SB1207 - 552R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Heading change

The article heading of title 14, chapter 11, article 5, Arizona Revised Statutes, is changed from "CREDITOR'S CLAIMS; SPENDTHRIFT AND DISCRETIONARY TRUSTS" to "CREDITOR'S CLAIMS; SPENDTHRIFT, DISCRETIONARY AND QUALIFIED SPENDTHRIFT TRUSTS".

Sec. 2. Section 14-10505, Arizona Revised Statutes, is amended to read:

START_STATUTE14-10505. Creditor's claim against settlor

A. Whether or not the terms of a trust contain a spendthrift provision, 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. If a trust has more than one settlor or contributor, 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. This paragraph does not abrogate otherwise applicable laws relating to community property.

2. Subject to the requirements of this section, with respect to an irrevocable trust, other than an irrevocable trust that meets the requirements of section 14-10508, 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. This paragraph does not apply to any trust from which any distribution to the settlor can be made pursuant to the exercise of a power of appointment held by a third party or abrogate otherwise applicable laws relating to community property. A creditor of a settlor:

(a) Shall not reach any trust property based on a trustee's, trust protector's or third party's power, whether or not discretionary, to pay or reimburse the settlor for any income tax on trust income or trust principal that is payable by the settlor under the law imposing the tax or to pay the tax directly to any taxing authority.

(b) Is not entitled to any payment or reimbursement that is to be made directly to any taxing authority.

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 the settlor's probate estate is inadequate to satisfy those claims, costs, expenses and allowances, except to the extent that state or federal law exempts any property of the trust from these claims, costs, expenses or allowances. If a trust has more than one settlor or contributor, 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. This paragraph does not abrogate otherwise applicable laws relating to community property.

B. For the purposes of this section:

1. During the period the power may be exercised, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power.

2. On the lapse, release or waiver of a power of withdrawal, the holder is not, by reason of any such power of withdrawal, treated as the settlor of the trust.

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

D. For the purposes of this section, amounts contributed to a trust by a corporation, professional corporation, partnership, limited liability company, 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, members, managers, employees, beneficiaries or agents.

E. For the purposes of this section, amounts and property contributed to the following trusts are not deemed to have been contributed by the settlor, and a person who would otherwise be treated as a settlor or a deemed settlor of the following trusts shall not be treated as a settlor:

1. An irrevocable inter vivos marital trust that is treated as qualified terminable interest property under section 2523(f) of the internal revenue code if the settlor is a beneficiary of the trust after the death of the settlor's spouse.

2. An irrevocable inter vivos marital trust that is treated as a general power of appointment trust under section 2523(e) of the internal revenue code if the settlor is a beneficiary of the trust after the death of the settlor's spouse.

3. An irrevocable inter vivos trust for the settlor's spouse if the settlor is a beneficiary of the trust after the death of the settlor's spouse.

4. An irrevocable trust for the benefit of a person, the settlor of which is the person's spouse, regardless of whether or when the person was the settlor of an irrevocable trust for the benefit of that spouse.

5. An irrevocable trust for the benefit of a person to the extent that the property of the trust was subject to a general power of appointment in another person.

F. For the purposes of subsection E of this section, a person is a beneficiary whether so named under the initial trust instrument or through the exercise by that person's spouse or by another person of a limited or general power of appointment.

G. Subsections C and D of this section do not apply to:

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

2. A trust that would be treated as a grantor trust pursuant to sections 671 through 679 of the internal revenue code. This paragraph does not apply to a qualified subchapter S trust that is treated as a grantor trust solely by application of section 1361(d) of the internal revenue code. END_STATUTE

Sec. 3. Title 14, chapter 11, article 5, Arizona Revised Statutes, is amended by adding section 14-10508, to read:

START_STATUTE14-10508. Qualified spendthrift trusts; definitions

A. A CREDITOR Of THE SETTLOR OF A QUALIFIED SPENDTHRIFT TRUST MAY NOT do any of the following:

1. SATISFY A CLAIM OR LIABILITY OF THE SETTLOR IN EITHER LAW OR EQUITY OUT OF THE SETTLOR'S TRANSFER TO a qualified spendthrift TRUST OR THE SETTLOR'S BENEFICIAL INTEREST IN a qualified spendthrift TRUST.

