55-545.05 - Creditor's claim against settlor.
§ 55-545.05. Creditor's claim against settlor.
A. Whether or not the terms of a trust contain a spendthrift provision, thefollowing rules apply:
1. During the lifetime of the settlor, the property of a revocable trust issubject to claims of the settlor's creditors.
2. With respect to an irrevocable trust, a creditor or assignee of thesettlor may reach the maximum amount that can be distributed to or for thesettlor's benefit. If a trust has more than one settlor, the amount thecreditor or assignee of a particular settlor may reach may not exceed thesettlor's interest in the portion of the trust attributable to that settlor'scontribution.
3. After the death of a settlor, and subject to the settlor's right to directthe source from which liabilities will be paid, the property of a trust thatwas revocable at the settlor's death is subject to claims of the settlor'screditors, costs of administration of the settlor's estate, the expenses ofthe settlor's funeral and disposal of remains, and statutory allowances to asurviving spouse and children including the family allowance, the right toexempt property, and the homestead allowance to the extent the settlor'sprobate estate is inadequate to satisfy those claims, costs, expenses, andallowances. This section shall not apply to life insurance proceeds under §38.2-3122. No proceeding to subject a trustee, trust assets or distributeesof such assets to such claims, costs and expenses shall be commenced unlessthe personal representative of the settlor has received a written demand by asurviving spouse, a creditor or one acting for a minor or dependent child ofthe settlor and no proceeding shall be commenced later than two yearsfollowing the death of the settlor. This section shall not affect the rightof a trustee to make distributions required or permitted by the terms of thetrust prior to being served with process in a proceeding brought by thepersonal representative.
B. For purposes of this section:
1. During the period the power may be exercised, the holder of a power ofwithdrawal is treated in the same manner as the settlor of a revocable trustto the extent of the property subject to the power; and
2. Upon the lapse, release, or waiver of the power, the holder is treated asthe settlor of the trust only to the extent the value of the propertyaffected by the lapse, release, or waiver exceeds the greater of the amountspecified in § 2041 (b) (2) or 2514 (e) of the Internal Revenue Code of 1986,or § 2503 (b) of the Internal Revenue Code of 1986.
(2005, c. 935.)