Bill Text: NC S466 | 2015-2016 | Regular Session | Amended
Bill Title: Self-Settled Trusts
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2015-03-30 - Re-ref to Judiciary II. If fav, re-ref to Finance [S466 Detail]
Download: North_Carolina-2015-S466-Amended.html
GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2015
S 1
SENATE BILL 466
|
Short Title: Self‑Settled Trusts. |
(Public) |
|
|
Sponsors: |
Senator Hartsell (Primary Sponsor). |
|
|
Referred to: |
Rules and Operations of the Senate. |
|
March 26, 2015
A BILL TO BE ENTITLED
AN ACT to authorize the creation of qualified self‑settled trusts.
The General Assembly of North Carolina enacts:
SECTION 1. Chapter 36 of the General Statutes is amended by adding a new Article to read:
"Article 5A.
"Creditors' Claims; Qualified Self‑Settled Trusts.
"§ 36C‑5A‑1. General rule – Rights of creditor with respect to a transfer to a qualified self‑settled trust.
(a) A settlor may transfer assets to a qualified self‑settled trust, as defined in G.S. 36C‑5A‑2, and retain in that trust a qualified interest, defined in G.S. 36C‑5A‑3, and notwithstanding any law to the contrary, a creditor or assignee of the creditor has only those rights with respect to a transfer to a qualified self‑settled trust retaining a qualified interest as are provided in this Article.
(b) Except as otherwise provided in this Article and notwithstanding any other provision of law, including G.S. 36C‑5‑505(a)(2):
(1) A creditor or assignee of a settlor may not reach a qualified interest or distribution by the trustee before it is received by the settlor.
(2) A creditor or assignee of a settlor may not compel a distribution from a trust in which the settlor has a qualified interest even if the trustee has abused the trustee's discretion, but this does not limit the right of the settlor to maintain a judicial proceeding against a trustee for abuse of discretion or failure to comply with a standard of distribution.
"§ 36C‑5A‑2. Definition of qualified self‑settled trust.
(a) "Qualified self‑settled trust" means a trust for which all of the following apply:
(1) The trust is irrevocable.
(2) The trust is created during the settlor's lifetime.
(3) The settlor has a qualified interest, as defined in G.S. 36C‑5A‑3.
(4) There is at all times during the existence of the settlor's qualified interest at least one beneficiary other than the settlor to whom income or principal may be distributed.
(5) The trust has at all times at least one qualified trustee, as defined in G.S. 36C‑5A‑4.
(6) The trust instrument expressly incorporates the law of this State to govern the meaning and effect of the trust.
(b) A trust instrument shall not be deemed revocable on account of the inclusion of any one or more of the following rights, powers, and interests:
(1) The settlor's power to consent to a distribution from the trust.
(2) The settlor's power to consent to a trustee's investment decisions.
(3) A power of appointment exercisable by the settlor by will or other written instrument effective only upon the settlor's death, other than a power to appoint to the settlor's estate or the creditors of the settlor's estate.
(4) The settlor's qualified interest in the trust.
(5) The settlor's right to receive income or principal pursuant to an ascertainable standard.
(6) The settlor's potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust (each within the meaning of section 664(d) of the Internal Revenue Code) and the settlor's power at any time, and from time to time, to release, in writing delivered to the qualified trustee, all or any part of the settlor's retained interest in that trust.
(7) 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 assets or their value determined from time to time pursuant to the trust instrument.
(8) The settlor's power to remove a trustee.
(9) The settlor's power to appoint a trustee.
(10) The settlor's power to appoint a power holder.
(11) The settlor's potential or actual use of real property held under a personal residence trust, within the meaning of section 2702(c) of the Internal Revenue Code.
(12) The settlor's potential or actual receipt or use of a qualified annuity interest, within the meaning of section 2702 of the Internal Revenue Code.
(13) The ability of a qualified trustee, whether pursuant to discretion or direction, to pay, after the settlor's death, all or any part of the settlor's debts outstanding at the time of the settlor's death, the expenses of administering the settlor's estate, or any estate inheritance tax imposed on or with respect to the settlor's estate.
(14) A settlor's potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on trust income, or the direct payment of those taxes to the applicable tax authorities, pursuant to a provision in the trust instrument that expressly provides for the direct payment of those taxes or the reimbursement of the settlor for those tax payments.
(c) The movement to this State of the administration of an existing trust which, after that movement to this State, meets for the first time all of the requirements of a qualified self‑settled trust, shall be treated, for purposes of this section, as a transfer to this trust by the settlor on the date of that movement to this State of all of the assets previously transferred to the trust by the settlor.
"§ 36C‑5A‑3. Definition of qualified interest.
