By: Kinkead & Stilz

The passage of Senate Bill 50 created Kentucky Qualified Dispositions Trusts.[1] Beginning on July 14, 2026, Kentucky residents may create a domestic asset protection trust in their own state that will hold up against most creditors.

Attached to this article is a text version of the Kentucky Qualified Dispositions in Trust Act as it appears in Senate Bill 50.

What This Trust Does

The main appeal of a Kentucky Qualified Disposition Trust is gaining asset protection while still maintaining a beneficial interest. A Kentucky Qualified Disposition Trust allows an individual to transfer assets into an irrevocable trust, name themselves as a potential beneficiary, and still receive meaningful protection from future creditors. Property encumbered by a valid lien or mortgage cannot be transferred into a Kentucky Qualified Dispositions Trust at all. The statute excludes such property from its definition of transferable ‘property,’ so the threshold question before any transfer is whether the asset is free of existing liens.

Done properly, the assets inside the trust are no longer reachable by most civil judgments, tort claims, or unsecured liabilities, even though the Kentucky Qualified Disposition Trust’s grantor can still benefit from the assets. Because of this beneficial interest, a Kentucky Qualified Disposition Trust is not an estate tax planning tool as the assets will be included in the grantor’s gross estate.

What the Trust Cannot Protect

The following claims can reach trust assets regardless of the trust’s terms:

  • past due child support;
  • past due maintenance to a spouse or former spouse; and,
  • marital property divisions including accrued interest and reasonable collection costs.

General civil judgments, professional liability claims, and most unsecured future obligations remain protected.

What The Grantor Can Still Control

Most notably, the grantor may, annually, receive income as well as up to five percent (5%) of the trust’s value as determined from time to time pursuant to the trust. This preserves meaningful access to the assets without destroying the protection. Additionally, a properly structured Kentucky Qualified Dispositions Trust can allow the grantor to:

  • veto distributions;
  • direct investment decisions;
  • remove and replace trustees; and,
  • receive reimbursement for income taxes attributable to trust income.

The Grantor of the Kentucky Qualified Dispositions Trust may not be the sole Trustee, but may be a Co-Trustee with a qualified trustee. A qualified trustee, who is defined as either a Kentucky resident, who is not the transferor of the qualified disposition, or is a Kentucky-chartered institution, must participate materially in administration of the Kentucky Qualified Dispositions Trust.

The Two-Year Window

Kentucky’s statute of limitations for creditor challenges is two (2) years. After that time, future creditors are barred. For creditors who existed at the time of the transfer, the claim must be brought within the later of two (2) years from the transfer or six months from the date the creditor discovered, or reasonably should have discovered, the transfer.

Discovery may be triggered by any public record of the transfer, such as a recorded deed or filed financing statement, though how courts will interpret constructive notice under this new statute remains to be seen.

In a presentation on June 3, 2026, on Senate Bill 50,[2] it was shared that the Kentucky Qualified Dispositions Trust was modeled after Tennessee’s 2007 version of domestic asset protection trusts, i.e. Tennessee Investment Services Trusts. Tennessee originally required four (4) years and has since moved to eighteen (18) months.[3] Given that Kentucky modeled its statute on Tennessee’s, Kentucky courts may look to Tennessee case law for guidance as this statute develops.

The Burden Falls on the Creditor

To challenge a transfer into a Kentucky Qualified Disposition Trust, a creditor must prove by clear and convincing evidence that the transfer was made with actual intent to defraud that specific creditor.

Kentucky’s statute forecloses the badges-of-fraud approach. A creditor must instead prove, by clear and convincing evidence, that the transfer was made with specific intent to defraud that creditor.

The Qualified Affidavit

Before any assets are transferred, the Kentucky Qualified Disposition Trust grantor must sign a sworn affidavit confirming, among other things, that:

  • the transfer will not cause insolvency;
  • no bankruptcy is contemplated;
  • no undisclosed litigation is pending; and,
  • the assets were not derived from unlawful activity.

A well-executed affidavit becomes the primary evidence defeating a later fraud claim. It creates a documented record of financial solvency and health at the moment of transfer into the Kentucky Qualified Disposition Trust. Conversely, an affidavit signed when the grantor was already insolvent or facing undisclosed litigation can become the centerpiece of a creditor’s fraud claim rather than a defense against one.

Is This the Right Tool?

A Kentucky Qualified Disposition Trust is not appropriate for every situation, and it is not a solution to existing creditor problems. It is a planning tool, most effective when implemented before any claim arises, as part of a broader estate and asset protection strategy.

This trust is particularly worth considering for physicians, business owners with personal guarantees, or anyone approaching a liquidity event where future liability exposure is difficult to predict.

Attorneys specializing in estate planning can help you understand your options and assist you in deciding what works best for you.  This blog is a general discussion and is not legal advice to you.  You should consult with an attorney of your choice about your special concerns.

[1] S.B. 50, 2026 Gen. Assemb., Reg. Sess. (Ky. 2026)

[2] Planning to Take Advantage of the 2026 Trusts & Estates Changes: Grabbing the Opportunities & Side-Stepping the Pitfalls, UK CLE, https://law.uky.edu/continuing-legal-education/ukcle-accredited-live-cle-programs/2026-trusts-estates-changes (last visited July 7, 2026)

[3] T.C.A § 35-16-104(2007); T.C.A. § 35-16-104(2021).

Authored by: Bethany Breeze Davenport

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