Stricken language would be deleted from and underlined language would be added to present law.
Act 291 of the Regular Session
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State of Arkansas 1
94th General Assembly A Bill 2
Regular Session, 2023 HOUSE BILL 1394 3
4
By: Representatives Maddox, Lundstrum 5
By: Senator C. Penzo 6
7
For An Act To Be Entitled 8
AN ACT TO AMEND AND UPDATE THE LAW ON SP ENDTHRIFT 9
TRUSTS; TO ALLOW FOR THE CREATION OF A DO MESTIC ASSET 10
PROTECTION TRUST; AN D FOR OTHER PURPOSES . 11
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13
Subtitle 14
TO UPDATE THE LAW ON SPENDTHRIFT TRUSTS; 15
AND TO ALLOW FOR THE CR EATION OF A 16
DOMESTIC ASSET PROTECTION TRUST. 17
18
19
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 20
21
SECTION 1. Arkansas Code Title 28, Chapter 72, is amended to add an 22
additional subchapter to read as follows: 23
Subchapter 7 — Spendthrift Trusts and Domestic Asset Protection Trusts 24
25
28-72-701. Definitions. 26
As used in this subchapter: 27
(1) “Adviser” means any person, including without limitation an 28
accountant, attorney, or investment adviser, who gives advice concerning or 29
was involved in the creation of, transfer of property to, or administration 30
of a spendthrift trust or domestic asset protection trust, or who 31
participated in the preparation of accountings, tax returns, or other reports 32
related to a trust; 33
(2) “Creditor” means a person with a claim; 34
(3) "Document" means a will, trust, or instrument; 35
(4) "Domestic asset protection trust" means a self-settled, first-36 HB1394
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party spendthrift trust; 1
(5) "Remainder beneficiary" means a person entitled to receive 2
principal when an income interest ends; 3
(6) "Settlor" means: 4
(A) The person who creates a spendthrift trust or domestic asset 5
protection trust as described in the trust instrument; or 6
(B) Any person who contributes assets to a spendthrift trust or 7
domestic asset protection trust as to the assets that he or she contributed 8
to the spendthrift trust or domestic asset protection trust except to the 9
extent of consideration for the assets contributed by that person; and 10
(7) “Spendthrift trust” means a trust that, by its terms, imposes a 11
valid restraint on the voluntary and involuntary transfer of the interest of 12
the beneficiary. 13
14
28-72-702. Applicability — Third-party spendthrift trust and domestic 15
asset protection trust — Requirements. 16
(a) Unless the document that creates t he spendthrift trust or domestic 17
asset protection trust expressly declares otherwise, this subchapter governs 18
the construction, operation, and enforcement of all spendthrift trusts or 19
domestic asset protection trusts in the State of Arkansas, regardless of 20
whether the trust was created in or outside of the State of Arkansas, if: 21
(1) All or part of the lands, rents, issues, or profits affected 22
are in the State of Arkansas; 23
(2) All or part of the personal property, interest of money, 24
dividends upon stock, and other profits affected are in the State of 25
Arkansas; 26
(3) The declared domicile of the creator of a spendthrift trust 27
or domestic asset protection trust affecting personal property is in the 28
State of Arkansas; or 29
(4) At least one (1) trustee qualified under subsection (b) of 30
this section has powers that include maintaining records and preparing income 31
tax returns for the trust and all or part of the administration of the trust 32
is performed in the State of Arkansas. 33
(b) If a settlor is a beneficiary of a trust of the settlor's own 34
creation, at least one (1) trustee of the domestic asset protection trust 35
must be: 36 HB1394
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(1) A natural person who resides and has his or her domicile in 1
the State of Arkansas; 2
(2) A trust company that: 3
(A) Is organized under: 4
(i) Federal law; 5
(ii) The laws of the State of Arkansas; or 6
(iii) The laws of another state; and 7
(B) Maintains an office in the State of Arkansas for the 8
transaction of business; or 9
(3) A bank that: 10
(A) Is organized under: 11
(i) Federal law; 12
(ii) The laws of the State of Arkansas; or 13
(iii) The laws of another state; 14
(B) Maintains an office in the State of Arkansas for the 15
transaction of business; and 16
(C) Possesses and exercises trust powers. 17
18
28-72-703. Creation — Third-party spendthrift trusts and domestic 19
asset protection trusts — Ability of settlor to hold other powers. 20
(a) A person competent to execute a will or deed may, only by a 21
document that is duly executed, create a spendthrift trust in real, personal, 22
or mixed property for the benefit of: 23
(1) A person other than the settlor; or 24
(2) For a domestic asset protection trust, t he settlor or both 25
the settlor and another person, if the document: 26
(A) Is irrevocable; 27
(B) Does not require that any part of the income or 28
principal of the trust be distributed to the settlor; and 29
