2005 Arizona Revised Statutes - Revised Statutes §14-7705  Settlor as beneficiary; exception

A. If the settlor is a beneficiary of a trust created by the settlor and the settlor's interest in the trust is subject to a provision restraining the voluntary or involuntary transfer of the settlor's interest, the restraint is invalid against transferees or creditors of the settlor. The invalidity of the restraint on transfer does not affect the validity of the trust.

B. If the settlor is the beneficiary of a trust created by the settlor and the trust instrument provides that the trustee shall pay income or principal, or both, for the education or support of the beneficiary or gives the trustee discretion to determine the amount of income or principal, or both, to be paid to or for the benefit of the settlor, a transferee or creditor of the settlor may reach the maximum amount that the trustee could pay to or for the benefit of the settlor under the trust instrument, not exceeding the amount of the settlor's proportionate contribution to the trust.

C. For purposes of this section, a trust settled or established by any corporation, professional corporation, partnership, governmental entity, trust, foundation or other entity is not deemed to be settled or established by its directors, officers, shareholders, partners, employees, beneficiaries or agents.

D. For purposes of this section, amounts contributed to a trust by any corporation, professional corporation, partnership, governmental entity, trust, foundation or other entity are not deemed to have been contributed by its directors, officers, shareholders, partners, employees, beneficiaries or agents. Powers, duties or responsibilities granted to or reserved by the settlor pursuant to the trust and any actions or omissions taken pursuant to the trust are deemed to be the powers, responsibilities, duties, actions or omissions of the settlor and not those of its directors, officers, shareholders, partners, employees, beneficiaries or agents.

E. Subsections C and D do not apply to either:

1. A trust which has no valid business purpose and which has as its principal purpose the evasion of the claims of the creditors of the persons or entities listed in such subsections.

2. A trust which would be treated as a grantor trust pursuant to sections 671 through 679 of the internal revenue code of 1986 or corresponding provisions of subsequent federal income tax laws.

F. Subsection E, paragraph 2 does not apply to a qualified subchapter S trust which is treated as a grantor trust solely by application of section 1361(d) of the internal revenue code of 1986.

G. A beneficiary of the trust is not a settlor merely because of a lapse, waiver or release of the beneficiary's right to withdraw a part of the trust property if the property that could have been withdrawn by exercising the right of withdrawal that lapsed, was waived or was released either:

1. Does not exceed in value at the time of the lapse, waiver or release in any calendar year the greater of the amount specified in section 2041(a)(2), 2514(e) or 2503(b) of the internal revenue code.

2. Was related to an inter vivos trust that was treated as qualified terminable interest property under section 2523(f) of the internal revenue code.