Bench & Bar September/October 2026

FEATURE: LEGISLATIVE UPDATE

of authority by a trustee and also spoke to the role of trust advisors. But questions remained about whether a directed trustee enjoyed any additional liability protection. The UDTA makes clear that a directed trustee will not be held liable for acting in good faith pursuant to the instructions of a trust director. DAPT The Kentucky Qualified Dispositions Act (“QDA”) authorizes the creation of domestic asset protection trusts (DAPTs) in the Com monwealth. Modeled after the Tennessee Investment Services Act of 2007, the QDA brings Kentucky into the interstate arms race to be considered a favorable DAPT jurisdiction. The QDA permits a settlor to create a trust agreement for their own ben efit, but nevertheless prevents the alienation of the beneficial interest, provided certain requirements are met. Kentucky is the 22 nd state to adopt a DAPT statute. By adopting the QDA, Kentucky is on par with neigh bors such as Tennessee, Missouri, Indiana, and Ohio. Kentucky residents can now take advantage of such planning without the need to engage out of state advisors, investment managers and fiduciaries. The QDA requires the settlor to transfer assets to an irrevocable trust and execute an affidavit to accompany the trust agree ment. 13 The affidavit requires the settlor to declare various statements about their financial health and intent with the creation of the trust agreement, to ensure the transfer is not voidable. The trustee may not be the settlor and must be a Kentucky resident or an institution otherwise authorized to act as a trustee in Kentucky. 14 Further, an institu tional trustee must be subject to supervision by a variety of government financial institu tions. The settlor must forego many retained powers over the DAPT. However, the settlor may retain the ability to direct investments, veto distributions, and remove and replace a trustee. 15 The settlor may also retain a lim ited power of appointment over the assets of the trust. The valid creation of a DAPT could have several real impacts on the settlor’s estate. First, the assets contributed to the trust may escape the reach of creditors. There is a two-year lookback period built into the

influence or affect a trust’s administration. Second, the Kentucky Qualified Disposi tions in Trust Act creates the possibility of Kentucky domestic asset protection trusts (“DAPT”), provided all of the necessary pre-requisites are satisfied. Third, SB 50’s version of the Uniform Trust Decanting Act replaces the previous decanting statute and provides new rules regarding a trustee’s abil ity to make distributions in further trust. UDTA SB 50’s version of The Uniform Directed Trust Act (“UDTA”) provides for the adop tion of the Uniform Law Commission’s Act regarding directed trusts and advisors. The UDTA provides statutory guidelines for quasi-fiduciary advisors such as trust protectors, trust advisors, or trust direc tors. These non-trustee fiduciaries receive some power or authority over trust admin istration and may even direct the trustee to take a particular action. Common examples include the ability to modify the trust agree ment, determine the capacity of a trustee, or direct a trustee with respect to diversifi cation of assets. The UDTA further delineates the fiduciary duties owed by trust directors, trustees subject to a trust director, and undirected trustees. Specifically, the UDTA clarifies that trust directors are held to the same fiduciary duties as a trustee if a power held by the trust director qualifies under the UDTA. 11 Those fiduciary duties may be overridden or supplemented by the terms of the trust. On the other hand, trustees that are subject to a trust director – a directed trustee – also had the breadth of their fidu ciary duties affected. Directed trustees are not liable for acts taken at the direction of the trust director. 12 Some exceptions exist – for example, a directed trustee must not comply with any such direction if doing so would constitute willful misconduct. The UDTA brings some much-needed clarity to the realm of quasi-fiduciary roles like the trust director. The adoption of the UDTA should increase the frequency with which directed trusts are utilized in Ken tucky by clarifying the scope and duties, powers, and liabilities of trust directors. Kentucky’s version of the Uniform Trust Code previously provided for delegation

statute to claw back assets by creditors who existed prior to the transfer of the DAPT. Further, a previously existing creditor at the time of the transfer has an additional six months, upon discovery of the trust, to attach assets in the DAPT. Outside of those windows, and provided the Kentucky Uni form Voidable Transactions Act does not apply, assets in the trust agreement shall generally be beyond the reach of creditors. 16 An exception may exist for bankruptcy – the bankruptcy code incorporates a 10-year lookback period for self-settled trusts such as the DAPT. Creditors may be able to bypass the creation of a DAPT to access assets upon a settlor entering bankruptcy proceedings. The QDA also contains exceptions for claims of child support, maintenance, and awards arising from the division of marital property. However, those are exceptions of last resort – the claimant must make rea sonable attempts to satisfy the debt from other sources first. Furthermore, a DAPT could apply to prevent the creation of mar ital property before the union. The settlor could transfer assets to a DAPT and, by doing so, assets inside the trust may not be considered marital property when con templating the division of property upon divorce. Utilizing a DAPT in lieu of a pre nuptial agreement has proven a popular alternative in states which have already Finally, SB 50 included the replacement of the current Kentucky decanting statute under KRS 386.175 with a version of the Uniform Law Commission’s Uniform Trust Decanting Act (“UTDA”). Decanting occurs when a trustee distributes the principal of one trust into another. During a decant ing, minor but substantial modifications may be performed on the second trust. A common example is the creation of a power of appointment. The adoption of the UTDA reforms and substantially updates the rules and requirements for a trustee to decant principal from one trust to a second trust. It also brings Kentucky into alignment with 20 other states that have adopted similar acts. adopted a DAPT statute. UNIFORM TRUST DECANTING ACT

8 september/october 2026