(C) Is not intended to hinder, delay, or defraud known 30
creditors. 31
(b) A document meets the requirements of subsection (a) of this 32
section even if under the terms of the document the settlor: 33
(1) May prevent a distribution from the trust; 34
(2) Holds a special lifetime or testamentary power of 35
appointment that cannot be exercised in favor of the settlor, the settlor's 36 HB1394
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estate, a creditor of the settlor, or a creditor of the settlor's estate; 1
(3) Is a beneficiary of a trust that qualifies as a charitable 2
remainder trust pursuant to 26 U.S.C. § 664, as it existed on January 1, 3
2023, even if the settlor has the right to release the settl or's retained 4
interest in the trust, in whole or in part, in favor of one (1) or more of 5
the remainder beneficiaries of the trust; 6
(4) Is authorized or entitled to: 7
(A) Receive a percentage of the value of the trust each 8
year as specified in the trust instrument of the initial value of the trust 9
assets or their value determined from time to time pursuant to the trust 10
instrument, but not exceeding: 11
(i) The amount that may be defined as income 12
pursuant to 26 U.S.C. § 643(b), as it existed on Ja nuary 1, 2023; or 13
(ii) With respect to the benefits from any qualified 14
retirement plan or any eligible deferred compensation plan, the minimum 15
required distribution as defined in 26 U.S.C. § 4974(b), as it existed on 16
January 1, 2023; 17
(B) Receive income or principal from a grantor -retained 18
annuity trust paying out a qualified annuity interest within the meaning of 19
26 C.F.R. § 25.2702-3(b), as it existed on January 1, 2023, or a grantor 20
retained unitrust paying out a qualified unitrust interest withi n the meaning 21
of 26 C.F.R. § 25.2702 -3(c); or 22
(C) Use real property held under a qualified personal 23
residence trust as described in 26 C.F.R. § 25.2702 -5(c), as it existed on 24
January 1, 2023; or 25
(5) Is authorized to: 26
(A) Receive income or princi pal from the trust, but only 27
subject to the discretion of another person; or 28
(B) Use real or personal property owned by the trust. 29
(c) Except for the power of the settlor to make distributions to 30
himself or herself without the consent of another pers on, the provisions of 31
this section shall not be construed to prohibit the settlor of a spendthrift 32
trust or domestic asset protection trust from holding other powers under the 33
trust, regardless of whether the settlor is a cotrustee, including without 34
limitation the power to: 35
(1) Remove and replace a trustee; 36 HB1394
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(2) Direct trust investments; and 1
(3) Execute other management powers. 2
(d)(1) No specific language is necessary for the creation of a 3
spendthrift trust or domestic asset protection trust. 4
(2) It is sufficient if, by the terms of the document, the 5
creator manifests an intention to create a spendthrift trust or domestic 6
asset protection trust. 7
8
28-72-704. Powers of settlor. 9
(a) The settlor of a spendthrift trust or domestic asset protection 10
trust has only the powers and rights that are conferred to the settlor by the 11
trust instrument. 12
(b) An agreement or understanding, express or implied, between the 13
settlor and the trustee that attempts to grant or permit the retention of 14
greater rights or authority than is stated in the trust instrument is void. 15
16
28-72-705. Beneficiaries — Named in writing — Provision for support — 17
Income. 18
(a) The beneficiary of a spendthrift trust or domestic asset 19
protection trust shall be named or clearly referred to in the document. 20
(b) No spouse, former spouse, child, or dependent shall be a 21
beneficiary unless the person is named or clearly referred to as a 22
beneficiary in the document. 23
(c) The provision for the beneficiary shall: 24
(1) Be for the support, education, maintenance, and benefit of 25
the beneficiary alone; 26
(2) Be without reference to or limited by: 27
(A) The beneficiary’s needs, station in life, or mode of 28
life; or 29
(B) The needs of any other person, regardless of whether 30
the person is dependent upon the beneficiary; and 31
(3) Extend to all of the income from the trust estate devoted 32
for that purpose by the creator of the trust without exception or deduction 33
other than for: 34
(A) Costs or fees regularly earned, paid, or incurred by 35
the trustee for the administration or protection of the trust estate; or 36 HB1394
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(B) Taxes paid or incurred by: 1
(i) The trust estate; or 2
(ii) The interest of the beneficiary of the trust. 3
(d) The existence of a spendthrift trust or domestic asset protection 4
trust shall not depend on the beneficiary's: 5
(1) Character; 6
(2) Capacity or incapacity; or 7
(3) Competency or incompetency. 8
9
28-72-706. Discretion of trustee. 10
(a) The trustee's discretionary power is absolute, regardless of 11
