ARTICLE 5 - CREDITOR'S CLAIMS; SPENDTHRIFTAND DISCRETIONARY TRUSTS

 

4-10-501. Rights of beneficiary's creditor or assignee.

 

To the extent a beneficiary's interest in trust income or principal, or both, is not subject to a spendthrift provision or the exercise of the trustee's discretion, the court may authorize an assignee or a judgment creditor of the beneficiary to attach distributions of trust income or principal, or both, when the distributions are received by the beneficiary or by a third party for the benefit of the beneficiary.

 

4-10-502. Spendthrift provision.

 

(a) Repealed By Laws 2007, Ch. 155, 5.

 

(b) A term of a trust providing that the interest of a beneficiary is held subject to a "spendthrift trust," or words of similar import, is sufficient to restrain both voluntary and involuntary transfers of the beneficiary's interest.

 

(c) Other than by valid disclaimer under W.S. 2-1-401, a beneficiary may not transfer an interest in a trust in violation of a spendthrift provision and, a creditor or assignee of the beneficiary may not reach the interest or attach a distribution by the trustee unless and until it is received by the beneficiary.

 

4-10-503. Exceptions to spendthrift provision.

 

(a) As used in this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.

 

(b) Even if a trust contains a spendthrift provision, a person who has a judgment or court order against the beneficiary for child support or maintenance may obtain from a court an order attaching present or future distributions to, or for the benefit of, the beneficiary.

 

4-10-504. Discretionary trusts; effect of standard.

 

(a) Repealed By Laws 2007, Ch. 155, 5.

 

(b) When the terms of the trust provide that the trustee may only make discretionary distributions to a beneficiary, whether or not the trust contains a spendthrift provision, a creditor or assignee of the trust beneficiary may not compel the trustee to distribute any income or principal, or both, from the trust or reach or attach the interest of the beneficiary unless and until a trust distribution is received by the beneficiary, even if:

 

(i) The trustee has discretion to make distributions for purposes stated in a standard of distribution;

 

(ii) The trustee has abused the discretion; or

 

(iii) The trustee makes distributions directly to third parties for the benefit of the beneficiary in accordance with the terms of the trust.

 

(c) Repealed By Laws 2007, Ch. 155, 5.

 

(d) This section shall not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion. However, a creditor or assignee of a beneficiary may not maintain, or compel the beneficiary to maintain, a proceeding on behalf of the beneficiary or the creditor or assignee.

 

(e) Repealed By Laws 2007, Ch. 155, 5.

 

(f) A discretionary trust created for the benefit of a disabled person under W.S. 42-2-403(f)(i) and (ii) and 42 U.S.C. 1396p(d)(4)(A) and (C) shall have the protection of discretionary trusts provided under this section and such protection shall apply regardless of the date the trust was created.

 

4-10-505. Standards of distribution.

 

(a) Regardless of whether a beneficiary's interest in trust income or principal or both is subject to a spendthrift provision, if the terms of the trust direct the trustee to make distributions of trust income or principal or both according to a standard, which includes distributions for the beneficiary's maintenance or support, and the trustee has not complied with the standard of distribution:

 

(i) A distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child; and

 

(ii) In the order of distribution, the court shall direct the trustee to pay to or for the benefit of the child that portion of the trust income or principal or both as is equitable under the circumstances, but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard of distribution.

 

(b) Except as provided in subsection (a) of this section, a creditor or assignee of a beneficiary may not compel distributions from the trust or attach distributions to be made to a beneficiary until the distributions are received by the beneficiary, if the terms of the trust limit the trustee's ability to make distributions by a standard of distribution, even when the beneficiary is also a trustee or cotrustee of the trust.

 

(c) This section shall not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for a failure to comply with a standard for distributions to the beneficiary.

 

4-10-505.1. Power of appointment or withdrawal; claims of power holder's creditors.

 

(a) Property of a trust that the holder of a power of appointment is authorized to appoint may not be reached or attached by creditors or assignees of the power holder except to the extent that the power holder:

 

(i) Is authorized under the power to appoint the property to himself, his creditors, his estate or the creditors of his estate; and

 

(ii) Exercises the power of appointment in favor of himself, his creditors, his estate or the creditors of his estate.

 

(b) Property of a trust that may be withdrawn by a person holding a power to withdraw from the trust may not be reached or attached by creditors or assignees of the power holder unless and until the power holder withdraws the property from the trust.

 

4-10-506. Creditor's claim against settlor.

