| 3 | 2 | | *LHR051* 2/9/2023 11:37:11 AM LHR051 |
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| 4 | 3 | | |
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| 5 | 4 | | State of Arkansas 1 |
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| 6 | 5 | | 94th General Assembly A Bill 2 |
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| 7 | 6 | | Regular Session, 2023 HOUSE BILL 1394 3 |
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| 8 | 7 | | 4 |
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| 9 | 8 | | By: Representatives Maddox, Lundstrum 5 |
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| 10 | 9 | | By: Senator C. Penzo 6 |
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| 11 | 10 | | 7 |
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| 12 | 11 | | For An Act To Be Entitled 8 |
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| 13 | 12 | | AN ACT TO AMEND AND UPDATE THE LAW ON SP ENDTHRIFT 9 |
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| 14 | 13 | | TRUSTS; TO ALLOW FOR THE CREATION OF A DO MESTIC ASSET 10 |
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| 15 | 14 | | PROTECTION TRUST; AN D FOR OTHER PURPOSES . 11 |
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| 16 | 15 | | 12 |
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| 17 | 16 | | 13 |
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| 18 | 17 | | Subtitle 14 |
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| 19 | 18 | | TO UPDATE THE LAW ON SPENDTHRIFT TRUSTS; 15 |
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| 20 | 19 | | AND TO ALLOW FOR THE CREATI ON OF A 16 |
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| 21 | 20 | | DOMESTIC ASSET PROTECTION TRUST. 17 |
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| 22 | 21 | | 18 |
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| 23 | 22 | | 19 |
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| 24 | 23 | | BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 20 |
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| 25 | 24 | | 21 |
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| 26 | 25 | | SECTION 1. Arkansas Code Title 28, Chapter 72, is amended to add an 22 |
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| 27 | 26 | | additional subchapter to read as follows: 23 |
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| 28 | 27 | | Subchapter 7 — Spendthrift Trusts and Domestic Asset Protection Trusts 24 |
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| 29 | 28 | | 25 |
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| 30 | 29 | | 28-72-701. Definitions. 26 |
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| 31 | 30 | | As used in this subchapter: 27 |
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| 32 | 31 | | (1) “Adviser” means any person, including without limitation an 28 |
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| 33 | 32 | | accountant, attorney, or investment adviser, who gives advice concerning or 29 |
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| 34 | 33 | | was involved in the creation of, transfer of property to, or administration 30 |
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| 35 | 34 | | of a spendthrift trust or domestic asset protection trust, or who 31 |
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| 36 | 35 | | participated in the preparation of accountings, tax returns, or other reports 32 |
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| 37 | 36 | | related to a trust; 33 |
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| 38 | 37 | | (2) “Creditor” means a person with a claim; 34 |
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| 39 | 38 | | (3) "Document" means a will, trust, or instrument; 35 |
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| 40 | 39 | | (4) "Domestic asset protection trust" means a self-settled, first-36 HB1394 |
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| 41 | 40 | | |
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| 43 | 42 | | |
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| 44 | 43 | | |
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| 45 | 44 | | party spendthrift trust; 1 |
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| 46 | 45 | | (5) "Remainder beneficiary" means a person entitled to receive 2 |
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| 47 | 46 | | principal when an income interest ends; 3 |
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| 48 | 47 | | (6) "Settlor" means: 4 |
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| 49 | 48 | | (A) The person who creates a spendthrift trust or domestic asset 5 |
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| 50 | 49 | | protection trust as described in the trust instrument; or 6 |
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| 51 | 50 | | (B) Any person who contributes assets to a spendthrift trust or 7 |
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| 52 | 51 | | domestic asset protection trust as to the assets that he or she contributed 8 |
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| 53 | 52 | | to the spendthrift trust or domestic asset protection trust except to the 9 |
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| 54 | 53 | | extent of consideration for the assets contributed by that person; and 10 |
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| 55 | 54 | | (7) “Spendthrift trust” means a trust that, by its terms, imposes a 11 |
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| 56 | 55 | | valid restraint on the voluntary and involuntary transfer of the interest of 12 |
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| 57 | 56 | | the beneficiary. 13 |
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| 58 | 57 | | 14 |
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| 59 | 58 | | 28-72-702. Applicability — Third-party spendthrift trust and domestic 15 |
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| 60 | 59 | | asset protection trust — Requirements. 16 |
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| 61 | 60 | | (a) Unless the document that creates t he spendthrift trust or domestic 17 |
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| 62 | 61 | | asset protection trust expressly declares otherwise, this subchapter governs 18 |
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| 63 | 62 | | the construction, operation, and enforcement of all spendthrift trusts or 19 |
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| 64 | 63 | | domestic asset protection trusts in the State of Arkansas, regardless of 20 |
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| 65 | 64 | | whether the trust was created in or outside of the State of Arkansas, if: 21 |
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| 66 | 65 | | (1) All or part of the lands, rents, issues, or profits affected 22 |
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| 67 | 66 | | are in the State of Arkansas; 23 |
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| 68 | 67 | | (2) All or part of the personal property, interest of money, 24 |
