USA – ARKANSAS Trends and Developments Contributed by: Rebecca Hurst, Jim Smith and Tori Moore, Smith Hurst PLC
ed trustees liable for their own “willful misconduct” in complying with a direction. Arkansas omitted that exception; the “willful misconduct” standard applies only if the trust instrument expressly provides for it. As a result, a directed trustee that takes reasonable action to comply with a trust director’s direction is not liable for any resulting losses, making Arkansas’s ver - sion considerably more protective of directed trustees. Qualified spousal trusts Enacted by the Arkansas legislature in 2019, Act 1047 expanded the advantages available through joint spousal trusts. The Act treats all assets held in a quali - fied spousal trust as owned in tenancy by the entirety for purposes of immunity from federal and state bank - ruptcy law, providing more robust protection against the separate creditors of each spouse. Because assets held as tenants by the entirety are generally shielded from the creditors of either spouse individu - ally, Act 1047 extends that protection to all property held in a qualified spousal trust. Act 1047 also permits spouses to retain sole control over separate shares within a trust, giving practitioners the flexibility to tai - lor the trust to a married couple’s objectives without compromising either spouse’s asset protection. These creditor protections terminate upon divorce. Enactment of the Arkansas Trust Institutions Act of 2025 With the enactment of the Arkansas Trust Institutions Act of 2025 (the “ATIA”), also known as Act 237, the legislature comprehensively reorganised and mod - ernised the statutory framework governing trust insti - tutions. The ATIA repealed and replaced the prior Arkansas Trust Institutions Act and governs the opera - tions of corporate fiduciaries that administer trusts. It revisits key defined terms and establishes fuller administrative guidelines for chartering, supervising, and licensing trust institutions, including out-of-state institutions seeking to operate in Arkansas. While the ATIA preserves much of the prior Act’s substance, it is more coherently organised and provides clearer, more robust regulatory direction for corporate fiduciaries. Income tax rates reduced for individuals, trusts, estates, and corporations In May 2026, Arkansas enacted legislation reducing the state’s top income tax rate for individuals, trusts,
and estates from 3.9% to 3.7%, retroactive to 1 Janu - ary 2026. This represents a significant decline from the 5.9% rate in effect as recently as 2021, and it lowers the tax burden on income accumulated within a trust or estate. Because a trust that accumulates rather than distributes income is taxed at the trust level, the lower top rate directly reduces the cost of accumu - lating income in-trust, an important consideration for non-grantor trusts used in long-term wealth-preser - vation planning. The top corporate rate was likewise reduced, from 4.3% to 4.1%, effective in 2027. These reductions form part of Arkansas’s broader effort to phase out income taxes over time and enhance the state’s economic competitiveness. Arkansas’s unlimited homestead exemption A further, often overlooked pillar of Arkansas asset protection is the state’s homestead exemption, which is among the most generous in the nation. Rather than capping protection at a fixed dollar amount, Arkansas protects the homestead on an acreage basis, shield - ing the full value of a qualifying residence regardless of the equity involved. A rural homestead of up to eighty acres and an urban homestead of up to one-quarter acre are protected in their entirety, placing Arkansas in the small group of states, alongside Florida, Texas, Kansas, Iowa, Oklahoma, and South Dakota, that offer unlimited-value homestead protection. Because this protection is grounded in the Arkansas Constitu - tion rather than an ordinary statute, it is more durable than a legislatively created exemption and cannot be diminished without a constitutional amendment. For high net worth families, the homestead exemption operates independently of, and as a complement to, trust-based planning: it runs on its own track and is not subsumed into a DAPT or other trust, but it protects a category of wealth, the family residence, that clients are frequently reluctant to transfer into an irrevocable structure. Combined with the tenancy-by-the-entirety protections extended to qualified spousal trusts and the newly authorised DAPT regime, the homestead exemption rounds out a layered asset-protection framework that gives Arkansas practitioners multiple, complementary tools for insulating client wealth from future creditors.
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