whether a valid provision for the accumulation of trust income is made or if 12
the provision relates to the trust income from real or personal property, in 13
all cases where the creator of a spendthrift trust or domestic asset 14
protection trust: 15
(1) Indicates the sum to be applied for or paid to the 16
beneficiary or makes the application or payment of sums for or to the 17
beneficiary at the discretion of the trustee; 18
(2) Makes the amount of trust income to be applied for or paid 19
to the beneficiary at the discretion of the trustee; or 20
(3) Gives the trustee the discretion to pay all or any part of 21
the trust income to one (1) or more of the beneficiaries. 22
(b) A trustee's discretion under subsection (a) of this section shall 23
not be interfered with for any consideration of the needs, station in life, 24
or mode of life of the beneficiary, or for any uncertainty or pretext. 25
(c) The trustee of a spendthrift trust or domestic asset protection 26
trust is required to disregard and defeat an assignment or other act, 27
voluntary or involuntary, that is attempted contrary to the provisions of 28
this subchapter. 29
30
28-72-707. Restraints on alienation — Exclusive jurisdiction of court. 31
(a)(1) A spendthrift trust or domestic asset protection trust 32
restrains and prohibits the assignment, alienation, acceleration, and 33
anticipation of any interest of the beneficiary under the trust by the 34
voluntary or involuntary act of the beneficiary, by operation of law, or any 35
legal process. 36 HB1394
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(2) The trust estate, corpus, or capital of a spendthrift trust 1
or domestic asset protection trust shall not be assigned, aliened, 2
diminished, or impaired by any alienation, transfer, or seizure that has the 3
effect of cutting off or diminishing the payments, rents, profits, earnings, 4
or income of the trust estate that would otherwise be currently available for 5
the benefit of the beneficiary. 6
(b) A mandatory or discretionary payment by the trustee to the 7
beneficiary shall be made only to or for the benefit of the beneficiary and 8
not: 9
(1) By acceleration or anticipation; or 10
(2) To an assignee of the beneficiary or upon an order, written 11
or oral, given by the beneficiary, regardless of whether the order is a 12
voluntary contractual act of the beneficiary or is through any legal process, 13
including without limitation: 14
(A) A judgment; 15
(B) An execution; 16
(C) An attachment; 17
(D) A garnishment; 18
(E) A bankruptcy; or 19
(F) A contract, tort, or duty. 20
(c)(1) The beneficiary shall not have the power or capacity to make 21
any disposition of the trust income: 22
(A) By his or her order, voluntary or involuntary; or 23
(B) Upon the order or direction of any court or courts, 24
whether bankruptcy or otherwise. 25
(2) The interest of the beneficiary shall not be: 26
(A) Subject to any process of attachment issued against 27
the beneficiary; or 28
(B) Taken in execution under any form of legal process 29
directed against the beneficiary or against the trustee, trust estate, or any 30
part of the income of the trust estate. 31
32
28-72-708. Legal estate of beneficiary in corpus. 33
(a) A beneficiary of a spendthrift trust or domestic asset protection 34
trust has no legal estate in the capital, principal, or corpus of the trust 35
estate unless under the terms of the trust the beneficiary or a person 36 HB1394
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deriving title from the beneficiary is entitled to have it conveyed or 1
transferred to him or her immediately or after a term of years or after a 2
life in being. 3
(b) The income from the corpus is not to be paid to a specific 4
beneficiary or any other beneficiary until any applicable term of years or 5
life passes as described in subsection (a) of this section. 6
7
28-72-709. Perpetuities. 8
(a) A spendthrift trust or domestic asset protection trust may not 9
continue for a period longer than permitted under § 18-3-101 et seq. 10
(b)(1) The free alienation of the legal estate by the trustee may not 11
be suspended for a period exceeding the limit prescribed in any 12
constitutional or statutory prohibition against perpetuities existing in the 13
State of Arkansas or in the state where the lands affected by the trust are 14
situated. 15
(2) Notwithstanding subsection (b)(1) of this section, a 16
contingent remainder in fee may be created on a prior remainder in fee to 17
take effect if the person to whom the first remainder is limited dies under 18
twenty-one (21) years of age, or upon any other contingency by which the 19
estate of that person may be determined before he or she attains twenty-one 20
(21) years of age. 21
22
28-72-710. Accumulation of income. 23
(a) The accumulation of income of trust property may be directed in 24
the document creating a spendthrift trust or domestic asset protection trust 25
for the benefit of one or more beneficiaries to commence within the time 26
permitted for the vesting of a future interest, but shall not extend beyond 27