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| 69 | 68 | | dividends upon stock, and other profits affected are in the State of 25 |
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| 70 | 69 | | Arkansas; 26 |
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| 71 | 70 | | (3) The declared domicile of the creator of a spendthrift trust 27 |
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| 72 | 71 | | or domestic asset protection trust affecting personal property is in the 28 |
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| 73 | 72 | | State of Arkansas; or 29 |
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| 74 | 73 | | (4) At least one (1) trustee qualified under subsection (b) of 30 |
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| 75 | 74 | | this section has powers that include maintaining records and preparing income 31 |
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| 76 | 75 | | tax returns for the trust and all or part of the administration of the trust 32 |
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| 77 | 76 | | is performed in the State of Arkansas. 33 |
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| 78 | 77 | | (b) If a settlor is a beneficiary of a trust of the settlor's own 34 |
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| 79 | 78 | | creation, at least one (1) trustee of the domestic asset protection trust 35 |
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| 80 | 79 | | must be: 36 HB1394 |
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| 81 | 80 | | |
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| 83 | 82 | | |
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| 84 | 83 | | |
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| 85 | 84 | | (1) A natural person who resides and has his or her domicile in 1 |
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| 86 | 85 | | the State of Arkansas; 2 |
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| 87 | 86 | | (2) A trust company that: 3 |
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| 88 | 87 | | (A) Is organized under: 4 |
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| 89 | 88 | | (i) Federal law; 5 |
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| 90 | 89 | | (ii) The laws of the State of Arkansas; or 6 |
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| 91 | 90 | | (iii) The laws of another state; and 7 |
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| 92 | 91 | | (B) Maintains an office in the State of Arkansas for the 8 |
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| 93 | 92 | | transaction of business; or 9 |
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| 94 | 93 | | (3) A bank that: 10 |
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| 95 | 94 | | (A) Is organized under: 11 |
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| 96 | 95 | | (i) Federal law; 12 |
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| 97 | 96 | | (ii) The laws of the State of Arkansas; or 13 |
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| 98 | 97 | | (iii) The laws of another state; 14 |
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| 99 | 98 | | (B) Maintains an office in the State of Arkansas for the 15 |
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| 100 | 99 | | transaction of business; and 16 |
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| 101 | 100 | | (C) Possesses and exercises trust powers. 17 |
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| 102 | 101 | | 18 |
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| 103 | 102 | | 28-72-703. Creation — Third-party spendthrift trusts and domestic 19 |
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| 104 | 103 | | asset protection trusts — Ability of settlor to hold other powers. 20 |
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| 105 | 104 | | (a) A person competent to execute a will or deed may, only by a 21 |
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| 106 | 105 | | document that is duly executed, create a spendthrift trust in real, personal, 22 |
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| 107 | 106 | | or mixed property for the benefit of: 23 |
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| 108 | 107 | | (1) A person other than the settlor; or 24 |
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| 109 | 108 | | (2) For a domestic asset protection trust, t he settlor or both 25 |
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| 110 | 109 | | the settlor and another person, if the document: 26 |
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| 111 | 110 | | (A) Is irrevocable; 27 |
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| 112 | 111 | | (B) Does not require that any part of the income or 28 |
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| 113 | 112 | | principal of the trust be distributed to the settlor; and 29 |
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| 114 | 113 | | (C) Is not intended to hinder, delay, or defraud known 30 |
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| 115 | 114 | | creditors. 31 |
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| 116 | 115 | | (b) A document meets the requirements of subsection (a) of this 32 |
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| 117 | 116 | | section even if under the terms of the document the settlor: 33 |
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| 118 | 117 | | (1) May prevent a distribution from the trust; 34 |
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| 119 | 118 | | (2) Holds a special lifetime or testamentary power of 35 |
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| 120 | 119 | | appointment that cannot be exercised in favor of the settlor, the settlor's 36 HB1394 |
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| 121 | 120 | | |
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| 123 | 122 | | |
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| 124 | 123 | | |
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| 125 | 124 | | estate, a creditor of the settlor, or a creditor of the settlor's estate; 1 |
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| 126 | 125 | | (3) Is a beneficiary of a trust that qualifies as a charitable 2 |
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| 127 | 126 | | remainder trust pursuant to 26 U.S.C. § 664, as it existed on January 1, 3 |
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| 128 | 127 | | 2023, even if the settlor has the right to release the settl or's retained 4 |
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| 129 | 128 | | interest in the trust, in whole or in part, in favor of one (1) or more of 5 |
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| 130 | 129 | | the remainder beneficiaries of the trust; 6 |
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| 131 | 130 | | (4) Is authorized or entitled to: 7 |
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| 132 | 131 | | (A) Receive a percentage of the value of the trust each 8 |
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| 133 | 132 | | year as specified in the trust instrument of the initial value of the trust 9 |
