BILLASINTRODUCEDANDPASSEDBYSENATEANDHOUSE S.3
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S.3
IntroducedbySenatorHashim
ReferredtoCommitteeonJudiciary
Date:January10,2025
Subject:Trusts;transferofpropertytotrust;creditor’sclaims
Statementofpurposeofbillasintroduced:Thisbillproposestoprovidethat
whenpropertyownedbyspousesastenantsbytheentiretyistransferredintoa
trust,eachspouseretainsthesameimmunityfromcreditorclaimsagainstthe
propertythatthespouseshadbeforetheytransferredthepropertyintothe
trust.
Anactrelatingtothetransferofpropertytoatrust
ItisherebyenactedbytheGeneralAssemblyoftheStateofVermont:
Sec.1.14AV.S.A.§ 505isamendedtoread:
§505.CREDITOR’SCLAIMAGAINSTSETTLOR
(a)Whetherornotthetermsofatrustcontainaspendthriftprovision,the
followingrulesapply:
(1)Duringthelifetimeofthesettlor,thepropertyofarevocabletrustis
subjecttoclaimsofthesettlor’screditors.
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(2)Withrespecttoanirrevocabletrust,acreditororassigneeofthe
settlormayreachthemaximumamountthatcanbedistributedtoorforthe
settlor’sbenefit.Ifatrusthasmorethanonesettlor,theamountthecreditoror
assigneeofaparticularsettlormayreachshallnotexceedthesettlor’sinterest
intheportionofthetrustattributabletothatsettlor’scontribution.This
subdivisionshallnotapplytoanirrevocable“specialneedstrust”established
foradisabledpersonasdescribedin42U.S.C.§1396p(d)(4)orsimilar
federallawgoverningthetransfertosuchatrust.
(3)Afterthedeathofasettlor,andsubjecttothesettlor’srighttodirect
thesourcefromwhichliabilitieswillbepaid,thepropertyofatrustthatwas
revocableatthesettlor’sdeathissubjecttoclaimsofthesettlor’screditors,
costsofadministrationofthesettlor’sestate,theexpensesofthesettlor’s
funeralanddisposalofremains,andstatutoryallowancestoasurvivingspouse
andchildrentotheextentthesettlor’sprobateestateisinadequatetosatisfy
thoseclaims,costs,expenses,andallowances.
***
(c)(1)Propertyheldbyspousesastenantsbytheentiretythatisconveyed
tothespouses’jointlyorseparatelyheldrevocableorirrevocabletrusts,and
anyproceedsofthesaleordispositionoftheproperty,shallbeimmunefrom
theclaimsofthespouses’separatecreditorstothesameextentastheproperty
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wouldhavebeenifithadremainedheldbythespousesastenantsbythe
entiretyifthefollowingapply:
(A)thespousesaremarriedtoeachother;
(B)thepropertyisheldinthetrustortrusts,orhasbeendeededout
ofthetrusttothespousesastenantsbytheentirety;
(C)ifthetrustisajointtrust,thetrustmayberevokedbyeither
spouseactingalonebutmaybeamendedonlybyactionofbothspouses;and
(D)thepropertyisthespouses’property,includingif:
(i)bothspousesarecurrentbeneficiariesofonejointtrustthat
holdstheentireproperty;or
(ii)eachspouseisacurrentbeneficiaryofaseparatetrustandthe
twoseparatetrusts,together,holdtheentireproperty,whetherornotother
personsarealsocurrentorfuturebeneficiariesofthetrustortrusts.
(2)(A)Propertyatanytimeheldinatenantsbytheentiretytrustshall
havethesameimmunityfromtheclaimsofaseparatecreditorofeithersettlor
asthepropertywouldhaveifitwereheldoutsidethetrustbythesettlorsas
tenantsbytheentiretyunlessotherwiseprovidedinwritingbythesettloror
settlorswhotransferredthepropertytothetrust.Thepropertyshallbetreated
inallrespectsastenantsbytheentiretyproperty,includingforpurposesof
federalandstatebankruptcylaws.
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(B)Propertyheldinatenantsbytheentiretytrustshallceaseto
receiveimmunityfromtheclaimsofcreditorsuponthedissolutionofthe
settlors’marriagebyacourt.
(3)Exceptasotherwiseprovidedinthistitle,ontheeffectivedateof
thissubsection:
(A)thissubsection(c)appliestoalltrustscreatedbefore,on,orafter
theeffectivedateofthissubsection;
(B)thissubsection(c)appliestoalljudicialproceedingsconcerning
trustscommencedonoraftertheeffectivedateofthissubsection.
