RSA 564-B:5-505A · Creditor's Claim Against a Settlor of an Irrevocable Trust

564-B:5-505A Creditor's Claim Against a Settlor of an Irrevocable Trust. –

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(a)

To the extent that a settlor's interest in an irrevocable trust is not subject to a spendthrift provision, a creditor or assignee of the settlor may reach the maximum amount of trust property that can be distributed to or for the benefit of the settlor.

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(b)

If the trust has more than one settlor, then the amount that a creditor or assignee of a particular settlor may reach under subsection (a) may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution.

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(c)

A settlor may not transfer the settlor's interest in an irrevocable trust in violation of a spendthrift provision.

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(d)

To the extent that a settlor's interest in an irrevocable trust is subject to a spendthrift provision, a creditor or assignee of the settlor may not reach:

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(1)

The settlor's interest in the trust; or

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(2)

A distribution from the trust before its receipt by the settlor.

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(e)

Subsection (d) shall apply to any type of irrevocable trust, including:

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(1)

A charitable remainder annuity trust within the meaning of section 664(d)(1) of the Internal Revenue Code;

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(2)

A charitable remainder unitrust within the meaning of section 664(d)(2) of the Internal Revenue Code;

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(3)

A trust described in section 2523(e) of the Internal Revenue Code;

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(4)

A trust described in section 2523(f) of the Internal Revenue Code;

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(5)

An irrevocable special needs trust established for a disabled person as described in 42 U.S.C. section 1396p(d)(4) or similar federal law governing the transfer to such a trust;

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(6)

A trust in which a trustee, trust advisor, or trust protector has a duty or a discretionary power to:

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(A)

Pay directly to any taxing authority any tax that is:

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(i)

Imposed on the trust's income or principal; and

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(ii)

Payable by the settlor under the law imposing the tax;

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(B)

Reimburse the settlor for any tax described in subsection (g)(6)(A); or

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(C)

Direct a trustee, trust advisor, or trust protector to take the action described in subsection (e)(6)(A) or (e)(6)(B); and

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(7)

A trust in which the settlor has:

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(A)

The power to reacquire trust property by substituting other property of an equivalent value; or

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(B)

Any power of administration within the meaning of section 675(4) of the Internal Revenue Code.

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(f)

Notwithstanding RSA 545-A:9, a creditor or assignee of a settlor may not commence a judicial proceeding with respect to the settlor's transfer of property to an irrevocable trust that contains a spendthrift provision after the later of:

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(1)

Four years after the transfer is made; or

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(2)

If the creditor or assignee is a creditor or assignee of the settlor when the transfer is made, one year after the creditor or assignee discovers or reasonably should have discovered the transfer.

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(g)

For purposes of subsection (f) and RSA 545-A:4, a creditor or assignee of a settlor shall prove that, with respect to the creditor or assignee, the settlor's transfer to the trust was fraudulent.

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(h)

Notwithstanding any law to the contrary, a person shall not have any claim against any of the following persons to the extent that the claim is based in any way on a settlor or other person availing or seeking to avail himself, herself, or itself of the benefits of this section:

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(1)

A trustee;

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(2)

A trust advisor;

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(3)

A trust protector;

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(4)

A person who advised a settlor, trustee, trust advisor, or trust protector concerning trust, the trust's formation, any transfer of property to the trust, or the application of this section; or

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(5)

A person who was involved in counseling, drafting, preparing, or executing:

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(A)

With respect to the trust, a trust instrument; or

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(B)

A governing instrument of a corporation, partnership, limited partnership, limited liability company, or other entity, the interests of which a settlor transferred to the trust.

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(i)

Notwithstanding any law to the contrary, a person may not commence a judicial proceeding seeking the enforcement of a judgment entered by a court or other body having adjudicative authority or asserting any other claim if:

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(1)

The judgment or claim is based in any way on a settlor's transfer of property to an irrevocable trust that contains a spendthrift provision; and

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(2)

With respect to the transfer, a claim of the creditor or assignee of the settlor would be barred under subsection (f).