2. REQUIRE THE TRUSTEE TO MAKE A DISTRIBUTION TO THE SETTLOR, AS BENEFICIARY.

3. REQUIRE THE TRUSTEE TO PAY ANY DISTRIBUTION DIRECTLY TO THE CREDITOR OR TO OTHERWISE ATTACH THE DISTRIBUTION BEFORE IT HAS BEEN PAID OR DELIVERED BY THE TRUSTEE TO THE SETTLOR, AS BENEFICIARY.

b. NOTWITHSTANDING SUBSECTION a OF THIS SECTION, THIS SECTION DOES NOT:

1. pROHIBIT A CREDITOR FROM SATISFYING A CLAIM OR LIABILITY FROM THE DISTRIBUTION ONCE THE TRUSTEE HAS PAID OR DELIVERED the distribution TO, and the distribution has been received by, the SETTLOR, AS BENEFICIARY.

2. NULLIFY OR IMPAIR A SECURITY INTEREST THAT A SETTLOR OR A TRUSTEE GRANTED WITH RESPECT TO PROPERTY THAT IS TRANSFERRED TO THE QUALIFIED SPENDTHRIFT TRUST.

c. sUBSECTION a OF THIS SECTION APPLIES ONLY IF THE QUALIFIED SPENDTHRIFT TRUST SATISFIES the following CONDITIONS:

1. THE TRUST INSTRUMENT PROVIDES THAT THE TRUST IS GOVERNED BY ARIZONA LAW AND IS ESTABLISHED PURSUANT TO THIS SECTION.

2. THE TRUST INSTRUMENT REQUIRES THAT AT ALL TIMES AT LEAST ONE TRUSTEE SHALL BE A QUALIFIED TRUSTEE.

3. THE TRUST INSTRUMENT PROVIDES THAT NEITHER THE INTEREST OF THE SETTLOR, AS BENEFICIARY, NOR THE INCOME OR PRINCIPAL OF THE TRUST MAY BE VOLUNTARILY OR INVOLUNTARILY TRANSFERRED BY THE SETTLOR, AS BENEFICIARY. tHIS PROVISION SHALL BE CONSIDERED TO BE A RESTRICTION ON THE TRANSFER OF THE SETTLOR'S BENEFICIAL INTEREST IN THE TRUST THAT IS ENFORCEABLE UNDER APPLICABLE NONBANKRUPTCY LAW WITHIN THE MEANING OF 11 UNITED STATES CODE SECTION 541(c)(2).

4. THE SETTLOR MAY NOT HAVE THE ABILITY UNDER THE TRUST INSTRUMENT, WITHOUT THE EXPRESS WRITTEN CONSENT OF A PERSON WHO HAS A SUBSTANTIAL BENEFICIAL INTEREST IN THE TRUSt and WHICH INTEREST WOULD BE ADVERSELY AFFECTED BY THE EXERCISE OF THE POWER HELD BY THE SETTLOR, to do any of the following:

(a) REVOKE, AMEND OR TERMINATE ALL OR ANY PART OF THE TRUST, OTHER THAN TO AMEND THE TRUST TO COMPLY WITH THE REQUIREMENTS OF THIS SUBSECTION.

(b) WITHDRAW ANY PROPERTY FROM THE TRUST, except THAT THE TRUST INSTRUMENT MAY PROVIDE THAT THE SETTLOR, WITHOUT THE APPROVAL OR CONSENT OF ANY PERSON, MAY SUBSTITUTE ASSETS OF SUBSTANTIALLY EQUIVALENT VALUE PURSUANT TO SECTION 675(4)(c) of the INTERNAL REVENUE CODE OR ANY SUCCESSOR PROVISION.

5. THE TRUST INSTRUMENT MAY NOT PROVIDE FOR ANY MANDATORY DISTRIBUTIONS OF EITHER INCOME OR PRINCIPAL TO THE SETTLOR, AS BENEFICIARY, EXCEPT AS PROVIDED IN SUBSECTION F, paragraph 4 of this section.