"Qualified interest" means a settlor's interest in a qualified self‑settled trust that is a discretionary trust interest described in G.S. 36C‑5‑504(a)(2), to the extent that the interest entitles the settlor to receive distributions of income, principal, or both, in the discretion of a qualified trustee, as defined in G.S. 36C‑5A‑4. A settlor may have a qualified interest in a qualified self‑settled trust and also have an interest in the same trust that is not a qualified interest, and the rules of G.S. 36C‑5‑505(a)(2) shall apply to each interest of the settlor in the same trust other than the settlor's qualified interest.
"§ 36C‑5A‑4. Definition of qualified trustee.
"Qualified trustee" means any person for whom all of the following apply:
(1) The person is a natural person residing within this State, or is a State or federal chartered bank or trust company authorized to engage in trust business within this State and having a place of business within this State.
(2) The person maintains or arranges for custody within this State of some or all of the property that has been transferred to the trust by the settlor, maintains records within this State for the trust on an exclusive or nonexclusive basis, prepares or arranges for the preparation within this State of fiduciary income tax returns for the trust, or otherwise materially participates within this State in the administration of the trust.
(3) The person is not a "related or subordinate party," as defined in section 672(c) of the Internal Revenue Code, in relation to the settlor.
(4) The person is neither the settlor nor the settlor's spouse.
"§ 36C‑5A‑5. Successor qualified trustee.
(a) A vacancy in the position of qualified trustee shall be filled by a person who is eligible to be a qualified trustee if the trust has no remaining qualified trustee or the trust instrument requires the position to be filled even though there is a remaining qualified trustee. For purposes of this subsection, a qualified trustee shall be deemed to have resigned and a vacancy occurred if the qualified trustee ceases to meet the requirements of G.S. 36C‑5A‑5.
(b) A vacancy in the position of qualified trustee required to be filled under subsection (a) of this section shall be filled in the following order of priority:
(1) By a person who is eligible to be a qualified trustee and who is designated pursuant to the terms of the trust or appointed under the terms of the trust to act as successor trustee.
(2) By a person who is eligible to be a qualified trustee and who is designated by unanimous agreement of the qualified beneficiaries.
(3) By a person who is eligible to be a qualified trustee and who is appointed by the court.
"§ 36C‑5A‑6. Appointment of power holders.
(a) The settlor may appoint one or more power holders described in G.S. 36C‑8A‑1, who, subject to the provisions of subsection (b) of this section, may have any one or more of the powers described in G.S. 36C‑8A‑2.
(b) A power holder may exercise the power to direct discretionary distributions from the trust, as more fully described in G.S. 36C‑8A‑2(a)(2), only if that power holder would meet the requirements to be a qualified trustee were that power holder a trustee of the trust.
(c) Notwithstanding the provisions of subsection (b) of this section, the settlor or the settlor's spouse may serve as a power holder, but his or her powers shall be limited to the following:
(1) The power to consent to a trustee's investment decisions.
(2) The power to consent to distributions from the trust.
(3) The power to appoint a successor trustee.
"§ 36C‑5A‑7. Action to reach a qualified interest by avoidance of transfer to a qualified self‑settled trust.
(a) Notwithstanding any other provision of law, no action may be brought by a creditor or assignee of the settlor to reach a qualified interest by attachment of present or future distributions to or for the settlor or other means, or against the trust property by attachment or other means, unless that action is brought for avoidance of a transfer to a qualified self‑settled trust pursuant to North Carolina Uniform Fraudulent Transfer Act, Article 3A of Chapter 39 of the General Statutes; except that:
(1) No action shall be brought by a creditor whose claim arose after a transfer to a qualified self‑settled trust was made, unless that transfer was made with actual intent to hinder, delay, or defraud that creditor.
(2) The one‑year limitations period provided for in G.S. 39‑23.9(1) of the North Carolina Uniform Fraudulent Transfer Act permitting an action to be brought within one year after the transfer or obligation was or could have reasonably been discovered by the claimant shall not apply to a creditor whose claim arose after the transfer to a qualified self‑settled trust was made.
(b) A transfer to a qualified self‑settled trust shall not be deemed to have been made with intent to delay, hinder, or defraud creditors merely because that transfer is made without receiving reasonably equivalent value in exchange.
"§ 36C‑5A‑8. Effect of avoidance of transfer to qualified self‑settled trust.
(a) A transfer to a qualified self‑settled trust with a retained qualified interest shall be avoided only to the extent necessary to satisfy the settlor's debt to the creditor at whose instance the transfer had been avoided, together with any costs, including attorneys' fees, that the court may allow.