Sec.2.EFFECTIVEDATE
Thisactshalltakeeffectonpassage.
Sec.1.14AV.S.A.§ 505isamendedtoread:
§505.CREDITOR’SCLAIMAGAINSTSETTLOR
(a)Whetherornotthetermsofatrustcontainaspendthriftprovision,the
followingrulesapply:
(1)Duringthelifetimeofthesettlor,thepropertyofarevocabletrustis
subjecttoclaimsofthesettlor’screditors.
(2)Withrespecttoanirrevocabletrust,acreditororassigneeofthe
settlormayreachthemaximumamountthatcanbedistributedtoorforthe
settlor’sbenefit.Ifatrusthasmorethanonesettlor,theamountthecreditor
orassigneeofaparticularsettlormayreachshallnotexceedthesettlor’s
interestintheportionofthetrustattributabletothatsettlor’scontribution.
Thissubdivisionshallnotapplytoanirrevocable“specialneedstrust”
establishedforadisabledpersonasdescribedin42U.S.C.§1396p(d)(4)or
similarfederallawgoverningthetransfertosuchatrust.
(3)Afterthedeathofasettlor,andsubjecttothesettlor’srighttodirect
thesourcefromwhichliabilitieswillbepaid,thepropertyofatrustthatwas
revocableatthesettlor’sdeathissubjecttoclaimsofthesettlor’screditors,
costsofadministrationofthesettlor’sestate,theexpensesofthesettlor’s
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funeralanddisposalofremains,andstatutoryallowancestoasurviving
spouseandchildrentotheextentthesettlor’sprobateestateisinadequateto
satisfythoseclaims,costs,expenses,andallowances.
***
(c)(1)Propertyheldbyspousesastenantsbytheentiretythatisconveyed
tothespouses’jointlyorseparatelyheldrevocableorirrevocabletrusts,and
anyproceedsofthesaleordispositionoftheproperty,shallbeimmunefrom
theclaimsofthespouses’separatecreditorstothesameextentastheproperty
wouldhavebeenifithadremainedheldbythespousesastenantsbythe
entiretyifthefollowingapply:
(A)thespousesaremarriedtoeachother;
(B)thepropertyisheldinthetrustortrustsorhasbeendeededout
ofthetrusttothespousesastenantsbytheentirety;
(C)ifthetrustisajointtrust,thetrustmayberevokedbyeither
spouseactingalonebutmaybeamendedonlybyactionofbothspouses;
(D)thepropertyisthespouses’property;and
(E)(i)bothspousesarecurrentbeneficiariesofonejointtrustthat
holdstheentireproperty;or
(ii)eachspouseisacurrentbeneficiaryofaseparatetrustandthe
twoseparatetrusts,together,holdtheentireproperty,whetherornotother
personsarealsocurrentorfuturebeneficiariesofthetrustortrusts.
(2)(A)Propertyatanytimeheldinatenantsbytheentiretytrustshall
havethesameimmunityfromtheclaimsofaseparatecreditorofeithersettlor
asthepropertywouldhaveifitwereheldoutsidethetrustbythesettlorsas
tenantsbytheentiretyunlessotherwiseprovidedinwritingbythesettloror
settlorswhotransferredthepropertytothetrust.Thepropertyshallbetreated
inallrespectsastenantsbytheentiretyproperty,includingforpurposesof
federalandstatebankruptcylaws.
(B)Propertyheldinatenantsbytheentiretytrustshallceaseto
receiveimmunityfromtheclaimsofcreditorsuponthedissolutionofthe
settlors’marriagebyacourt.
(3)Exceptasotherwiseprovidedinthistitle,ontheeffectivedateofthis
subsection:
(A)notwithstanding1V.S.A.§ 214,thissubsection(c)appliestoall
trustscreatedbefore,on,oraftertheeffectivedateofthissubsectionandto
propertyheldbyspousesastenantsbytheentiretythatisconveyedbefore,on,
oraftertheeffectivedateofthissubsection; BILLASINTRODUCEDANDPASSEDBYSENATEANDHOUSE S.3
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(B)thissubsection(c)appliestoalljudicialproceedingsconcerning
trustscommencedonoraftertheeffectivedateofthissubsection.
Sec.2.EFFECTIVEDATE
Thisactshalltakeeffectonpassage.