2005 North Carolina Code - General Statutes Article 5 - Creditors\' Claims; Spendthrift and Discretionary Trusts.

Article 5.

Creditors' Claims; Spendthrift and Discretionary Trusts.

§ 36C‑5‑501.� Rights of beneficiary's creditor or assignee.

(a)������ Except as provided in subsection (b) of this section, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to that relief as is appropriate under the circumstances.

(b)������ This section shall not apply and a trustee shall have no liability to any creditor of a beneficiary for any distributions made to or for the benefit of the beneficiary, to the extent that a beneficiary's interest:

(1)������ Is subject to a spendthrift provision;

(2)������ Is a discretionary trust interest as defined in G.S. 36C‑5‑504(a)(2); or

(3)������ Is a protective trust interest as described in G.S. 36C‑5‑508. (2005‑192, s. 2.)

 

§ 36C‑5‑502.� Spendthrift provision.

(a)������ A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary's interest.

(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 transfer of the beneficiary's interest.

(c)������ A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this Article, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary. (2005‑192, s. 2.)

 

§ 36C‑5‑503.� Exceptions to spendthrift provision.

(a)������ As used in this section, the term "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, or if the beneficiary's interest is a discretionary trust interest as defined in G.S. 36C‑5‑504(a)(2) or a protective trust interest as defined in G.S. 36C‑5‑508, a beneficiary's child who has a judgment or court order against the beneficiary for support or maintenance may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to relief that is appropriate under the circumstances. (2005‑192, s. 2.)

 

§ 36C‑5‑504.� Discretionary trusts; effect of standard.

(a)������ In this section:

(1)������ "Child" includes any person for whom an order or judgment for child support has been entered in this or another state.

(2)������ "Discretionary trust interest" means an interest in a trust that is subject to the trustee's discretion, whether or not the discretion is expressed in the form of a standard of distribution. A discretionary trust interest shall include an interest in any one or any combination of the following:

a.�������� A trust in which the amount to be received by the beneficiary, including whether or not the beneficiary, or a class of beneficiaries, is to receive anything at all, is within the discretion of the trustee.

b.�������� A trust in which the trustee has no duty to pay or distribute any particular amount to the beneficiary, but has only a duty to pay or distribute to the beneficiary, or apply on behalf of the beneficiary, those sums that the trustee, in the trustee's discretion, determines are appropriate for the support, education, or maintenance of the beneficiary.

(b)������ The beneficiary may not transfer a discretionary trust interest. Except as otherwise provided in this Article, a creditor or assignee of a beneficiary may not reach a discretionary trust interest or a distribution by the trustee before its receipt by the beneficiary.

(c)������ Except as provided in subsection (d) of this section, a creditor of a beneficiary may not compel a distribution from a trust in which the beneficiary has a discretionary trust interest even if the trustee has abused the trustee's discretion.

(d)������ To the extent that a trustee has not complied with a standard of distribution or has abused a discretion:

(1)������ 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

(2)������ The court shall direct the trustee to pay to the child an amount that 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 or not abused the discretion.

(e)������ This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.

(f)������� A creditor may not reach the interest of a beneficiary who is also a trustee or cotrustee, or otherwise compel a distribution, if the trustee's discretion to make distributions for the trustee's own benefit is limited by an ascertainable standard. (2005‑192, s. 2.)

 

§ 36C‑5‑505.� Creditor's claim against settlor.

(a)������ Whether or not the terms of a trust contain a spendthrift provision or the interest in the trust is a discretionary trust interest as defined in G.S. 36C‑504(a)(2) or a protective trust interest as defined in G.S. 36C‑5‑508, the following rules apply:

(1)������ During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors.

(2)������ 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 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.

(3)������ After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be 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 that the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances, unless barred by G.S. 28A‑19‑3.

(b)������ The lapse, release, or waiver of a power of withdrawal shall not cause the holder to be treated as a settlor of the trust. (2005‑192, s. 2.)

 

§ 36C‑5‑506.� Overdue distribution.

(a)������ In this section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. The term excludes a distribution subject to the exercise of the trustee's discretion, regardless of whether the terms of the trust (i) include a support or other standard to guide the trustee in making distribution decisions; or (ii) provide that the trustee "may" or "shall" make discretionary distributions, including distributions under a support or other standard.

(b)������ Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date. (2005‑192, s. 2.)

 

§ 36C‑5‑507.� Personal obligations of trustee.

Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt. (2005‑192, s. 2.)

 

§ 36C‑5‑508.� Protective trusts.

Except with respect to an interest retained by the settlor, a "protective trust interest" means an interest in a trust in which the terms of the trust provide that the interest terminates or becomes discretionary if:

(1)������ The beneficiary alienates or attempts to alienate that interest; or

(2)������ Any creditor attempts to reach the beneficiary's interest by attachment, levy, or otherwise; or

(3)������ The beneficiary becomes insolvent or bankrupt. (2005‑192, s. 2.)