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| 134 | 133 | | assets or their value determined from time to time pursuant to the trust 10 |
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| 135 | 134 | | instrument, but not exceeding: 11 |
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| 136 | 135 | | (i) The amount that may be defined as income 12 |
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| 137 | 136 | | pursuant to 26 U.S.C. § 643(b), as it existed on Ja nuary 1, 2023; or 13 |
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| 138 | 137 | | (ii) With respect to the benefits from any qualified 14 |
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| 139 | 138 | | retirement plan or any eligible deferred compensation plan, the minimum 15 |
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| 140 | 139 | | required distribution as defined in 26 U.S.C. § 4974(b), as it existed on 16 |
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| 141 | 140 | | January 1, 2023; 17 |
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| 142 | 141 | | (B) Receive income or principal from a grantor -retained 18 |
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| 143 | 142 | | annuity trust paying out a qualified annuity interest within the meaning of 19 |
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| 144 | 143 | | 26 C.F.R. § 25.2702-3(b), as it existed on January 1, 2023, or a grantor 20 |
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| 145 | 144 | | retained unitrust paying out a qualified unitrust interest withi n the meaning 21 |
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| 146 | 145 | | of 26 C.F.R. § 25.2702 -3(c); or 22 |
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| 147 | 146 | | (C) Use real property held under a qualified personal 23 |
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| 148 | 147 | | residence trust as described in 26 C.F.R. § 25.2702 -5(c), as it existed on 24 |
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| 149 | 148 | | January 1, 2023; or 25 |
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| 150 | 149 | | (5) Is authorized to: 26 |
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| 151 | 150 | | (A) Receive income or princi pal from the trust, but only 27 |
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| 152 | 151 | | subject to the discretion of another person; or 28 |
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| 153 | 152 | | (B) Use real or personal property owned by the trust. 29 |
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| 154 | 153 | | (c) Except for the power of the settlor to make distributions to 30 |
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| 155 | 154 | | himself or herself without the consent of another pers on, the provisions of 31 |
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| 156 | 155 | | this section shall not be construed to prohibit the settlor of a spendthrift 32 |
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| 157 | 156 | | trust or domestic asset protection trust from holding other powers under the 33 |
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| 158 | 157 | | trust, regardless of whether the settlor is a cotrustee, including without 34 |
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| 159 | 158 | | limitation the power to: 35 |
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| 160 | 159 | | (1) Remove and replace a trustee; 36 HB1394 |
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| 161 | 160 | | |
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| 163 | 162 | | |
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| 164 | 163 | | |
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| 165 | 164 | | (2) Direct trust investments; and 1 |
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| 166 | 165 | | (3) Execute other management powers. 2 |
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| 167 | 166 | | (d)(1) No specific language is necessary for the creation of a 3 |
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| 168 | 167 | | spendthrift trust or domestic asset protection trust. 4 |
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| 169 | 168 | | (2) It is sufficient if, by the terms of the document, the 5 |
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| 170 | 169 | | creator manifests an intention to create a spendthrift trust or domestic 6 |
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| 171 | 170 | | asset protection trust. 7 |
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| 172 | 171 | | 8 |
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| 173 | 172 | | 28-72-704. Powers of settlor. 9 |
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| 174 | 173 | | (a) The settlor of a spendthrift trust or domestic asset protection 10 |
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| 175 | 174 | | trust has only the powers and rights that are conferred to the settlor by the 11 |
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| 176 | 175 | | trust instrument. 12 |
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| 177 | 176 | | (b) An agreement or understanding, express or implied, between the 13 |
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| 178 | 177 | | settlor and the trustee that attempts to grant or permit the retention of 14 |
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| 179 | 178 | | greater rights or authority than is stated in the trust instrument is void. 15 |
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| 180 | 179 | | 16 |
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| 181 | 180 | | 28-72-705. Beneficiaries — Named in writing — Provision for support — 17 |
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| 182 | 181 | | Income. 18 |
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| 183 | 182 | | (a) The beneficiary of a spendthrift trust or domestic asset 19 |
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| 184 | 183 | | protection trust shall be named or clearly referred to in the document. 20 |
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| 185 | 184 | | (b) No spouse, former spouse, child, or dependent shall be a 21 |
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| 186 | 185 | | beneficiary unless the person is named or clearly referred to as a 22 |
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| 187 | 186 | | beneficiary in the document. 23 |
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| 188 | 187 | | (c) The provision for the beneficiary shall: 24 |
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| 189 | 188 | | (1) Be for the support, education, maintenance, and benefit of 25 |
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| 190 | 189 | | the beneficiary alone; 26 |
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| 191 | 190 | | (2) Be without reference to or limited by: 27 |
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| 192 | 191 | | (A) The beneficiary’s needs, station in life, or mode of 28 |
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| 193 | 192 | | life; or 29 |