6. The following nOTICE OF DISTRIBUTION requirements apply:

(a) THE TRUST INSTRUMENT REQUIREs THAT, AT LEAST thirty dAYS BEFORE PAYING AND DELIVERING ANY DISTRIBUTION TO THE SETTLOR, AS BENEFICIARY, THE TRUSTEE NOTIFY IN WRITING EVERY PERSON WHO HAS A SPECIFIED DOMESTIC OBLIGATION AGAINST THE SETTLOR.

(b) THE TRUST INSTRUMENT REQUIREs THAT THE NOTICE STATE THE EARLIEST DATE THE DISTRIBUTION WILL BE PAID AND DELIVERED AND THE AMOUNT OF THE DISTRIBUTION.

7. AT THE TIME THAT THE SETTLOR TRANSFERS ANY ASSETS TO THE TRUST, THE SETTLOR MAY NOT BE IN DEFAULT OF MAKING A PAYMENT DUE UNDER A SPECIFIED DOMESTIC OBLIGATION, except that THIS PARAGRAPH does NOT APPLY IF THE PAYMENT IS MADE WITHIN THIRTY DAYS after RECEIPT OF WRITTEN NOTICE BY THE SETTLOR THAT THE PAYMENT IS PAST DUE AND THE THIRD-PARTY PAYEE IS BROUGHT CURRENT, INCLUDING ANY APPLICABLE INTEREST OR RELATED CHARGES.

8. A TRANSFER OF ASSETS TO THE TRUST MAY NOT RENDER THE SETTLOR INSOLVENT.

9. AT THE TIME THE SETTLOR TRANSFERS ANY ASSETS TO THE TRUST, THE SETTLOR MAY NOT INTEND TO HINDER, DELAY OR DEFRAUD A KNOWN CREDITOR BY TRANSFERRING THE ASSETS TO THE TRUST. A SETTLOR'S EXPRESSED OR UNEXPRESSED INTENTION TO PROTECT TRUST ASSETS FROM THE SETTLOR'S POTENTIAL FUTURE CREDITORS IS NOT EVIDENCE OF AN INTENT TO HINDER, DELAY OR DEFRAUD A KNOWN CREDITOR.

10. ASSETS TRANSFERRED TO THE TRUST MAY NOT BE DERIVED FROM ACTIVITIES that are unlawful under applicable state law.

11. WITH RESPECT TO EACH TRANSFER OF ASSETS TO THE TRUST, THE SETTLOR SIGNs A SUBSTANTIALLY CONTEMPORANEOUS SWORN AND ACKNOWLEDGED AFFIDAVIT STATING THAT AT THE TIME OF THE TRANSFER OF THE ASSETS TO THE TRUST:

(a) THE SETTLOR HAS FULL RIGHT, TITLE AND AUTHORITY TO TRANSFER THE ASSETS TO THE TRUST.

(b) THE TRANSFER OF THE ASSETS TO THE TRUST WILL NOT RENDER THE SETTLOR INSOLVENT.

(c) THE SETTLOR DOES NOT INTEND TO HINDER, DELAY OR DEFRAUD A KNOWN CURRENT CREDITOR BY TRANSFERRING THE ASSETS TO THE TRUST.

(d) THERE IS NO PENDING OR THREATENED ARBITRATION PROCEEDING OR COURT ACTION AGAINST THE SETTLOR, EXCEPT FOR PENDING OR THREATENED COURT ACTIONS AND PROCEEDINGS IDENTIFIED BY THE SETTLOR ON AN ATTACHMENT TO THE AFFIDAVIT.

(e) THE SETTLOR IS NOT INVOLVED IN AN ADMINISTRATIVE PROCEEDING THAT IS REASONABLY EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE SETTLOR, EXCEPT AN ADMINISTRATIVE PROCEEDING IDENTIFIED ON AN ATTACHMENT TO THE AFFIDAVIT.

(f) AT THE TIME OF THE TRANSFER OF THE ASSETS TO THE TRUST, THE SETTLOR IS NOT IN DEFAULT OF A SPECIFIED DOMESTIC OBLIGATION.

(g) THE SETTLOR IS NOT CURRENTLY CONTEMPLATING FILING FOR RELIEF AS A DEBTOR UNDER TITLE 11 of the UNITED STATES CODE.

