Uniform Trust Code

Article 5. Creditor's Claims;
Spendthrift and Discretionary Trusts

General Comment

This article addresses the validity of a spendthrift provision and the rights of creditors, both of the settlor and beneficiaries, to reach a trust to collect a debt. Sections 501 and 502 state the general rules. Section 501 applies if the trust does not contain a spendthrift provision or the spendthrift provision, if any, does not apply to the beneficiary’s interest. Section 502 states the effect of a spendthrift provision. Unless a claim is being made by an exception creditor, a spendthrift provision bars a beneficiary’s creditor from reaching the beneficiary’s interest until distribution is made by the trustee. An exception creditor, however, can reach the beneficiary’s interest subject to the court’s power to limit the relief. Section 503 lists the categories of exception creditors whose claims are not subject to a spendthrift restriction. Sections 504 through 507 address special categories in which the rights of a beneficiary’s creditors are the same whether or not the trust contains a spendthrift provision. Section 504 deals with discretionary trusts and trusts for which distributions are subject to a standard. Section 505 covers creditor claims against a settlor, whether the trust is revocable or irrevocable, and if revocable, whether the claim is made during the settlor’s lifetime or incident to the settlor’s death. Section 506 provides a creditor with a remedy if a trustee fails to make a mandated distribution within a reasonable time. Section 507 clarifies that although the trustee holds legal title to trust property, that property is not subject to the trustee’s personal debts.

The provisions of this article relating to the validity and effect of a spendthrift provision and the rights of certain creditors and assignees to reach the trust may not be modified by the terms of the trust. See Section 105(b)(5).

This article does not supersede state exemption statutes nor an enacting jurisdiction’s Uniform Fraudulent Transfers Act which, when applicable, invalidates any type of gratuitous transfer, including transfers into trust.

Comment Amended in 2004

Section 501. Rights of Beneficiary's Creditor or Assignee

Section 502. Spendthrift Provision

Section 503. Exceptions to Spendthrift Provision

Section 504. Discretionary Trusts; Effect of Standard

Section 505. Creditor's Claim Against Settlor

Section 506. Overdue Distribution

Section 507. Personal Obligations of Trustee