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| 194 | 193 | | (B) The needs of any other person, regardless of whether 30 |
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| 195 | 194 | | the person is dependent upon the beneficiary; and 31 |
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| 196 | 195 | | (3) Extend to all of the income from the trust estate devoted 32 |
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| 197 | 196 | | for that purpose by the creator of the trust without exception or deduction 33 |
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| 198 | 197 | | other than for: 34 |
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| 199 | 198 | | (A) Costs or fees regularly earned, paid, or incurred by 35 |
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| 200 | 199 | | the trustee for the administration or protection of the trust estate; or 36 HB1394 |
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| 203 | 202 | | |
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| 204 | 203 | | |
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| 205 | 204 | | (B) Taxes paid or incurred by: 1 |
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| 206 | 205 | | (i) The trust estate; or 2 |
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| 207 | 206 | | (ii) The interest of the beneficiary of the trust. 3 |
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| 208 | 207 | | (d) The existence of a spendthrift trust or domestic asset protection 4 |
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| 209 | 208 | | trust shall not depend on the beneficiary's: 5 |
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| 210 | 209 | | (1) Character; 6 |
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| 211 | 210 | | (2) Capacity or incapacity; or 7 |
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| 212 | 211 | | (3) Competency or incompetency. 8 |
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| 213 | 212 | | 9 |
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| 214 | 213 | | 28-72-706. Discretion of trustee. 10 |
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| 215 | 214 | | (a) The trustee's discretionary power is absolute, regardless of 11 |
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| 216 | 215 | | whether a valid provision for the accumulation of trust income is made or if 12 |
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| 217 | 216 | | the provision relates to the trust income from real or personal property, in 13 |
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| 218 | 217 | | all cases where the creator of a spendthrift trust or domestic asset 14 |
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| 219 | 218 | | protection trust: 15 |
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| 220 | 219 | | (1) Indicates the sum to be applied for or paid to the 16 |
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| 221 | 220 | | beneficiary or makes the application or payment of sums for or to the 17 |
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| 222 | 221 | | beneficiary at the discretion of the trustee; 18 |
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| 223 | 222 | | (2) Makes the amount of trust income to be applied for or paid 19 |
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| 224 | 223 | | to the beneficiary at the discretion of the trustee; or 20 |
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| 225 | 224 | | (3) Gives the trustee the discretion to pay all or any part of 21 |
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| 226 | 225 | | the trust income to one (1) or more of the beneficiaries. 22 |
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| 227 | 226 | | (b) A trustee's discretion under subsection (a) of this section shall 23 |
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| 228 | 227 | | not be interfered with for any consideration of the needs, station in life, 24 |
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| 229 | 228 | | or mode of life of the beneficiary, or for any uncertainty or pretext. 25 |
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| 230 | 229 | | (c) The trustee of a spendthrift trust or domestic asset protection 26 |
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| 231 | 230 | | trust is required to disregard and defeat an assignment or other act, 27 |
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| 232 | 231 | | voluntary or involuntary, that is attempted contrary to the provisions of 28 |
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| 233 | 232 | | this subchapter. 29 |
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| 234 | 233 | | 30 |
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| 235 | 234 | | 28-72-707. Restraints on alienation — Exclusive jurisdiction of court. 31 |
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| 236 | 235 | | (a)(1) A spendthrift trust or domestic asset protection trust 32 |
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| 237 | 236 | | restrains and prohibits the assignment, alienation, acceleration, and 33 |
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| 238 | 237 | | anticipation of any interest of the beneficiary under the trust by the 34 |
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| 239 | 238 | | voluntary or involuntary act of the beneficiary, by operation of law, or any 35 |
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| 240 | 239 | | legal process. 36 HB1394 |
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| 243 | 242 | | |
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| 244 | 243 | | |
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| 245 | 244 | | (2) The trust estate, corpus, or capital of a spendthrift trust 1 |
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| 246 | 245 | | or domestic asset protection trust shall not be assigned, aliened, 2 |
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| 247 | 246 | | diminished, or impaired by any alienation, transfer, or seizure that has the 3 |
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| 248 | 247 | | effect of cutting off or diminishing the payments, rents, profits, earnings, 4 |
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| 249 | 248 | | or income of the trust estate that would otherwise be currently available for 5 |
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| 250 | 249 | | the benefit of the beneficiary. 6 |
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| 251 | 250 | | (b) A mandatory or discretionary payment by the trustee to the 7 |
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| 252 | 251 | | beneficiary shall be made only to or for the benefit of the beneficiary and 8 |
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| 253 | 252 | | not: 9 |
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| 254 | 253 | | (1) By acceleration or anticipation; or 10 |
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| 255 | 254 | | (2) To an assignee of the beneficiary or upon an order, written 11 |
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| 256 | 255 | | or oral, given by the beneficiary, regardless of whether the order is a 12 |
