AB 648

This bill creates a new type of trust, called a legacy trust. A legacy trust is an

irrevocable trust that contains a spendthrift provision and that appoints at least one

qualified trustee. Under the bill, a person, called a transferor, may create a legacy

trust into which he or she may place assets that will be managed by the trustee. The

transferor may also be a co-trustee or a beneficiary of the legacy trust. The terms

of the trust may grant a transferor the power to remove and replace a trustee or

advisor and to direct trust investments.

A person who places assets in a trust is a settlor. Under current law, generally,

the assets of a settlor are subject to creditor claims. If the assets are placed in a

revocable trust, the assets are subject to the claims of the settlor's creditors. If the

assets are placed in an irrevocable trust and the trust is not for an individual with

a disability, the court may, if the trust instrument requires or authorizes the trustee

to make payments of income or principal to or for the settlor, order the trustee to

satisfy part or all of a judgment out of payments from the trust.

Current law also provides a spendthrift provision, which is a term of a trust that

restricts voluntary or involuntary transfers of a beneficiary's interest in the trust.

Under current law, a spendthrift provision is valid only if the beneficiary is someone

other than the settlor, or if the beneficiary is disabled. Under current law there are

exceptions that provide that a spendthrift provision does not protect assets from

claims for child support under any circumstance or claims for public support unless

the beneficiary is disabled.

Under the bill, a legacy trust must have a spendthrift provision, and none of the

current law restrictions to spendthrift trusts apply. Assets in a legacy trust are not

subject to claims for public support, but they are subject to claims for child support.

Additionally, under the bill, a creditor generally may not bring an action of any kind

against a transferor, against a trustee of a legacy trust, or against any assets that are

held by a legacy trust. There are three exceptions to this prohibition. First, an action

may be brought if the transfer of the asset was made to hinder, delay, or defraud the

creditor. Second, an action may be brought by a creditor who was a creditor of the

transferor when the disposition was made if the creditor commences the action

within the later of 18 months after the transfer or six months after the creditor

discovers or reasonably should have discovered the transfer. Third, an action may

be brought by a creditor who becomes a creditor after the transfer occurs if the

creditor commences the action no later than 18 months after the transfer occurred.

Under the bill, a creditor includes a person seeking to enforce a judgment entered by

a court or other authorized adjudicative body. No other actions are permitted for any

reason.