the period limiting the time within which the absolute power of alienation of 28
property may be suspended. 29
(b)(1) If the direction of the accumulation of income of trust 30
property is for a longer term than is permitted by law, it is void only as to 31
the excess time, regardless of whether the direction is separable from the 32
other clauses in the trust. 33
(2) In the case of invalidity of the direction of the 34
accumulation of income of trust property, the income may be paid and 35
distributed to the next succeeding beneficiary in interest. 36 HB1394
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1
28-72-711. Alternate provisions — Discretion of settlor. 2
A settlor of a spendthrift trust or domestic asset protection trust may 3
by a document creating a spendthrift trust or domestic asset protection trust 4
make separate, different, or alternate provisions other than what is set 5
forth in §§ 28-72-701 - 28-72-710, so long as the settlor uses express, 6
specific language establishing that intent. 7
8
28-72-712. Transfer of property to trust — Actions against advisers, 9
settlors, and trustees — Limitations. 10
(a) A person may not bring an action with respect to a transfer of 11
property to a spendthrift trust or domestic asset protection trust if the 12
person: 13
(1) Is a creditor when the transfer is made, unless the action 14
is commenced within: 15
(A) Two (2) years after the transfer is made; or 16
(B) Six (6) months after the person discovers or 17
reasonably should have discovered the transfer, whichever is later; or 18
(2) Becomes a creditor after the transfer is made, unless the 19
action is commenced within two (2) years after the transfer is made. 20
(b) A person is deemed to have discovered a transfer under subsection 21
(a) of this section at the time a public record is made of the transfer, 22
including without limitation at the time of: 23
(1) The conveyance of real property that is recorded in the 24
office of the county recorder of the county in which the property is located; 25
or 26
(2) The filing of a financing statement under the Uniform 27
Commercial Code, § 4-1-101 et seq. 28
(c)(1) A creditor shall not be awarded a judgment in an action with 29
respect to a transfer of property to a spendthrift trust or domestic asset 30
protection trust unless the creditor proves by clear and convincing evidence 31
that the transfer of property: 32
(A) Was a fraudulent transfer under the Uniform Voidable 33
Transactions Act, § 4-59-201 et seq.; or 34
(B) Violates a legal obligation owed to the creditor under 35
a contract or a valid court order that is legally enforceable by that 36 HB1394
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creditor. 1
(2) In the absence of clear and convincing evidence, the 2
property transferred is not subject to the claims of the creditor. 3
(3) Clear and convincing evidence: 4
(A) That is established by a creditor showing that a 5
transfer of property was fraudulent or wrongful does not constitute clear and 6
convincing evidence as to any other creditor; and 7
(B) Of a fraudulent or wrongful transfer of property as to 8
a creditor shall not invalidate any other transfer of property. 9
(d)(1) If property transferred to a spendthrift trust or domestic 10
asset protection trust is conveyed to the settlor or to a beneficiary for the 11
purpose of obtaining a loan secured by a mortgage or deed of trust on the 12
property and is later reconveyed to the trust, for the purpose of bringing an 13
action under subsection (a) of this section, the transfer is disregarded and 14
the reconveyance relates back to the date the property was originally 15
transferred to the trust. 16
(2) The mortgage or deed of trust on the property shall be 17
enforceable against the trust. 18
(e) A person shall not be awarded a judgment in an action against an 19
adviser to the settlor or trustee of a spendthrift trust or domestic asset 20
protection trust unless the person proves by clear and convincing evidence 21
that the adviser: 22
(1) Acted knowingly and in bad faith in violation of the laws of 23
the State of Arkansas; and 24
(2) Directly caused the damages suffered by the person. 25
(f)(1) A person other than a beneficiary or settlor shall not be 26
awarded a judgment in an action against a trustee of a spendthrift trust or 27
domestic asset protection trust unless the person proves by clear and 28
convincing evidence that the trustee: 29
(A) Acted knowingly and in bad faith in violation of the 30
laws of the State of Arkansas; and 31
(B) Directly caused the damages suffered by the person. 32
(2) As used in subsection (f) of this section, "trustee" 33
includes a cotrustee and a predecessor trustee. 34
(g) If more than one transfer is made to a spendthrift trust or 35
domestic asset protection trust: 36 HB1394
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(1) The subsequent transfer to the spendthrift trust or domestic 1
asset protection trust shall be disregarded for the purpose of determining 2