(h) THE ASSETS BEING TRANSFERRED TO THE TRUST WERE NOT DERIVED FROM ACTIVITIES that are unlawful under applicable state law.

D. If subsection C of this section requires that a provision be included in the trust instrument of a qualified spendthrift trust, no particular language must be used in the trust instrument if the meaning of the trust instrument otherwise complies with subsection C of this section.

e. The following apply to a trust instrument that does not SATISFY THE REQUIREMENTS OF SUBSECTION C of this section:

1. IF ANY of the REQUIREMENTs under SUBSECTION C, paragraphs 1, 2, 3, 4, 5 and 6 of this section are NOT SATISFIED, NONE OF THE PROPERTY HELD IN THE QUALIFIED SPENDTHRIFT TRUST WILL AT ANY TIME HAVE THE BENEFIT OF THE PROTECTIONS DESCRIBED IN SUBSECTION A of this section, unless THE FAILURE TO COMPLY IS REMEDIED BY THE SETTLOR OR A TRUST PROTECTOR APPOINTED PURSUANT To section 14-10818 WITHIN A REASONABLE TIME AFTER DISCOVERY AND THE CLAIMANT WAS NOT HARMED BY the FAILURE AFTER THE REMEDY.

2. IF THE TRUSTEE DOES NOT SEND THE NOTICE REQUIRED UNDER SUBSECTION C, paragraph 6 of this section, THE COURT MAY AUTHORIZE ANY PERSON WITH A SPECIFIED DOMESTIC OBLIGATION AGAINST THE SETTLOR TO WHOM NOTICE WAS NOT SENT TO ATTACH THE DISTRIBUTION OR FUTURE DISTRIBUTIONS, BUT the PERSON MAY NOT do either of the following:

(a) SATISFY THE SPECIFIED DOMESTIC OBLIGATION OUT OF THE SETTLOR'S TRANSFER TO THE QUALIFIED SPENDTHRIFT TRUST OR THE SETTLOR'S BENEFICIAL INTEREST IN the qualified spendthrift TRUST.

(b) REQUIRE THE TRUSTEE TO MAKE A DISTRIBUTION TO THE SETTLOR, AS BENEFICIARY.

3. IF THE REQUIREMENT DESCRIBED IN SUBSECTION C, paragraph 7 of this section IS NOT SATISFIED, THE PROPERTY that is TRANSFERRED TO THE QUALIFIED SPENDTHRIFT TRUST and THAT DOES NOT SATISFY THE REQUIREMENT DOES NOT HAVE THE BENEFIT OF THE PROTECTIONS DESCRIBED IN SUBSECTION A of this section WITH RESPECT TO ANY PERSON WITH A SPECIFIED DOMESTIC OBLIGATION.

4. IF ANY of the REQUIREMENTs DESCRIBED IN SUBSECTION C, paragraphs 8, 9, 10 and 11 of this section are NOT SATISFIED, THE PROPERTY that is TRANSFERRED TO THE QUALIFIED SPENDTHRIFT TRUST and THAT DOES NOT SATISFY THEse REQUIREMENTs does NOT HAVE THE BENEFIT OF THE PROTECTIONS DESCRIBED IN SUBSECTION A of this section. WITH RESPECT TO subsection C, paragraph 11, subdivision (f) of this section, IF the default IS CURED PURSUANT TO SUBSECTION C, paragraph 7 of this section, THE REQUIREMENT IS SATISFIED.

5. A CREDITOR OF THE SETTLOR HAS THE BURDEN OF PROVING THAT THE REQUIREMENT described IN SUBSECTION C, paragraph 8 or 9 of this section is NOT SATISFIED BY CLEAR AND CONVINCING EVIDENCE.

F. SUBSECTION A of this section MAY APPLY TO A QUALIFIED SPENDTHRIFT TRUST EVEN IF one of the following applies:

1. THE SETTLOR OF the qualified spendthrift TRUST HOLDS OTHER POWERS UNDER the qualified spendthrift TRUST, WHETHER OR NOT THE SETTLOR IS A COTRUSTEE, INCLUDING, WITHOUT LIMITATION, THE POWER TO REMOVE AND REPLACE A TRUSTEE OR TRUST PROTECTOR, REMOVE AND REPLACE AN ADVISOR, DIRECT TRUST INVESTMENTS AND EXECUTE OTHER MANAGEMENT POWERS.

