Kentucky Statutes 386B.5-040 – Creditor’s claim against settlor
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(1) Subject to the statutory provisions of KRS Chapter 396 regarding claims against decedents’ estates, whether or not the terms of a trust contain a spendthrift provision, the following rules apply:
(a) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor’s creditors;
(b) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach 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 reach may not exceed the settlor’s interest in the portion of the trust attributable to that settlor’s contribution; and
(c) After the death of a settlor, and subject to the settlor’s right to direct the source from which liabilities shall paid, the property of a trust that was revocable at the settlor’s death 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, and statutory allowances to a surviving spouse and children to the extent the settlor’s probate estate is inadequate to satisfy those claims, costs, expenses, and allowances, but no property added to a revocable trust on account of the settlor’s death from a source other than the settlor’s estate or another revocable trust created by the settlor shall be 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, and statutory allowances to a surviving spouse and children.
(2) For purposes of this section:
(a) During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power; and
(b) Upon the lapse, release, or waiver of the power, the holder is not treated as the settlor of the trust.
Effective: July 15, 2014
History: Created 2014 Ky. Acts ch. 25, sec. 43, effective July 15, 2014.
(a) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor’s creditors;
Terms Used In Kentucky Statutes 386B.5-040
- Irrevocable trust: A trust arrangement that cannot be revoked, rescinded, or repealed by the grantor.
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Power of withdrawal: means a presently exercisable general power of appointment other than a power:
(a) Exercisable by a trustee and limited by an ascertainable standard. See Kentucky Statutes 386B.1-010 - Probate: Proving a will
- Property: means anything that may be the subject of ownership, whether legal or equitable, or any interest therein. See Kentucky Statutes 386B.1-010
- Revocable trust: A trust agreement that can be canceled, rescinded, revoked, or repealed by the grantor (person who establishes the trust).
- Settlor: means a person, including a testator, who creates or contributes property to a trust. See Kentucky Statutes 386B.1-010
- Spendthrift provision: means a term of a trust which restrains both voluntary and involuntary transfer of a beneficiary's interest. See Kentucky Statutes 386B.1-010
- Trust: means an express trust established by a trust instrument, including a will, whereby a trustee has the duty to administer a trust asset for the benefit of a named or otherwise described income or principal beneficiary, or both. See Kentucky Statutes 386B.1-010
(b) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach 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 reach may not exceed the settlor’s interest in the portion of the trust attributable to that settlor’s contribution; and
(c) After the death of a settlor, and subject to the settlor’s right to direct the source from which liabilities shall paid, the property of a trust that was revocable at the settlor’s death 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, and statutory allowances to a surviving spouse and children to the extent the settlor’s probate estate is inadequate to satisfy those claims, costs, expenses, and allowances, but no property added to a revocable trust on account of the settlor’s death from a source other than the settlor’s estate or another revocable trust created by the settlor shall be 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, and statutory allowances to a surviving spouse and children.
(2) For purposes of this section:
(a) During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power; and
(b) Upon the lapse, release, or waiver of the power, the holder is not treated as the settlor of the trust.
Effective: July 15, 2014
History: Created 2014 Ky. Acts ch. 25, sec. 43, effective July 15, 2014.