whether a person may bring an action under to subsection (a) of this section 3
with respect to a prior transfer to the spendthrift trust or domestic asset 4
protection trust; and 5
(2) Any distribution to a beneficiary from the spendthrift trust 6
or domestic asset protection trust shall be deemed to have been made from the 7
most recent transfer made to the spendthrift trust or domestic asset 8
protection trust. 9
(h) Notwithstanding any other provision of law, no action of any kind, 10
including without limitation an action to enforce a judgment entered by a 11
court or other body having adjudicative authority, shall be brought at law or 12
in equity against the trustee of a spendthrift trust or domestic asset 13
protection trust if, as of the date the action is brought, an action by a 14
creditor with respect to a transfer to the spendthrift trust or domestic 15
asset protection trust would be barred pursuant to this section. 16
(i) For purposes of this section, if a trustee exercises his or her 17
discretion or authority to distribute trust income or principal to or for a 18
beneficiary of the spendthrift trust or domestic asset protection trust, by 19
appointing the property of the original spendthrift trust or domestic asset 20
protection trust in favor of a second spendthrift trust or domestic asset 21
protection trust for the benefit of one (1) or more of the beneficiaries 22
under the Trustee Division of Trusts Act, § 28-69-701 et seq., the time of 23
the transfer for purposes of this section shall be deemed to have occurred on 24
the date the settlor of the original spendthrift trust or domestic asset 25
protection trust transferred assets into the original spendthrift trust or 26
domestic asset protection trust, regardless of whether the property of the 27
original spendthrift trust or domestic asset protection trust may have been 28
transferred to a second spendthrift trust or domestic asset protection trust. 29
30
28-72-713. Trust administered under laws of another state or 31
jurisdiction. 32
(a) A trust administered under the laws of another state or another 33
jurisdiction is a spendthrift trust or domestic asset protection trust under 34
this subchapter if the: 35
(1) Trustee of the trust complies with the requirements set 36 HB1394
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forth in the trust instrument and the requirements of the laws of the state 1
or jurisdiction from which the trust is being transferred; 2
(2) Trustee or other person having the power to transfer the 3
domicile of the trust declares the intent to transfer the domicile of t he 4
trust in writing; 5
(3) Document declaring the intent to transfer the domicile of 6
the trust is delivered to the trustee, if it is executed by a person other 7
than the trustee; and 8
(4) Requirements of this subchapter are satisfied simultaneously 9
with or immediately after the change of the domicile. 10
(b) For purposes of § 28 -72-712, if the domicile of an existing trust 11
is transferred from another state or jurisdiction to this state and the laws 12
of the other state or jurisdiction are similar to the prov isions of this 13
subchapter, the transfer of the trust is deemed to have occurred: 14
(1) On the date on which the settlor of the trust transferred 15
assets into the trust, if the applicable law of the trust has at all times 16
been substantially similar to the p rovisions of this subchapter; or 17
(2) On the earliest date on which the applicable laws of the 18
trust were substantially similar to the provisions of this subchapter. 19
20
28-72-714. Applicability to trust or estate. 21
This subchapter applies to a trust or e state existing or created on or 22
after the effective date of this act, except as otherwise expressly provided 23
in the terms of the trust or this subchapter. 24
25
SECTION 2. Arkansas Code § 28 -73-505(a), concerning a creditor's claim 26
against a settlor of a spendthrift or discretionary trust, is amended to read 27
as follows: 28
(a) Whether or not the terms of a trust contain a spendthrift 29
provision, the following rules apply: 30
(1) During the lifetime of the settlor, the property of a 31
revocable trust is subject to claims of the settlor's creditors. If a trust 32
has more than one (1) settlor, the amount the creditor or assignee of a 33
particular settlor may reach may not exceed the settlor's interest in the 34
portion of the trust attributable to that settlor's contribution. 35
(2) With Except for a trust created under § 28-72-701 et seq., 36 HB1394
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with respect to an irrevocable trust, a creditor or assignee of the settlor 1
may reach the maximum amount that can be distributed to or for the settlor's 2
benefit. If a trust has more than one (1) settlor, the amount the creditor 3
or assignee of a particular settlor may reach may not exceed the settlor's 4
interest in the portion of the trust attributable to that settlor's 5
contribution. 6
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