 

(a) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:

 

(i) During the lifetime of the settlor, the property of a revocable trust contributed by the settlor, and all income and appreciation thereon and proceeds thereof, is subject to claims of the settlor's creditors;

 

(ii) Except for discretionary trusts created in accordance with W.S. 4-10-504(f) or irrevocable trusts providing that the trustee may only make discretionary distributions to the settlor, a creditor or assignee of the settlor of an irrevocable trust without a spendthrift provision may attach the maximum amount that can be distributed to or for the settlor's benefit. If a trust has more than one (1) settlor, the amount the creditor or assignee of a particular settlor may attach shall not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution.

 

(b) With respect to an irrevocable trust with a spendthrift provision, a creditor or assignee of the right of a settlor are limited by the provisions of W.S. 4-10-510 et seq.

 

(c) With respect to irrevocable trusts providing that the trustee may only make discretionary distributions to the settlor, a creditor or assignee of the right of a settlor are limited by W.S. 4-10-504(b) if the transfer of property to the trust by the settlor was not in violation of the Uniform Fraudulent Transfers Act and the trustee is a regulated financial institution qualified trustee.

 

(d) After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the portion of a trust that was revocable at the settlor's death, and the property subject thereto, is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains to the extent the settlor's probate estate is inadequate to satisfy those claims, costs of administration and expenses.

 

(e) For purposes of this section, the holder of an unexercised power of withdrawal or power of appointment over trust property shall not be treated as a settlor of the trust regardless of whether the power remains exercisable or has lapsed.

 

(f) For purposes of this section, a person who created a trust for his or her spouse under section 2523(e) of the Internal Revenue Code, or for which the election in section 2523(f) of the Internal Revenue Code was made, shall not be treated as a settlor of the trust, as of and after the death of his or her spouse.

 

4-10-507. Limitation on action by creditors.

 

(a) Subject to the rights of persons dealing with a fiduciary as provided in W.S. 4-10-1013, a creditor may file a claim against the assets of the trust or commence a judicial proceeding to contest the validity of a trust that was revocable at the settlor's death within the earlier of:

 

(i) Two (2) years after the settlor's death;

 

(ii) One hundred twenty (120) days after the first publication of a notice of the intent of the trustee to have the property of the settlor distributed as permitted under the terms of the trust. The notice shall be published once per week for two (2) consecutive weeks in a newspaper of general circulation in the county or counties where venue of the trust is properly established as provided in W.S. 4-10-204; or

 

(iii) One hundred twenty (120) days after known creditors have been mailed notice, by certified mail return receipt requested. The notice shall inform the creditor:

 

(A) Of the trust's existence;

 

(B) Of the trustee's name and address;

 

(C) That the creditor shall make all claims in writing to the trustee within one hundred twenty (120) days of the date of mailing of the notice; and

 

(D) That time allowed for commencing a proceeding to contest the validity of a trust or of the proposed distribution of the trustee is one hundred twenty (120) days from the date of mailing of the notice.

 

(b) A creditor failing to file his claim or to commence a judicial proceeding to contest the validity of a trust within the times provided is forever prohibited from making any claim against the assets of the settlor's trust or commencing any judicial proceeding against the settlor or the assets of the settlor's trust.

 

4-10-508. Overdue mandatory distribution.

 

(a) In this section, "mandatory distribution" means a distribution of income or principal which the trustee is required to make to a beneficiary under the terms of the trust, including a distribution on termination of the trust. The term does not include a discretionary distribution under W.S. 4-10-504.

 

(b) If the trust includes a spendthrift provision, a creditor or assignee of a beneficiary may not compel a mandatory distribution or attach a mandatory distribution until it is received by the beneficiary.

 

(c) If a trust providing for a mandatory distribution does not include a spendthrift provision, a creditor or assignee of a beneficiary may compel the trustee to make the mandatory distribution to the beneficiary where the distribution was not made within a reasonable time.

 

4-10-509. Personal obligations of trustee.

 

Trust property is not subject to the personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.

 

4-10-510. Creation of qualified spendthrift trust.