2. THE TRUST INSTRUMENT GIVES THE SETTLOR THE POWER TO CONSENT TO OR VETO A DISTRIBUTION FROM the qualified spendthrift TRUST.

3. THE TRUST INSTRUMENT GIVES THE SETTLOR A SPECIAL LIFETIME OR TESTAMENTARY POWER OF APPOINTMENT THAT CANNOT BE EXERCISED IN FAVOR OF THE SETTLOR, THE SETTLOR'S ESTATE, A CREDITOR OF THE SETTLOR OR A CREDITOR OF THE SETTLOR'S ESTATE, AS DEFINED IN section 2041 of THE INTERNAL REVENUE CODE.

4. THE TRUST INSTRUMENT GIVES THE SETTLOR THE POTENTIAL OR ACTUAL RIGHT TO RECEIVE THE FOLLOWING TYPES OF DISTRIBUTIONS:

(a) INCOME OR PRINCIPAL FROM the qualified spendthrift TRUST, BUT ONLY SUBJECT TO THE DISCRETION OF ANOTHER PERSON.

(b) INCOME OR PRINCIPAL FROM A CHARITABLE REMAINDER UNITRUST OR CHARITABLE REMAINDER ANNUITY TRUST AS THOSE TERMS ARE DEFINED IN SECTION 664 OF THE INTERNAL REVENUE CODE AND THE SETTLOR'S RIGHT, AT ANY TIME BY WRITTEN INSTRUMENT DELIVERED TO THE TRUSTEE, TO RELEASE THE SETTLOR'S INTEREST IN the qualified spendthrift TRUST, IN WHOLE OR IN PART, IN FAVOR OF A CHARITABLE ORGANIZATION THAT HAS OR CHARITABLE ORGANIZATIONS THAT HAVE A SUCCEEDING REMAINDER BENEFICIAL INTEREST IN the qualified spendthrift TRUST.

(c) INCOME OR PRINCIPAL FROM A GRANTOR RETAINED ANNUITY TRUST OR GRANTOR RETAINED UNITRUST AS THOSE TERMS ARE DESCRIBED IN SECTION 2702 OF THE INTERNAL REVENUE CODE OR THE SETTLOR'S RECEIPT EACH YEAR OF A PERCENTAGE, AS PROVIDED IN THE TRUST INSTRUMENT, OF THE INITIAL VALUE OF THE TRUST PROPERTY, WHICH VALUE MAY BE DESCRIBED EITHER AS A PERCENTAGE OR A FIXED AMOUNT OR DETERMINED FROM TIME TO TIME UNDER THE TRUST INSTRUMENT.

(d) The sETTLOR'S POTENTIAL OR ACTUAL USE OF REAL PROPERTY HELD UNDER A QUALIFIED PERSONAL RESIDENCE TRUST WITHIN THE MEANING OF THAT TERM AS DESCRIBED IN section 2702(c) of the Internal revenue Code, AND REGULATIONS adopted THEREUNDER, OR THE SETTLOR'S POSSESSION AND ENJOYMENT OF A QUALIFIED ANNUITY INTEREST AS DEFINED IN THE INTERNAL REVENUE CODE OR THE TREASURY REGULATIONS adoptED THEREUNDER.

(e) INCOME OR PRINCIPAL TO PAY, IN WHOLE OR IN PART, INCOME TAXES DUE ON INCOME OF the qualified spendthrift TRUST IF THE POTENTIAL OR ACTUAL RECEIPT OF INCOME OR PRINCIPAL IS UNDER A PROVISION IN THE TRUST INSTRUMENT THAT EXPRESSLY PROVIDES FOR THE PAYMENT OF THOSE TAXES AND IF THE POTENTIAL OR ACTUAL RECEIPT OF INCOME OR PRINCIPAL WOULD BE THE RESULT OF A QUALIFIED TRUSTEE'S OR QUALIFIED TRUSTEES' ACTING IN ANY OF THE FOLLOWING WAYS:

(i) IN THE QUALIFIED TRUSTEE'S OR QUALIFIED TRUSTEES' DISCRETION OR UNDER A MANDATORY DIRECTION IN THE TRUST INSTRUMENT.