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| 257 | 256 | | voluntary contractual act of the beneficiary or is through any legal process, 13 |
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| 258 | 257 | | including without limitation: 14 |
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| 259 | 258 | | (A) A judgment; 15 |
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| 260 | 259 | | (B) An execution; 16 |
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| 261 | 260 | | (C) An attachment; 17 |
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| 262 | 261 | | (D) A garnishment; 18 |
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| 263 | 262 | | (E) A bankruptcy; or 19 |
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| 264 | 263 | | (F) A contract, tort, or duty. 20 |
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| 265 | 264 | | (c)(1) The beneficiary shall not have the power or capacity to make 21 |
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| 266 | 265 | | any disposition of the trust income: 22 |
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| 267 | 266 | | (A) By his or her order, voluntary or involuntary; or 23 |
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| 268 | 267 | | (B) Upon the order or direction of any court or courts, 24 |
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| 269 | 268 | | whether bankruptcy or otherwise. 25 |
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| 270 | 269 | | (2) The interest of the beneficiary shall not be: 26 |
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| 271 | 270 | | (A) Subject to any process of attachment issued against 27 |
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| 272 | 271 | | the beneficiary; or 28 |
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| 273 | 272 | | (B) Taken in execution under any form of legal process 29 |
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| 274 | 273 | | directed against the beneficiary or against the trustee, trust estate, or any 30 |
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| 275 | 274 | | part of the income of the trust estate. 31 |
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| 276 | 275 | | 32 |
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| 277 | 276 | | 28-72-708. Legal estate of beneficiary in corpus. 33 |
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| 278 | 277 | | (a) A beneficiary of a spendthrift trust or domestic asset protection 34 |
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| 279 | 278 | | trust has no legal estate in the capital, principal, or corpus of the trust 35 |
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| 280 | 279 | | estate unless under the terms of the trust the beneficiary or a person 36 HB1394 |
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| 283 | 282 | | |
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| 284 | 283 | | |
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| 285 | 284 | | deriving title from the beneficiary is entitled to have it conveyed or 1 |
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| 286 | 285 | | transferred to him or her immediately or after a term of years or after a 2 |
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| 287 | 286 | | life in being. 3 |
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| 288 | 287 | | (b) The income from the corpus is not to be paid to a specific 4 |
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| 289 | 288 | | beneficiary or any other beneficiary until any applicable term of years or 5 |
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| 290 | 289 | | life passes as described in subsection (a) of this section. 6 |
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| 291 | 290 | | 7 |
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| 292 | 291 | | 28-72-709. Perpetuities. 8 |
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| 293 | 292 | | (a) A spendthrift trust or domestic asset protection trust may not 9 |
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| 294 | 293 | | continue for a period longer than permitted under § 18-3-101 et seq. 10 |
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| 295 | 294 | | (b)(1) The free alienation of the legal estate by the trustee may not 11 |
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| 296 | 295 | | be suspended for a period exceeding the limit prescribed in any 12 |
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| 297 | 296 | | constitutional or statutory prohibition against perpetuities existing in the 13 |
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| 298 | 297 | | State of Arkansas or in the state where the lands affected by the trust are 14 |
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| 299 | 298 | | situated. 15 |
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| 300 | 299 | | (2) Notwithstanding subsection (b)(1) of this section, a 16 |
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| 301 | 300 | | contingent remainder in fee may be created on a prior remainder in fee to 17 |
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| 302 | 301 | | take effect if the person to whom the first remainder is limited dies under 18 |
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| 303 | 302 | | twenty-one (21) years of age, or upon any other contingency by which the 19 |
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| 304 | 303 | | estate of that person may be determined before he or she attains twenty-one 20 |
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| 305 | 304 | | (21) years of age. 21 |
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| 306 | 305 | | 22 |
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| 307 | 306 | | 28-72-710. Accumulation of income. 23 |
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| 308 | 307 | | (a) The accumulation of income of trust property may be directed in 24 |
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| 309 | 308 | | the document creating a spendthrift trust or domestic asset protection trust 25 |
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| 310 | 309 | | for the benefit of one or more beneficiaries to commence within the time 26 |
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| 311 | 310 | | permitted for the vesting of a future interest, but shall not extend beyond 27 |
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| 312 | 311 | | the period limiting the time within which the absolute power of alienation of 28 |
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| 313 | 312 | | property may be suspended. 29 |
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| 314 | 313 | | (b)(1) If the direction of the accumulation of income of trust 30 |
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| 315 | 314 | | property is for a longer term than is permitted by law, it is void only as to 31 |
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| 316 | 315 | | the excess time, regardless of whether the direction is separable from the 32 |
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| 317 | 316 | | other clauses in the trust. 33 |
