Domestic asset protection trusts

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.