(ii) AT THE DIRECTION OF AN ADVISOR WHO IS ACTING IN THE ADVISOR'S DISCRETION.

(f) AFTER THE SETTLOR'S DEATH, WITHOUT REGARD TO THE SOURCE OF PAYMENT, THE PAYMENT OF THE SETTLOR'S DEBTS, the payment of THE EXPENSES OF ADMINISTERING THE SETTLOR'S ESTATE OR the payment of ANY ESTATE OR INHERITANCE TAX IMPOSED ON OR WITH RESPECT TO THE SETTLOR'S ESTATE, PURSUANT TO THE POWER OF A QUALIFIED TRUSTEE.

(g) The MINIMUM REQUIRED DISTRIBUTION AS DEFINED IN section 4974(b) of the Internal revenue Code WITH RESPECT TO A RETIREMENT BENEFIT.

5. THE TRUST INSTRUMENT AUTHORIZES THE SETTLOR TO USE REAL OR PERSONAL PROPERTY OWNED BY the qualified spendthrift TRUST.

6. WITH RESPECT TO THE PROPERTY HELD IN the qualified spendthrift TRUST, THE SETTLOR MAY:

(a) GIVE A PERSONAL GUARANTEE ON A DEBT OR OBLIGATION SECURED BY the PROPERTY.

(b) MAKE PAYMENTS, DIRECTLY OR INDIRECTLY, ON A DEBT OR OBLIGATION SECURED BY the PROPERTY.

(c) PAY PROPERTY TAXES, CASUALTY AND LIABILITY INSURANCE PREMIUMS, HOMEOWNER ASSOCIATION DUES, MAINTENANCE EXPENSES OR OTHER SIMILAR EXPENSES ON the PROPERTY.

(d) PAY INCOME TAX ON INCOME ATTRIBUTABLE TO THE PORTION OF the PROPERTY HELD IN the qualified spendthrift TRUST, OF WHICH THE SETTLOR IS CONSIDERED TO BE THE OWNER UNDER sections 671 through 678 of THE INTERNAL REVENUE code. These pAYMENTS WILL NOT BE CONSIDERED ADDITIONAL TRANSFERS TO the qualified spendthrift TRUST FOR PURPOSES OF THIS SECTION.

g. IF A TRUST INSTRUMENT CONTAINS THE PROVISIONS DESCRIBED IN SUBSECTION E, paragraphs 1, 2, 3, 4, 5 and 6 of this section, A CREDITOR OR OTHER PERSON MAY ASSERT A CAUSE OF ACTION AGAINST AND HAVE RECOURSE FROM only the following:

1. THE TRUSTEE OF the qualified spendthrift TRUST FOR PURPOSES OF BINDING THE TRUST AND THE ASSETS OF the qualified spendthrift trust.

2. THE SETTLOR, TO THE EXTENT OTHERWISE ALLOWED IN THIS SECTION. the CREDITOR OR OTHER PERSON does not HAVE a CAUSE OF ACTION OR CLAIM FOR RELIEF AGAINST A TRUSTEE PERSONALLY OR AGAINST AN ADVISOR FOR THE SETTLOR, INCLUDING OTHERS INVOLVED IN THE COUNSELING, DRAFTING, PREPARATION, EXECUTION OR FUNDING OF the qualified spendthrift TRUST, FOR, AMONG OTHER THINGS, CONSPIRACY TO COMMIT FRAUDULENT CONVEYANCE OR ANY OTHER VOIDABLE TRANSFER, AIDING AND ABETTING A FRAUDULENT CONVEYANCE OR ANY OTHER VOIDABLE TRANSFER, PARTICIPATing IN the qualified spendthrift TRUST TRANSACTION OR ANY OTHER SIMILAR CAUSE OF ACTION OR CLAIM FOR RELIEF. THE CREDITOR or OTHER PERSON who is PREVENTED FROM ASSERTING A CAUSE OF ACTION OR CLAIM FOR RELIEF under THIS SUBSECTION, INCLUDING A CLAIM AGAINST AN ADVISOR, MAY ASSERT A CAUSE OF ACTION AGAINST, AND is LIMITED TO RECOURSE AGAINST, only the qualified spendthrift TRUST AND the TRUST ASSETS and tHE SETTLOR, TO THE EXTENT OTHERWISE ALLOWED IN THIS SECTION. FOR the PURPOSES OF THIS paragraph, "COUNSELING, DRAFTING, PREPARATION, EXECUTION OR FUNDING OF the qualified spendthrift TRUST" INCLUDES THE PREPARATION AND FUNDING OF A LIMITED PARTNERSHIP, A LIMITED LIABILITY COMPANY OR any OTHER ENTITY IF INTERESTS IN THE ENTITY ARE SUBSEQUENTLY TRANSFERRED TO the qualified spendthrift TRUST.

