Kentucky Qualified Dispositions in Trust
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TRUSTS — NEW KENTUCKY LAW
The Kentucky Qualified Dispositions in Trust Act
On July 15, 2026, Kentucky became a domestic asset protection trust state. The Kentucky Qualified Dispositions in Trust Act, KRS 386.601 to 386.619, allows a person to create an irrevocable trust, remain a discretionary beneficiary of it, and after a statutory period put the transferred property beyond the reach of most creditors.
For decades Kentucky law said the opposite. A self-settled spendthrift trust was reachable, and Kentuckians who wanted this protection had to look to Nevada, Delaware, Ohio or another state, with all the conflict-of-laws risk that involved. That is no longer the only option.
The law is new enough that very little has been written about it, and much of what is online about Kentucky asset protection still describes the old rule. This page sets out what the Act actually requires, what it protects against, and just as importantly what it does not do.
This is genuinely new Kentucky law. Call (502) 348-2108 to talk through whether it fits your situation.
What the Act Does
The Act permits what is known as a qualified disposition: a transfer of property into a qualified trust of which the person making the transfer may themselves be a discretionary beneficiary. Once the applicable limitation period has run, creditors of the transferor generally cannot reach the property.
This is a significant departure. KRS 386.605(1) opens by disapplying the general rule, providing that notwithstanding any law to the contrary, including KRS 386B.5-020(7)(a), no action of the kinds it describes may be brought. The very subsection that made self-settled spendthrift trusts reachable in Kentucky is named and set aside for trusts that qualify.
It is a creditor-protection statute, and its purpose is protection against future, unforeseen claims. It is not a device for defeating creditors you already have, and the Act is careful to preserve several categories of claim regardless.
What Makes a Trust Qualify
The requirements are technical and unforgiving. A trust that misses any of them is simply an ordinary self-settled trust, with none of the protection.
The trust and the trustee
Under KRS 386.601 a qualified trust must expressly incorporate Kentucky law to govern its validity, construction and administration, must be irrevocable, and must contain a spendthrift clause restraining transfer, assignment, pledge or mortgage of the interest before it is actually distributed. It must have a qualified trustee: either a natural person who is a Kentucky resident, or an entity authorised under Kentucky law to act as trustee, who materially participates in the administration of the trust. The person making the transfer cannot be the qualified trustee.
The qualified affidavit
KRS 386.603 requires a sworn affidavit, signed by the transferor before the disposition is made. This is not a formality to be caught up on afterwards. A qualified disposition is defined as one made after the affidavit has been executed, so the sequence is part of what creates the protection. Getting this order wrong is the most obvious way to lose the benefit of the entire structure.
These requirements are why this is not a form-filling exercise. The Act creates a genuine planning opportunity in Kentucky for the first time, and it does so with conditions that have to be satisfied precisely and in the right order.
When the Protection Begins
Creditors whose claims arose after the transfer
Under KRS 386.605, a claim by a creditor whose claim arose after the qualified disposition is subject to a two-year limitation period running from the transfer.
Creditors who existed before the transfer
For a creditor whose claim arose before the disposition, the period is the later of two years after the transfer or six months after the claim was or reasonably could have been discovered.
Past-due child support
Expressly preserved. The Act does not protect against claims for past-due child support, and no amount of drafting changes that.
Spousal maintenance and property division
Past-due temporary or permanent maintenance to a spouse or former spouse, and obligations under a written marital property division agreement or order, are also preserved.
Pre-existing secured debts
A valid note, mortgage, security interest or debt instrument in existence before the disposition remains enforceable.
Bankruptcy treatment
KRS 386.610 provides that the spendthrift provision is to be treated as a restriction on transfer enforceable under applicable nonbankruptcy law within the meaning of 11 U.S.C. section 541(c)(2). How that plays out in a bankruptcy is a question for bankruptcy counsel, and we would say so rather than guess.
What You Can Keep and Still Be Protected
The obvious objection to any self-settled trust is that if you retain too much, it is really still yours. KRS 386.617 addresses this by listing interests and powers a transferor may retain without the trust being treated as revocable.
Those include the potential or actual receipt of income; a unitrust-style interest of up to five per cent; distributions of principal in the qualified trustee discretion or under an ascertainable standard such as health, education, maintenance and support; a power to veto distributions; a special power of appointment exercisable during life or by will; the right to remove and replace a trustee or adviser, excluding related or subordinate parties; reimbursement of income tax attributable to the trust; and payment of debts, administration expenses and death taxes after death.
The list also includes use of real property held under a qualified personal residence trust. It is worth being precise about that: a retained right simply to occupy a home held in an ordinary trust is not obviously within the same safe harbour, and anyone planning around continued occupancy of a residence should have that examined specifically rather than assumed.
What the list demonstrates is that this is a real planning tool with meaningful retained benefits, and simultaneously that the boundaries are statutory and narrow.
Who This Is Actually For
This is a professional-risk and future-creditor tool. It suits some people very well and most people not at all.
01
Professionals with liability exposure
Physicians, dentists, contractors, business owners and others whose work carries a long tail of potential claims. Protection against future, unknown claims is exactly what the Act contemplates.
02
Business owners with personal exposure
Where personal guarantees or a business with genuine operating risk mean personal assets could be reached, protecting a defined portion of family wealth in advance is a legitimate objective.
03
People planning before any claim exists
Timing is everything. The Act protects against future claims after a limitation period, and it explicitly preserves several categories of existing obligation. It is not a response to a lawsuit already on the horizon.