 

(a) A settlor may create a qualified spendthrift trust with a trust instrument appointing a qualified trustee for qualified trust property, which instrument:

 

(i) States that the trust is a qualified spendthrift trust under this section;

 

(ii) Expressly incorporates the law of this state to govern the validity, construction and administration of the trust;

 

(iii) Provides that the interest of the settlor in the trust income or principal, or both, is held subject to a spendthrift provision under W.S. 4-10-502 and such provision of the trust instrument shall be deemed to be a restriction on the transfer of the settlor's beneficial interest in the trust that is enforceable under applicable nonbankruptcy law within the meaning of Section 541(c)(2) of the Bankruptcy Code;

 

(iv) Is irrevocable, but a trust instrument may not be deemed revocable on account of its inclusion of one (1) or more of the following:

 

(A) A settlor's power to veto a distribution from the trust;

 

(B) An inter vivos or testamentary general or limited power of appointment held by the settlor;

 

(C) The settlor's potential or actual receipt of income, including rights to the income retained in the trust instrument;

 

(D) The settlor's potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust as those terms are defined in Section 664 of the Internal Revenue Code;

 

(E) The settlor's receipt each year of a percentage, not to exceed five percent (5%), specified in the trust instrument, of the initial value of the trust or its value determined from time to time pursuant to the trust instrument;

 

(F) The settlor's potential or actual receipt or use of principal when a qualified trustee, including a trustee acting at the direction of a trust advisor other than the settlor, makes such distribution or grants such use in the trustee's sole discretion or pursuant to an ascertainable standard contained in the trust instrument;

 

(G) The settlor's right to add or remove a trustee, trust protector or trust advisor and to appoint a new trustee, trust protector or trust advisor, other than the settlor;

 

(H) The settlor's potential or actual use of real property held under a qualified personal residence trust within the meaning of the term as described in Section 2702(c) of the Internal Revenue Code;

 

(J) A trust protector as provided in W.S. 4-10-710 has the power to add beneficiaries to the trust who are not the trust protector, the estate of the trust protector, the creditors of the trust protector or the heirs of the trust protector;

 

(K) The settlor's right to serve as an investment advisor to the trust, with the powers provided in W.S. 4-10-712(a)(iii) and (iv);

 

(M) The court's right to revoke a trust created by a conservator for a ward under W.S. 3-3-607;

 

(N) The settlor's receipt each year of income or principal from a grantor retained annuity trust or grantor retained unitrust that is allowed under section 2702 of the Internal Revenue Code;

 

(O) The transferor's potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on income of the trust if the potential or actual receipt of income or principal is pursuant to a provision in the trust instrument that expressly provides for the payment of the taxes and if the potential or actual receipt of income or principal would be the result of a qualified trustee's acting:

 

(I) In the qualified trustee's discretion or pursuant to a mandatory direction in the trust instrument; or

 

(II) At the direction of an advisor described in subparagraph (F) of this paragraph and who is acting in the advisor's discretion.

 

(P) The ability, whether pursuant to discretion, direction or the settlor's exercise of a testamentary power of appointment, of a qualified trustee to pay, after the death of the transferor, all or any part of the debts of the transferor outstanding at the time of the transferor's death, the expenses of administering the transferor's estate, or any estate or inheritance tax imposed on or with respect to the transferor's estate.

 

4-10-511. Qualified trust property.

 

(a) Qualified trust property includes real property, personal property and interests in real or personal property and all gains, appreciation and income thereon which:

 

(i) Are the subject of a qualified transfer; and

 

(ii) Are acquired with the proceeds of property of a qualified transfer.

 

(b) Qualified trust property is subject to W.S. 4-10-514 through 4-10-523.

 

4-10-512. Qualified transfers; exception.

 

(a) Except as otherwise provided in this section, "qualified transfer" means a transfer, conveyance or assignment of property, by or from a settlor, with or without consideration, to a qualified trustee, under a trust instrument which meets the requirements of W.S. 4-10-510. "Qualified transfer" also includes:

 

(i) A change in the legal ownership of property occurring upon the substitution of a qualified trustee for another or the addition of one (1) or more qualified trustees; or

 

(ii) The exercise of a power so as to cause a transfer of property to a qualified trustee.

 

(b) A qualified transfer shall require an affidavit from the settlor making the transfer to the trustee of the qualified spendthrift trust in the form provided in W.S. 4-10-523, except that no affidavit shall be required for a transfer under W.S. 4-10-515.

 

(c) The term "qualified transfer" does not include the release or relinquishment of an interest in property that previously was the subject of a qualified transfer.

 

4-10-513. Other qualified transfers.

 

(a) In the case of a transfer to more than one (1) trustee, the transfer will be a qualified transfer if at least one (1) of the trustees is a qualified trustee.

 

(b) A transfer by a trustee that is not a qualified trustee to a trustee that is a qualified trustee shall be treated as a qualified transfer so long as the recipient trustee is the trustee under a qualified spendthrift trust.

