Trust property has to stay separate, distributions have to follow the terms, records have to be kept, and tax returns have to be filed where required. A protective trust that is administered as though it were the settlor’s personal account invites exactly the argument you set it up to avoid.
We handle all five steps in one engagement, including the deeds and the retitling, so nothing is left half-done.
Medicaid Asset Protection Trusts
For most Kentucky families, the risk that threatens the estate is not a lawsuit. It is the cost of care. A Medicaid asset protection trust is the instrument built for that risk specifically.
The structure is an irrevocable trust holding selected property — most often the home, sometimes farmland or investments — under terms that prevent the settlor from reaching principal. If it is created, funded, and administered correctly, and enough time passes, the trust property is generally not treated as an available resource when long-term care Medicaid eligibility is assessed.
Timing is the governing constraint. Medicaid reviews transfers made in the sixty months before an application, and funding a trust inside that window can create a penalty period rather than protection. This is why the same trust does very different work at seventy-two than it does at eighty-four, and why “we will deal with it if something happens” is the most expensive plan available.
What you typically keep: the right to live in the home, the right to trust income, the ability to change who ultimately inherits, and — with proper drafting — favorable capital gains treatment for your heirs. What you give up: access to principal, and the ability to undo the arrangement on your own. Retirement accounts and money needed for ordinary living expenses generally stay out and are handled differently.
It is not the right answer for everyone. See how Medicaid planning works for how these trusts fit alongside exempt-asset planning, spousal protections, and crisis strategies.
Trusts That Protect the People You Leave Behind
Not every trust is about protecting property from your own risks. Many of the most valuable ones protect an inheritance from what might happen to the person receiving it.
An inheritance paid outright is exposed to whatever the beneficiary’s life brings — a divorce, a business failure, a lawsuit, a creditor, a substance problem, or simply inexperience with money. Held in trust instead, with a spendthrift provision Kentucky expressly recognizes for third-party beneficiaries, the same inheritance can be available for the beneficiary’s benefit while staying out of reach of those claims.
The version of this that matters most is the special needs trust. A well-meant outright bequest to a child or grandchild receiving means-tested disability benefits can end those benefits, and the family often does not discover the problem until it has already happened. A properly drafted supplemental needs trust lets you provide for that person’s comfort — travel, equipment, therapies, the things benefits do not cover — without displacing the benefits themselves.
These decisions are easier to make than people expect. They are simply hard to make well without knowing how the terms interact with benefits, taxes, and Kentucky trust law.
Common Mistakes Families Make
Almost every trust problem we are asked to fix falls into one of these.
Signing a trust and never funding it
The single most common failure. The deed is never prepared, the accounts are never retitled, and at death the family goes through probate anyway — having paid for a plan designed to avoid it.
Believing a revocable trust protects assets from nursing home costs
It does not. This misconception is widespread, it is often reinforced by non-lawyers selling trust packages, and it is discovered at the worst possible moment.
Buying an out-of-state “asset protection trust” online
Kentucky does not authorize self-settled asset protection trusts, and a form drafted for another state’s statute may leave the property fully exposed here while the buyer believes it is protected.
Naming a trustee for the wrong reasons
Birth order is not a qualification. For a protective trust, naming yourself defeats the purpose, and naming the child who would be offended not to be named creates a different kind of problem.
Waiting until care is on the horizon
The sixty-month look-back means protective trusts reward early funding and punish late funding. Trusts funded in a crisis usually cannot do what the same trust could have done years earlier.
Treating the trust as a filing cabinet
A trust that is signed, funded, and then ignored for fifteen years drifts out of alignment with the family, the assets, and the law. Every plan deserves a look every three to five years.
Trust & Asset Protection Services
Each of the services below has its own page explaining what it involves under Kentucky law, who it suits, and what it costs you to wait. If you are not sure which applies to your situation, the initial consultation is free.
FREQUENTLY ASKED QUESTIONS
Some Common Questions
What is a trust?
A trust is a legal arrangement under which a trustee manages property for one or more beneficiaries. Trusts can be used to manage assets during incapacity, avoid probate, protect beneficiaries, plan for long-term care, and control how and when property is distributed.
What is the difference between a revocable and an irrevocable trust?
A revocable trust can generally be amended or revoked by the person who created it. It is commonly used for probate avoidance, incapacity planning, privacy, and efficient property management.
An irrevocable trust usually involves giving up certain ownership rights or control. Depending on its terms and how it is administered, it may be used for Medicaid planning, tax planning, special-needs planning, or protection from particular risks.
Will I lose control of my assets if I create a trust?
That depends on the type and terms of the trust. A revocable trust generally allows you to retain substantial control. An asset-protection trust requires carefully defined limits, but it does not necessarily mean losing all practical benefit from the property. We explain the permitted and prohibited uses before a plan is implemented.
Can I sell my house after placing it in an asset-protection trust?
A properly drafted trust can often sell trust-owned property and reinvest the proceeds. However, the sale proceeds remain subject to the trust’s terms. The tax, Medicaid, and practical effects should be reviewed before any sale.
Can a trust protect an inheritance for my children?
Yes. Instead of distributing an inheritance outright, a trust can hold and manage assets for a child or other beneficiary. The trust may offer protection from poor financial decisions, divorce, creditors, disability-related benefit problems, or other risks.
REVIEWS
Hear From Our Clients
CONTACT
Find Out Which Trust You Actually Need
The right question is never “should I get a trust?” — it is what you are trying to protect, from what, and how much time you have. Bring us that, and we will tell you honestly whether a trust is the answer, which one, and what it would require you to give up.
Phone:
Address:
117 E. Stephen Foster Avenue, Bardstown, KY 40004