USA – ARKANSAS Trends and Developments Contributed by: Rebecca Hurst, Jim Smith and Tori Moore, Smith Hurst PLC
Domestic asset protection trusts Domestic Asset Protection Trust (“DAPT”) is an irrevo - cable trust in which the settlor may serve as a discre - tionary beneficiary, while a spendthrift clause shields the trust assets from the settlor’s future creditors, sub - ject to limited exceptions. Arkansas authorised the use of DAPTs in 2023 through Act 291, having previ - ously prohibited such trusts; in doing so, it joined the minority of states that permit them. In order to qualify for protection as a DAPT in Arkansas, the trust must: (i) be irrevocable; (ii) have an Arkansas connection (Arkansas property, or an Arkansas settlor or trustee); (iii) limit distributions to the settlor to the discretion of a qualified, independent trustee; and (iv) not be created to hinder, delay, or defraud known creditors. Although the settlor cannot serve as trustee, the settlor may retain meaningful powers, including the power to veto distributions, direct trust investments, and remove and replace the trustee, allowing a measure of ongo - ing influence without defeating the trust’s protective purpose. Act 291 also fixed the limitation periods within which creditors may challenge a transfer to the trust: an existing creditor generally must bring a claim within two years of the transfer or within six months after the creditor discovers or reasonably should have discovered it, whichever is later, while a creditor whose claim arises after the transfer must sue within two years of the transfer. Even within those windows, a creditor cannot reach the assets unless it proves by clear and convincing evidence that the transfer: (i) was fraudulent under the Uniform Voidable Transactions Act; or (ii) violated a legal obligation owed to the credi - tor. In practice, the settlor establishes an irrevocable trust governed by Arkansas law, appoints a qualified in-state trustee, includes a spendthrift provision, and transfers assets into the trust while retaining only a discretionary beneficial interest; once the applicable limitation period has run, the transferred assets are insulated from the settlor’s creditors. Now that DAPTs are authorised, Arkansans have an in-state planning option that previously required establishing a trust in another jurisdiction such as Delaware, Nevada, or South Dakota. The Uniform Trust Decanting Act Another notable recent development in Arkansas law is the legislature’s adoption of the Uniform Trust Decant - ing Act (the “UTDA”) in 2025 through Act 680, which
became effective on 1 January 2026. The UTDA per - mits an authorised fiduciary to distribute the assets of an existing irrevocable trust to one or more new trusts, or to modify the terms of the existing trust. Although decanting was already available in Arkansas under Act 293 of 2023, Act 680 substantially expands that framework, affording fiduciaries a far more detailed decanting pathway. The UTDA introduces proce - dures the earlier statute lacked, including mandatory advance notice to qualified beneficiaries, settlors, and the Attorney General where a charitable interest is involved, together with a framework distinguishing fiduciaries with expanded versus limited distributive discretion. In practice, the authorised fiduciary first identifies the defect or desired change in the original trust, determines whether it holds expanded or lim - ited distributive discretion (which dictates how sub - stantially the terms of the new trust may deviate from the original), provides the required advance notice to qualified beneficiaries and other interested parties, and then exercises the decanting power through a signed written instrument. Arkansas is among the minority of states to have adopted the UTDA, a step that has further enhanced its standing as a flexible trust jurisdiction. The Uniform Directed Trust Act Arkansas adopted its version of the Uniform Direct - ed Trust Act (the “UDTA”) through Act 1021 of 2019, effective 1 January 2020. The Uniform Law Commis - sion promulgated the original UDTA in 2017 to clarify questions of liability in directed trusts, meaning trusts whose terms grant powers to a non-trustee third party known as a “trust director”. Such questions frequently arise from the interaction between trust directors and directed trustees (a directed trustee being one subject to a trust director’s power of direction). In practice, a family may name a trust director to direct investment decisions over a concentrated asset, such as a closely held business interest, while a corporate directed trus - tee handles custody, administration, and distributions, allowing each role to be filled by the party best suited to it. Although Arkansas’s version closely tracks the uniform model, it differs in one significant respect: the standard of liability applicable to the directed trustee. Under both versions, a directed trustee must take reasonable action to comply with a trust director’s direction. The uniform version, however, holds direct -
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