 

4-10-514. Action brought pursuant to provisions of Uniform Fraudulent Transfers Act.

 

Except as provided in W.S. 4-10-518, no action of any kind, including an action to enforce a judgment entered by a court or other body having adjudicative authority, may be brought at law or in equity for an attachment or other provisional remedy against qualified trust property or to set aside a qualified transfer unless the action is brought pursuant to the provisions of the Uniform Fraudulent Transfers Act.

 

4-10-515. Transfer by a trustee; time of transfer.

 

(a) A qualified transfer by a trustee of a qualified spendthrift trust to a qualified trustee of another qualified spendthrift trust shall relate back to the date of the original qualified transfer.

 

(b) A transfer of trust property from the trustee of a trust created in another jurisdiction, which provides creditor protection to the settlor similar to that provided in this article, to a trustee of a qualified spendthrift trust shall relate back to the date of the original transfer to the trust created in the other jurisdiction.

 

4-10-516. Election to become a qualified spendthrift trust by existing trust.

 

(a) The settlor, trustee or trust protector of an existing irrevocable trust may elect in writing to treat the trust as a qualified spendthrift trust under this article, and the protection accorded under this article shall relate back to the date of the election subject to extinguishment of a creditor's claim with respect to a prior qualified transfer utilizing the procedures provided in W.S. 4-10-514, if:

 

(i) The trust is modified nonjudicially under W.S. 4-10-111 to conform to the provisions of W.S. 4-10-510 within one (1) year after the election; or

 

(ii) A petition is filed under W.S. 4-10-412 to conform to the provisions of W.S. 4-10-510 within thirty (30) days of the election.

 

4-10-517. Rights of creditors or others with respect to qualified spendthrift trust.

 

Notwithstanding any law to the contrary, a creditor or assignee of a settlor of a qualified spendthrift trust, or an agent of a creditor or settlor, has only those rights with respect to the qualified trust property as are provided in W.S. 4-10-514 through 4-10-523 and no creditor, assignee or agent may have any claim or cause of action against the trustee, trust protector, trust advisor or other fiduciary of the trust, or against any person involved in the counseling, drafting, administration, preparation, execution or funding of the trust unless the creditor, assignee or agent can prove by clear and convincing evidence that the transfer of property to the trust was a fraudulent transfer pursuant to the provisions of the Uniform Fraudulent Transfers Act. In the absence of clear and convincing proof, the property transferred is not subject to the claims of the creditor, assignee or agent. Proof by one (1) creditor, assignee or agent that a transfer of property to a qualified spendthrift trust was fraudulent or wrongful does not constitute proof as to any other creditor, assignee or agent and proof of a fraudulent or wrongful transfer of property as to one (1) creditor, assignee or agent shall not invalidate any other qualified transfer of property.

 

4-10-518. Actions prohibited if action by creditor would be barred.

 

Notwithstanding any other provision of law, no judgment or order upon an action to enforce a judgment, or for relief for conspiracy to commit a fraudulent conveyance, aiding and abetting a fraudulent conveyance or participation in the trust transaction, may be entered by a court or other body having adjudicative authority, or may be brought at law or in equity against the trustee, trust protector, trust advisor or other fiduciary of a qualified spendthrift trust, or against any person involved in the counseling, drafting, preparation, administration, execution or funding of the trust, if, as of the date the action is brought, an action by a creditor or assignee with respect to the trust would be barred under W.S. 4-10-517.

 

4-10-519. Multiple qualified transfers in same trust instrument.

 

(a) If more than one (1) qualified transfer is made to the same qualified spendthrift trust:

 

(i) The making of a subsequent qualified transfer shall be disregarded in determining whether a creditor's claim with respect to a prior qualified transfer is extinguished utilizing the procedures provided in W.S. 4-10-514; and

 

(ii) Any distribution to a beneficiary other than the settlor shall be deemed to have been made from the qualified trust property attributable to the earliest qualified transfer to the trust, unless a creditor of the settlor is able to prove by clear and convincing evidence otherwise.

 

4-10-520. Limitations on qualified trust property.

 

(a) The provisions of W.S. 4-10-510 through 4-10-523, do not apply in any respect to:

 

(i) Any person to whom a settlor is indebted on account of an agreement or order of court for the payment of support in favor of the settlor's children if the settlor is in default by thirty (30) or more days of making a payment pursuant to the agreement or order;

 

(ii) A financial institution with which the settlor has listed qualified trust property on the financial institution's application or financial statement used to obtain or maintain credit from the financial institution other than for the benefit of the qualified spendthrift trust; or

 

(iii) Property of a qualified spendthrift trust that was transferred to the trust by a settlor who received the property by a fraudulent transfer as defined by the Wyoming Fraudulent Transfers Act.