(b) In the event any such transfer is avoided as provided in subsection (a) of this section, then:
(1) If the court is satisfied that the trustee has not acted in bad faith in accepting or administering the property that is the subject of the transfer:
a. That trustee shall have a first and paramount lien against the qualified interest in an amount equal to the entire cost, including attorneys' fees, properly incurred by the trustee in the defense of the action or proceedings to avoid the transfer.
b. That transfer shall be avoided subject to the proper fees, costs, preexisting rights, claims, and interest of the trustee (and of any predecessor trustee that has not acted in bad faith).
c. For purposes of this subdivision, it shall be presumed that the trustee did not act in bad faith merely by accepting the property.
(2) If the court is satisfied that a beneficiary of a trust has not acted in bad faith, the avoidance of the transfer shall be subject to the right of the beneficiary to retain any distribution made upon the exercise of a trust power of discretion vested in the trustee of the trust or power holder, which power of discretion was exercised prior to the creditor's commencement of an action to avoid the transfer. For purposes of this subdivision, it shall be presumed that the beneficiary, including the settlor, 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.
(c) A creditor shall have the burden of proving that a trustee or beneficiary acted in bad faith as required under subsection (b) of this section by clear and convincing evidence except that, in the case of a beneficiary who is also the settlor, the creditor shall have the burden of proving that the settlor acted in bad faith by a preponderance of the evidence.
"§ 36C‑5A‑9. More than one transfer to the same qualified self‑settled trust.
If a settlor makes more than one transfer to the same qualified self‑settled trust, the following rules shall apply:
(1) The settlor's making of a subsequent transfer shall be disregarded in determining whether a creditor's claim with respect to a prior transfer is valid under this section.
(2) With respect to each subsequent transfer by the settlor, the four‑year limitations period provided for in G.S. 39‑23.9 with respect to actions brought under the North Carolina Uniform Fraudulent Transfer Act, Article 3A of Chapter 39 of the General Statutes, with respect to the subsequent transfer, commences on the date of that subsequent transfer.
(3) Any distribution to a beneficiary is rebuttably deemed to have been made from the latest such transfer.
"§ 36C‑5A‑10. Rights of settlor with respect to qualified interest.
(a) A transfer to a qualified self‑settled trust retaining a qualified interest shall be subject to the provisions of G.S. 36C‑5A‑7 notwithstanding the settlor's retention of any and all of the powers described in G.S. 36C‑5A‑2(b) and the settlor's or settlor's spouse's service as a power holder pursuant to G.S. 36C‑5A‑6(c).
(b) The settlor shall have only such rights and powers as are conferred by the trust instrument and permitted under this Article. Except as permitted by G.S. 36C‑5A‑2(b) and G.S. 36C‑5A‑6(c), a settlor shall have no rights or authority with respect to trust property or income from that trust property, and any agreement or understanding purporting to grant or permit the retention of greater rights or authority shall be void.
(c) A settlor may not transfer a qualified interest.
"§ 36C‑5A‑11. No claim of creditor against trustee and others.
Notwithstanding any provision of law to the contrary:
(1) The trustee or power holder described in G.S. 36C‑8A‑1 shall have no liability to any creditor of the settlor for any distributions made to or for the benefit of the settlor to the extent that the settlor's interest is protected or restricted by a qualified interest.
(2) No creditor or assignee of a settlor may have any claim or cause of action against any person involved in the counseling, drafting, administration, preparation, execution, or funding of (i) the qualified self‑settled trust or (ii) a limited liability company, limited partnership, or corporation, or similar entity or interest in that entity that is subsequently transferred to the qualified self‑settled trust.
"§ 36C‑5A‑12. Matters not defeated by this Article.
(a) Notwithstanding the foregoing provisions of this Article, this Article shall not apply to defeat the following claims:
(1) A claim brought by a person to whom the settlor is or becomes indebted or obligated on account of an agreement, judgment, or court order for the payment of any of the following:
a. Child support.
b. Alimony, post‑separation support, or other spousal support or maintenance.
c. A division or distribution of any property or debts incident to marriage, divorce, or separation.
d. Damages awarded to any person who suffers death, bodily injury, or property damage, if the death, bodily injury, or property damage is at any time determined to have been caused, in whole or in part, by the tortious act or omission on or before the date of the transfer to the qualified self‑settled trust of either the settlor or another person for whom the settlor is or was vicariously liable.
(2) A claim of a personal representative to recover assets for which the trustee is liable to the surviving spouse of the settlor under the elective share provisions of Article 1A of Chapter 30 of the General Statutes.
(b) A claim referred to in subdivisions (1) and (2) of subsection (a) of this section shall be defeated only to the extent necessary to satisfy the claim, together with any costs allowed by law, including attorneys' fees, and incurred in connection with the claim."
SECTION 2. This act becomes effective January 1, 2016, and applies to transfers to trusts made on or after that date.