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| 318 | 317 | | (2) In the case of invalidity of the direction of the 34 |
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| 319 | 318 | | accumulation of income of trust property, the income may be paid and 35 |
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| 320 | 319 | | distributed to the next succeeding beneficiary in interest. 36 HB1394 |
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| 323 | 322 | | |
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| 324 | 323 | | |
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| 325 | 324 | | 1 |
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| 326 | 325 | | 28-72-711. Alternate provisions — Discretion of settlor. 2 |
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| 327 | 326 | | A settlor of a spendthrift trust or domestic asset protection trust may 3 |
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| 328 | 327 | | by a document creating a spendthrift trust or domestic asset protection trust 4 |
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| 329 | 328 | | make separate, different, or alternate provisions other than what is set 5 |
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| 330 | 329 | | forth in §§ 28-72-701 - 28-72-710, so long as the settlor uses express, 6 |
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| 331 | 330 | | specific language establishing that intent. 7 |
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| 332 | 331 | | 8 |
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| 333 | 332 | | 28-72-712. Transfer of property to trust — Actions against advisers, 9 |
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| 334 | 333 | | settlors, and trustees — Limitations. 10 |
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| 335 | 334 | | (a) A person may not bring an action with respect to a transfer of 11 |
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| 336 | 335 | | property to a spendthrift trust or domestic asset protection trust if the 12 |
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| 337 | 336 | | person: 13 |
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| 338 | 337 | | (1) Is a creditor when the transfer is made, unless the action 14 |
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| 339 | 338 | | is commenced within: 15 |
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| 340 | 339 | | (A) Two (2) years after the transfer is made; or 16 |
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| 341 | 340 | | (B) Six (6) months after the person discovers or 17 |
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| 342 | 341 | | reasonably should have discovered the transfer, whichever is later; or 18 |
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| 343 | 342 | | (2) Becomes a creditor after the transfer is made, unless the 19 |
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| 344 | 343 | | action is commenced within two (2) years after the transfer is made. 20 |
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| 345 | 344 | | (b) A person is deemed to have discovered a transfer under subsection 21 |
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| 346 | 345 | | (a) of this section at the time a public record is made of the transfer, 22 |
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| 347 | 346 | | including without limitation at the time of: 23 |
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| 348 | 347 | | (1) The conveyance of real property that is recorded in the 24 |
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| 349 | 348 | | office of the county recorder of the county in which the property is located; 25 |
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| 350 | 349 | | or 26 |
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| 351 | 350 | | (2) The filing of a financing statement under the Uniform 27 |
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| 352 | 351 | | Commercial Code, § 4-1-101 et seq. 28 |
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| 353 | 352 | | (c)(1) A creditor shall not be awarded a judgment in an action with 29 |
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| 354 | 353 | | respect to a transfer of property to a spendthrift trust or domestic asset 30 |
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| 355 | 354 | | protection trust unless the creditor proves by clear and convincing evidence 31 |
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| 356 | 355 | | that the transfer of property: 32 |
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| 357 | 356 | | (A) Was a fraudulent transfer under the Uniform Voidable 33 |
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| 358 | 357 | | Transactions Act, § 4-59-201 et seq.; or 34 |
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| 359 | 358 | | (B) Violates a legal obligation owed to the creditor under 35 |
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| 360 | 359 | | a contract or a valid court order that is legally enforceable by that 36 HB1394 |
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| 361 | 360 | | |
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| 362 | 361 | | 10 2/9/2023 11:37:11 AM LHR051 |
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| 363 | 362 | | |
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| 364 | 363 | | |
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| 365 | 364 | | creditor. 1 |
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| 366 | 365 | | (2) In the absence of clear and convincing evidence, the 2 |
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| 367 | 366 | | property transferred is not subject to the claims of the creditor. 3 |
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| 368 | 367 | | (3) Clear and convincing evidence: 4 |
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| 369 | 368 | | (A) That is established by a creditor showing that a 5 |
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| 370 | 369 | | transfer of property was fraudulent or wrongful does not constitute clear and 6 |
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| 371 | 370 | | convincing evidence as to any other creditor; and 7 |
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| 372 | 371 | | (B) Of a fraudulent or wrongful transfer of property as to 8 |
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| 373 | 372 | | a creditor shall not invalidate any other transfer of property. 9 |
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| 374 | 373 | | (d)(1) If property transferred to a spendthrift trust or domestic 10 |
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| 375 | 374 | | asset protection trust is conveyed to the settlor or to a beneficiary for the 11 |
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| 376 | 375 | | purpose of obtaining a loan secured by a mortgage or deed of trust on the 12 |
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| 377 | 376 | | property and is later reconveyed to the trust, for the purpose of bringing an 13 |