 

4-10-521. Avoidance of qualified transfer.

 

(a) A qualified transfer to a qualified spendthrift trust is avoided only to the extent necessary to satisfy the settlor's debt to the creditor at whose instance the qualified transfer had been avoided, together with costs, including attorney's fees if otherwise authorized, as the court may allow. If any qualified transfer is avoided as provided in this section, then:

 

(i) If the court is satisfied that a qualified trustee has not acted in bad faith in accepting or administering the property that is the subject of the qualified transfer:

 

(A) The qualified trustee has a first and paramount lien against the property that is the subject of the qualified transfer in an amount equal to the entire cost, including attorney's fees, court costs, penalties, fines, fees and other amounts paid or payable, which were properly incurred by the qualified trustee in the defense of the action or proceedings to avoid the qualified transfer. It shall be presumed that the qualified trustee did not act in bad faith merely by accepting the property; and

 

(B) The qualified transfer is avoided subject to the proper fees, costs, preexisting rights, claims and interests of the qualified trustee, and of any predecessor trustee that has not acted in bad faith.

 

(ii) If the court is satisfied that a beneficiary of a qualified spendthrift trust has not acted in bad faith, the avoidance of the qualified transfer is subject to the right of the beneficiary to retain any distribution made upon the exercise of a trust power or discretion vested in the qualified trustee of the trust, which power or discretion was properly exercised prior to the creditor's commencement of an action to avoid the qualified transfer. It shall be presumed that the beneficiary, including a beneficiary who is also a settlor of a qualified spendthrift trust, did not act in bad faith merely by creating the trust or by accepting a distribution made in accordance with the terms of the trust.

 

(b) A creditor shall have the burden of proving by clear and convincing evidence that a trustee or beneficiary of a qualified spendthrift trust acted in bad faith under paragraph (a)(i) or (ii) of this section.

 

4-10-522. Limitation or termination of authority of trustee upon court decision not to apply Wyoming law.

 

If, in any action brought against a trustee of a qualified spendthrift trust, a court takes any action whereby the court declines to apply the law of this state in determining the validity, construction or administration of the trust, or the effect of a spendthrift provision thereof, the trustee may immediately resign without the further order of any court, and cease in all respects to be trustee of the trust. In the event that the trustee does resign and no provision for a successor trustee exists in the trust instrument, the qualified beneficiaries may then petition a Wyoming district court with appropriate jurisdiction to appoint a successor trustee who shall succeed as trustee upon such terms and conditions as the district court determines to be consistent with the purposes of the trust and this act. Upon the trustee's ceasing to be trustee, the trustee shall have no power or authority other than to convey the trust property to the successor trustee named in the trust instrument or appointed by the district court.

 

4-10-523. Qualified transfer affidavit.

 

(a) A qualified transfer affidavit shall be in writing, sworn to by the settlor, and shall include each of the following statements:

 

(i) The settlor has full right, title and authority to transfer the property to the qualified spendthrift trust;

 

(ii) The transfer of the property to the qualified spendthrift trust will not render the settlor insolvent;

 

(iii) The settlor does not intend to defraud any creditors by transferring the property to the qualified spendthrift trust;

 

(iv) The settlor does not have any pending or threatened court actions against him, except for those court actions identified in the affidavit;

 

(v) The settlor is not involved in any administrative proceedings, except for those administrative proceedings identified in the affidavit;

 

(vi) At the time of the transfer of the property to the qualified spendthrift trust, the settlor is not in default of a child support obligation by more than thirty (30) days;

 

(vii) The settlor does not contemplate the filing for relief under the provisions of the federal Bankruptcy Code;

 

(viii) The property transferred to the qualified spendthrift trust was not derived from any unlawful activities;

 

(ix) The settlor has and shall maintain personal liability insurance of at least one million dollars ($1,000,000.00) or shall provide coverage equal to the fair market value of the settlor's total qualified transfers to qualified spendthrift trusts, whichever is less. This affidavit requirement shall not apply to a qualified transfer to a trust created by a court order under W.S. 3-3-607 or an irrevocable income trust created under W.S. 42-2-403(f)(ii) and 42 U.S.C. 1396p(d)(4)(B).