h. The following rules apply to a cause of action or a claim for relief under this section:

1. A CAUSE OF ACTION OR CLAIM FOR RELIEF UNDER SUBSECTION E, paragraph 8 or 9 IS A CAUSE OF ACTION OR CLAIM FOR RELIEF UNDER section 44-1004 or 44-1005.

2. Except as provided in paragraph 1 of this subsection, a CAUSE OF ACTION OR CLAIM FOR RELIEF pursuant to THIS subSECTION IS NOT A CAUSE OF ACTION OR CLAIM FOR RELIEF UNDER title 44, chapter 8, article 1.

3. NOTWITHSTANDING Section 44-1009 and IN ADDITION TO MEETING THE REQUIREMENTS OF paragraph 4 of this subsection, A CREDITOR'S CAUSE OF ACTION OR CLAIM FOR RELIEF REGARDING A FRAUDULENT CONVEYANCE OR OTHER VOIDABLE TRANSFER OF A SETTLOR'S ASSETS UNDER THIS SECTION, IF NOT BARRED EARLIER BY ANY OTHER STATUTE OF LIMITATIONS OR NONCLAIM STATUTE, IS BARRED AGAINST THE SETTLOR AND THE QUALIFIED SPENDTHRIFT TRUST UNLESS THE CREDITOR'S CAUSE OF ACTION OR CLAIM FOR RELIEF IS BROUGHT WITHIN THE EARLIEST OF THE APPLICABLE TIME PERIODS as follows:

(a) IN THE CASE OF A CREDITOR WHOSE CAUSE OF ACTION OR CLAIM FOR RELIEF AROSE BEFORE THE TRANSFER, THE LATER OF FOUR YEARS AFTER THE DATE OF THE TRANSFER or ONE YEAR AFTER THE TRANSFER IS OR REASONABLY COULD HAVE BEEN DISCOVERED THROUGH THE EXERCISE OF REASONABLE DILIGENCE BY THE CREDITOR.

(b) IN THE CASE OF A CREDITOR WHOSE CAUSE OF ACTION OR CLAIM FOR RELIEF AROSE CONCURRENT WITH OR AFTER THE TRANSFER, THE LATER OF TWO YEARS AFTER THE TRANSFER IS MADE or SIX MONTHS AFTER THE TRANSFER IS OR REASONABLY COULD HAVE BEEN DISCOVERED THROUGH THE EXERCISE OF REASONABLE DILIGENCE BY THE CREDITOR.

(c) IN THE CASE OF A CREDITOR KNOWN TO THE SETTLOR WHO IS GIVEN NOTICE AS PROVIDED IN paragraph 5 of this SUBSECTION, WITHIN SIX MONTHS FROM THE MAILING OF THE NOTICE.

(d) IN THE CASE OF ANY other CREDITOR, FOUR YEARS AFTER THE DATE OF THE FIRST PUBLICATION OF THE NOTICE PROVIDED IN paragraph 6 of this SUBSECTION.

4. A CREDITOR MUST PROVE BY CLEAR AND CONVINCING EVIDENCE:

(a) THE CREDITOR'S CAUSE OF ACTION OR CLAIM FOR RELIEF UNDER THIS SUBSECTION.

(b) FOR PURPOSES OF DETERMINING THE APPLICABLE PERIOD OF LIMITATIONS UNDER THIS SUBSECTION, WHETHER THE CAUSE OF ACTION OR CLAIM FOR RELIEF AROSE BEFORE, CONCURRENT WITH OR AFTER THE TRANSFER.