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| 378 | 377 | | action under subsection (a) of this section, the transfer is disregarded and 14 |
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| 379 | 378 | | the reconveyance relates back to the date the property was originally 15 |
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| 380 | 379 | | transferred to the trust. 16 |
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| 381 | 380 | | (2) The mortgage or deed of trust on the property shall be 17 |
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| 382 | 381 | | enforceable against the trust. 18 |
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| 383 | 382 | | (e) A person shall not be awarded a judgment in an action against an 19 |
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| 384 | 383 | | adviser to the settlor or trustee of a spendthrift trust or domestic asset 20 |
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| 385 | 384 | | protection trust unless the person proves by clear and convincing evidence 21 |
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| 386 | 385 | | that the adviser: 22 |
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| 387 | 386 | | (1) Acted knowingly and in bad faith in violation of the laws of 23 |
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| 388 | 387 | | the State of Arkansas; and 24 |
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| 389 | 388 | | (2) Directly caused the damages suffered by the person. 25 |
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| 390 | 389 | | (f)(1) A person other than a beneficiary or settlor shall not be 26 |
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| 391 | 390 | | awarded a judgment in an action against a trustee of a spendthrift trust or 27 |
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| 392 | 391 | | domestic asset protection trust unless the person proves by clear and 28 |
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| 393 | 392 | | convincing evidence that the trustee: 29 |
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| 394 | 393 | | (A) Acted knowingly and in bad faith in violation of the 30 |
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| 395 | 394 | | laws of the State of Arkansas; and 31 |
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| 396 | 395 | | (B) Directly caused the damages suffered by the person. 32 |
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| 397 | 396 | | (2) As used in subsection (f) of this section, "trustee" 33 |
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| 398 | 397 | | includes a cotrustee and a predecessor trustee. 34 |
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| 399 | 398 | | (g) If more than one transfer is made to a spendthrift trust or 35 |
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| 400 | 399 | | domestic asset protection trust: 36 HB1394 |
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| 401 | 400 | | |
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| 402 | 401 | | 11 2/9/2023 11:37:11 AM LHR051 |
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| 403 | 402 | | |
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| 404 | 403 | | |
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| 405 | 404 | | (1) The subsequent transfer to the spendthrift trust or domestic 1 |
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| 406 | 405 | | asset protection trust shall be disregarded for the purpose of determining 2 |
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| 407 | 406 | | whether a person may bring an action under to subsection (a) of this section 3 |
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| 408 | 407 | | with respect to a prior transfer to the spendthrift trust or domestic asset 4 |
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| 409 | 408 | | protection trust; and 5 |
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| 410 | 409 | | (2) Any distribution to a beneficiary from the spendthrift trust 6 |
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| 411 | 410 | | or domestic asset protection trust shall be deemed to have been made from the 7 |
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| 412 | 411 | | most recent transfer made to the spendthrift trust or domestic asset 8 |
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| 413 | 412 | | protection trust. 9 |
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| 414 | 413 | | (h) Notwithstanding any other provision of law, no action of any kind, 10 |
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| 415 | 414 | | including without limitation an action to enforce a judgment entered by a 11 |
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| 416 | 415 | | court or other body having adjudicative authority, shall be brought at law or 12 |
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| 417 | 416 | | in equity against the trustee of a spendthrift trust or domestic asset 13 |
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| 418 | 417 | | protection trust if, as of the date the action is brought, an action by a 14 |
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| 419 | 418 | | creditor with respect to a transfer to the spendthrift trust or domestic 15 |
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| 420 | 419 | | asset protection trust would be barred pursuant to this section. 16 |
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| 421 | 420 | | (i) For purposes of this section, if a trustee exercises his or her 17 |
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| 422 | 421 | | discretion or authority to distribute trust income or principal to or for a 18 |
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| 423 | 422 | | beneficiary of the spendthrift trust or domestic asset protection trust, by 19 |
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| 424 | 423 | | appointing the property of the original spendthrift trust or domestic asset 20 |
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| 425 | 424 | | protection trust in favor of a second spendthrift trust or domestic asset 21 |
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| 426 | 425 | | protection trust for the benefit of one (1) or more of the beneficiaries 22 |
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| 427 | 426 | | under the Trustee Division of Trusts Act, § 28-69-701 et seq., the time of 23 |
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| 428 | 427 | | the transfer for purposes of this section shall be deemed to have occurred on 24 |
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| 429 | 428 | | the date the settlor of the original spendthrift trust or domestic asset 25 |
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| 430 | 429 | | protection trust transferred assets into the original spendthrift trust or 26 |
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| 431 | 430 | | domestic asset protection trust, regardless of whether the property of the 27 |
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| 432 | 431 | | original spendthrift trust or domestic asset protection trust may have been 28 |