04
Families who would otherwise go out of state
Kentuckians previously had to use a Nevada or Ohio trust, with the conflict-of-laws risk of a Kentucky court applying Kentucky law to a Kentucky resident. A Kentucky statute removes much of that argument.
05
Not people planning for a nursing home
This is the most important line on the page. A qualified trust is a creditor-law device and gives no Medicaid advantage at all. See the section below.
If your concern is long-term care rather than professional liability, this is not your tool. Call (502) 348-2108 and we will point you to the right one.
This Is Not a Medicaid Planning Tool
We want to be emphatic about this, because the arrival of a Kentucky asset protection statute will inevitably be marketed as a solution to nursing home costs. It is not.
Medicaid countability does not turn on whether creditors can reach a trust. It turns on whether payment could be made to the person under any circumstances. A trust that permits discretionary distributions of principal back to the settlor, which is one of the retained interests KRS 386.617 expressly allows, is precisely the kind of arrangement that remains countable for eligibility purposes.
The Act is a state creditor-law statute. It does not amend, and could not amend, the federal Medicaid rules or Kentucky own regulations. The sixty-month look-back is untouched, and the two-year creditor limitation period in KRS 386.605 has no relationship to the transfer penalty at all.
Protection from long-term care costs still requires an irrevocable trust drafted for that purpose, funded well before care is needed, under which principal genuinely cannot come back to you. See Medicaid asset protection trusts and Medicaid pre-planning.
- Effective July 15, 2026 under 2026 Ky. Acts ch. 134
- The trust must be irrevocable and expressly governed by Kentucky law
- A qualified trustee is required, and it cannot be you
- A sworn qualified affidavit must be signed before the transfer
- Two years for later creditors; for earlier creditors, the later of two years or six months after discovery
- Child support, spousal maintenance, marital property division and pre-existing secured debts are preserved
- It confers no Medicaid eligibility advantage whatever
New-Law Trust Planning in Bardstown and Louisville
Thomas Hamilton has been admitted to the Kentucky bar since 2011 and has concentrated on elder law and estate planning since 2014. He is a member of the Kentucky Bar Association Elder Law Section and the National Academy of Elder Law Attorneys.
We advise clients across Nelson, Bullitt, Washington, Marion, Larue, Hardin, Anderson, Spencer and Jefferson counties, from 117 E. Stephen Foster Avenue in Bardstown and the First Trust Centre, 200 S. 5th Street in Louisville.
Because this statute is only weeks old, we will tell you plainly where the law is settled and where it is not yet tested. The initial consultation is free. Schedule a consultation.
Where These Trusts Go Wrong
Signing the affidavit after the transfer
KRS 386.603 requires the sworn qualified affidavit before the disposition. Reverse the order and the transfer is not a qualified disposition.
Naming yourself or a non-Kentucky trustee
The qualified trustee must be a Kentucky resident individual or an entity authorised under Kentucky law, must materially participate in administration, and cannot be the transferor.
Omitting the Kentucky governing-law clause
The trust must expressly incorporate Kentucky law for validity, construction and administration. A generic out-of-state form will not do it.
Transferring when a claim is already in view
The Act preserves existing secured debts and runs a longer period for pre-existing creditors, and a transfer made to defeat a known claim invites a different analysis entirely.
Assuming it helps with a nursing home
It does not. Countability for Medicaid depends on whether principal could return to you, and the Act does not shorten the sixty-month look-back.
Assuming a retained right to occupy a home is covered
KRS 386.617 refers to use of real property held under a qualified personal residence trust. A simple retained life-use right in an ordinary trust is not obviously within that safe harbour and needs specific attention.
FREQUENTLY ASKED QUESTIONS
Common Questions About Kentucky Qualified Trusts
Does Kentucky have an asset protection trust statute?
Yes, as of July 15, 2026. The Kentucky Qualified Dispositions in Trust Act, KRS 386.601 to 386.619, enacted by 2026 Ky. Acts ch. 134, permits a self-settled spendthrift trust known as a qualified trust. Before that date Kentucky had no such statute, and a great deal of material online still reflects the old position.
How long before the protection takes effect?
Under KRS 386.605, a creditor whose claim arose after the qualified disposition generally has two years from the transfer. A creditor whose claim arose beforehand has the later of two years after the transfer or six months after the claim was or reasonably could have been discovered.
What claims can still reach the trust?
The Act preserves past-due child support, past-due temporary or permanent maintenance to a spouse or former spouse, obligations under a written marital property division agreement or order, and any valid note, mortgage, security interest or debt instrument in existence before the disposition. Protection is meaningful but it is not absolute.
Can I still benefit from the trust?
Yes, within limits set by KRS 386.617. Permitted retained interests include income, a unitrust interest of up to five per cent, discretionary or ascertainable-standard principal distributions, a power to veto distributions, a special power of appointment, and the right to remove and replace a trustee or adviser. What you cannot do is serve as your own qualified trustee or retain the power to revoke.
Will this protect my home from nursing home costs?
No. This is a creditor-law statute and gives no Medicaid advantage. Eligibility turns on whether payment could be made to you under any circumstances, not on whether creditors can reach the trust, and the Act does not shorten the sixty-month look-back. Long-term care protection requires a differently drafted irrevocable trust, funded well before care is needed.
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Kentucky Law Just Changed. Let Us Explain It.
This statute is weeks old and largely unwritten about. If you have professional or business liability exposure, it is worth understanding. Call attorney Thomas Hamilton at (502) 348-2108 or use the form below.
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117 E. Stephen Foster Avenue, Bardstown, KY 40004