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(j)

Subsections (h) and (i) shall not affect:

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(1)

Any claim by a settlor;

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(2)

Any claim by a beneficiary against a current or former trustee, trust advisor, or trust protector for a breach of trust; or

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(3)

Any claim by a trustee, trust advisor, or trust protector.

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(k)

If 2 or more transfers of property are made to a trust that contains a spendthrift provision, then the following shall apply:

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(1)

For the purpose of determining whether, under this section, a creditor or other person may commence a judicial proceeding with respect to a specific transfer, any subsequent transfer shall be disregarded; and

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(2)

Any distribution from a trust to a settlor or other beneficiary shall be deemed to have been made from:

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(A)

First, the most recent transfer to the extent of the previously undistributed portion of that transfer; and

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(B)

Subsequently, each preceding transfer in reverse chronological order to the extent of the previously undistributed portion of that transfer.

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(l)

A creditor or assignee of a settlor may not compel the settlor to exercise any right or power that, in any fiduciary or nonfiduciary capacity, the settlor has under the terms of the trust, including:

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(1)

Any power of appointment;

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(2)

Any power to direct or veto a distribution;

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(3)

Any power to reacquire trust property by substituting other property of an equivalent value;

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(4)

Any power of administration within the meaning of section 675(4) of the Internal Revenue Code;

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(5)

Any power to appoint or remove a trustee, trust advisor, or trust protector; or

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(6)

Any right to receive reports, notices, or other information concerning the trust and its administration.

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(m)

This section shall not affect the application of:

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(1)

In the case of a trust that was revocable immediately before the settlor's death, RSA 564-B:5-505(b);

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(2)

RSA 564-B:5-505(e); or

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(3)

Except as otherwise provided in this section, RSA 545-A or a similar law of another state having jurisdiction over a transfer of property.

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(n)

To the extent that a settlor's interest in an irrevocable trust is subject to a spendthrift provision, the settlor's interest:

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(1)

Is not property for purposes of RSA 458:16-a, I, to the extent that:

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(A)

The settlor's interest is subject to a spendthrift provision; and

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(B)

The settlor transferred the property to the trust more than 30 days before his or her marriage to the individual seeking to claim that the settlor's interest is property for purposes of RSA 458:16-a, I, unless that individual expressly consented to the transfer; and

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(2)

Shall not be subject to any forced heirship, legitime, forced share, or any similar heirship rights under the laws of any jurisdiction.

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(o)

A spendthrift provision is unenforceable against a claim of this state or the United States to the extent that a statute of this state or federal law so provides.

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(p)

A spendthrift provision is a restriction on the transfer of the settlor's beneficial interest that is enforceable under nonbankruptcy law within the meaning of 11 U.S.C. section 541(c)(2).

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(q)

Whether or not an irrevocable trust contains a spendthrift provision, an exception creditor of the settlor may reach the trust property to the extent permitted under subsection (q)(2).

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(1)

For purposes of this subsection, the following definitions apply:

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(A)

"Exception creditor" means, with respect to a settlor:

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(i)

An individual to the extent that there is a judgment or court order against the settlor for child support in this or any other state; or

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(ii)

A spouse or former spouse to the extent that there is a judgment or court order against the settlor for basic alimony.

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(B)

"Basic alimony" means the portion of alimony attributable to the most basic food, shelter, and medical needs of the spouse or former spouse if the judgment or court order expressly specifies that portion.

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(2)

The court shall direct the trustee to pay to the exception creditor an amount that is equitable under the circumstances, but not more than the lesser of:

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(A)

The amount that is necessary to satisfy the judgment or court order for:

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(i)

In the case of an exception creditor described in subsection (q)(1)(A)(i), child support; or

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(ii)

In the case of an exception creditor described in subsection (q)(1)(A)(ii), basic alimony; and

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(B)

The maximum amount of trust property that can be distributed to or for the benefit of the settlor from the trust.

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(3)

This subsection shall not apply to any irrevocable trust described in subsection (e)(1), (e)(2), (e)(3), (e)(4), or (e)(5).

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(4)

Subject to subsection (q)(2), subsections (a) and (f) shall not apply to an exception creditor. Source. 2017, 257:21, eff. Sept. 16, 2017.

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