§ 36C-5-505. Creditor's claim against settlor.
§ 36C‑5‑505. Creditor's claim against settlor.
(a) Subject to theother applicable law, whether or not the terms of a trust contain a spendthriftprovision or the interest in the trust is a discretionary trust interest asdefined in G.S. 36C‑504(a)(2) or a protective trust interest as definedin G.S. 36C‑5‑508, the following rules apply:
(1) During the lifetimeof the settlor, the property of a revocable trust is subject to claims of thesettlor's creditors.
(2) With respect to anirrevocable trust, a creditor or assignee of the settlor may reach the maximumamount that can be distributed to or for the settlor's benefit. If a trust hasmore than one settlor, the amount the creditor or assignee of a particularsettlor may reach may not exceed the settlor's interest in the portion of thetrust attributable to that settlor's contribution.
(2a) Notwithstandingsubdivision (2) of this subsection, the trustee's discretionary authority topay directly to the taxing authorities or to reimburse the settlor for any taxon trust income or trust principal that is payable by the settlor under the lawimposing the tax shall not be considered to be an amount that can bedistributed to or for the settlor's benefit, and a creditor or assignee of thesettlor shall not be entitled to reach any amount.
(3) After the death of asettlor, and subject to the settlor's right to direct the source from whichliabilities will be paid, the property of a trust that was revocable at thesettlor's death is subject to claims of the settlor's creditors, costs ofadministration of the settlor's estate, the expenses of the settlor's funeraland disposal of remains, and statutory allowances to a surviving spouse andchildren to the extent that the settlor's probate estate is inadequate tosatisfy those claims, costs, expenses, and allowances, unless barred byapplicable law.
(b) For purposes ofthis section, with respect to a power of withdrawal over property of a trustexercisable by a holder of the power other than the settlor of the trust, both ofthe following shall apply:
(1) The property subjectto the exercise of the power shall be subject to the claims of the creditors ofthe holder only when and to the extent that the holder exercises the power.
(2) The lapse, release,or waiver of a power shall not be deemed to be an exercise of the power andshall not cause the holder to be treated as a settlor of the trust. (2005‑192, s. 2; 2007‑106,s. 20.)