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| 433 | 432 | | transferred to a second spendthrift trust or domestic asset protection trust. 29 |
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| 434 | 433 | | 30 |
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| 435 | 434 | | 28-72-713. Trust administered under laws of another state or 31 |
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| 436 | 435 | | jurisdiction. 32 |
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| 437 | 436 | | (a) A trust administered under the laws of another state or another 33 |
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| 438 | 437 | | jurisdiction is a spendthrift trust or domestic asset protection trust under 34 |
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| 439 | 438 | | this subchapter if the: 35 |
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| 440 | 439 | | (1) Trustee of the trust complies with the requirements set 36 HB1394 |
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| 441 | 440 | | |
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| 442 | 441 | | 12 2/9/2023 11:37:11 AM LHR051 |
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| 443 | 442 | | |
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| 444 | 443 | | |
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| 445 | 444 | | forth in the trust instrument and the requirements of the laws of the state 1 |
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| 446 | 445 | | or jurisdiction from which the trust is being transferred; 2 |
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| 447 | 446 | | (2) Trustee or other person having the power to transfer the 3 |
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| 448 | 447 | | domicile of the trust declares the intent to transfer the domicile of t he 4 |
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| 449 | 448 | | trust in writing; 5 |
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| 450 | 449 | | (3) Document declaring the intent to transfer the domicile of 6 |
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| 451 | 450 | | the trust is delivered to the trustee, if it is executed by a person other 7 |
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| 452 | 451 | | than the trustee; and 8 |
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| 453 | 452 | | (4) Requirements of this subchapter are satisfied simultaneously 9 |
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| 454 | 453 | | with or immediately after the change of the domicile. 10 |
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| 455 | 454 | | (b) For purposes of § 28 -72-712, if the domicile of an existing trust 11 |
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| 456 | 455 | | is transferred from another state or jurisdiction to this state and the laws 12 |
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| 457 | 456 | | of the other state or jurisdiction are similar to the prov isions of this 13 |
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| 458 | 457 | | subchapter, the transfer of the trust is deemed to have occurred: 14 |
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| 459 | 458 | | (1) On the date on which the settlor of the trust transferred 15 |
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| 460 | 459 | | assets into the trust, if the applicable law of the trust has at all times 16 |
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| 461 | 460 | | been substantially similar to the p rovisions of this subchapter; or 17 |
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| 462 | 461 | | (2) On the earliest date on which the applicable laws of the 18 |
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| 463 | 462 | | trust were substantially similar to the provisions of this subchapter. 19 |
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| 464 | 463 | | 20 |
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| 465 | 464 | | 28-72-714. Applicability to trust or estate. 21 |
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| 466 | 465 | | This subchapter applies to a trust or e state existing or created on or 22 |
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| 467 | 466 | | after the effective date of this act, except as otherwise expressly provided 23 |
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| 468 | 467 | | in the terms of the trust or this subchapter. 24 |
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| 469 | 468 | | 25 |
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| 470 | 469 | | SECTION 2. Arkansas Code § 28 -73-505(a), concerning a creditor's claim 26 |
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| 471 | 470 | | against a settlor of a spendthrift or discretionary trust, is amended to read 27 |
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| 472 | 471 | | as follows: 28 |
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| 473 | 472 | | (a) Whether or not the terms of a trust contain a spendthrift 29 |
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| 474 | 473 | | provision, the following rules apply: 30 |
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| 475 | 474 | | (1) During the lifetime of the settlor, the property of a 31 |
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| 476 | 475 | | revocable trust is subject to claims of the settlor's creditors. If a trust 32 |
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| 477 | 476 | | has more than one (1) settlor, the amount the creditor or assignee of a 33 |
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| 478 | 477 | | particular settlor may reach may not exceed the settlor's interest in the 34 |
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| 479 | 478 | | portion of the trust attributable to that settlor's contribution. 35 |
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| 480 | 479 | | (2) With Except for a trust created under § 28-72-701 et seq., 36 HB1394 |
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| 481 | 480 | | |
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| 483 | 482 | | |
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| 484 | 483 | | |
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| 485 | 484 | | with respect to an irrevocable trust, a creditor or assignee of the settlor 1 |
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| 486 | 485 | | may reach the maximum amount that can be distributed to or for the settlor's 2 |
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| 487 | 486 | | benefit. If a trust has more than one (1) settlor, the amount the creditor 3 |
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| 488 | 487 | | or assignee of a particular settlor may reach may not exceed the settlor's 4 |
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| 489 | 488 | | interest in the portion of the trust attributable to that settlor's 5 |
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| 490 | 489 | | contribution. 6 |
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| 491 | 490 | | 7 |
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| 492 | 491 | | 8 |
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