5. A SETTLOR MAY GIVE WRITTEN NOTICE BY MAIL OR OTHER REASONABLE MANNER OF DELIVERY TO A CREDITOR KNOWN TO THE SETTLOR. the NOTICE SHALL:

(a) STATE tHE NAME AND ADDRESS OF THE SETTLOR OR THE SETTLOR'S REPRESENTATIVE.

(b) STATE THE NAME AND ADDRESS OF THE TRUSTEE OR THE TRUSTEE'S REPRESENTATIVE.

(d) INFORM THE CREDITOR THAT THE CREDITOR IS REQUIRED TO BRING THE CREDITOR'S CAUSE OF ACTION OR CLAIM FOR RELIEF AGAINST THE SETTLOR, THE QUALIFIED SPENDTHRIFT TRUST OR THE TRUSTEE OF the TRUST, or any combination, WITHIN SIX MONTHS after THE MAILING OF THE NOTICE OR BE FOREVER BARRED.

6. A SETTLOR MAY PUBLISH NOTICE IN A NEWSPAPER OF GENERAL CIRCULATION IN THE COUNTY IN WHICH THE SETTLOR THEN RESIDES OR in MARICOPA COUNTY OR PIMA COUNTY if the settlor is A NONRESIDENT. The NOTICE:

(a) SHALL STATE tHE NAME AND ADDRESS OF THE SETTLOR OR THE SETTLOR'S REPRESENTATIVE.

(b) SHALL STATE tHE NAME AND ADDRESS OF THE TRUSTEE OR THE TRUSTEE'S REPRESENTATIVE.

(c) Shall describe THE ASSETS THAT WERE TRANSFERRED and THE VALUE OF CASH, CASH EQUIVALENT AND READILY MARKETABLE SECURITIES.

(d) Shall iNFORM THE CREDITOR WHOSE CLAIM ARISES BEFORE THE DATE OF THE FIRST PUBLICATION THAT THE CREDITOR IS REQUIRED TO BRING THE CREDITOR'S CAUSE OF ACTION OR CLAIM FOR RELIEF AGAINST THE SETTLOR, THE QUALIFIED SPENDTHRIFT TRUST OR THE TRUSTEE OF the qualified spendthrift TRUST, or any combination, WITHIN FOUR YEARS AFTER THE DATE OF THE FIRST PUBLICATION OF THE NOTICE OR BE FOREVER BARRED.

(e) MAY BE PUBLISHED MORE THAN ONCE, AND THE PUBLICATION OF A SUBSEQUENT NOTICE DOES NOT EXTEND THE PERIOD OF TIME PROVIDED IN THIS SUBSECTION WITH RESPECT TO CREDITORS WHOSE CLAIMS AROSE BEFORE THE DATE OF THE FIRST PUBLICATION OF ANY PRIOR NOTICE.

(f) SHALL BE PUBLISHED ONCE A WEEK FOR THREE CONSECUTIVE WEEKS.

7. The fAILURE TO GIVE THE NOTICE prescribed IN paragraph 5 or 6 of this subsection TO A CREDITOR DOES NOT PREVENT THE SHORTENING OF THE LIMITATIONS PERIOD UNDER THIS SUBSECTION WITH RESPECT TO ANOTHER CREDITOR WHO PROPERLY RECEIVED NOTICE UNDER paragraph 5 or 6 of this subsection.

8. A CREDITOR IS DEEMED TO HAVE DISCOVERED A TRANSFER BEGINNING ON THE DATE OF THE FIRST PUBLICATION OF NOTICE AS PROVIDED IN paragraph 6 of this subsection THAT OCCURS AFTER THE DATE ON WHICH the CREDITOR'S CLAIM ARISES.

9. IF MORE THAN ONE TRANSFER IS MADE TO THE SAME QUALIFIED SPENDTHRIFT TRUST:

(a) THE MAKING OF A SUBSEQUENT TRANSFER TO the qualified spendthrift TRUST IS DISREGARDED WHEN DETERMINING THE CREDITOR'S RIGHTS WITH RESPECT TO A PRIOR TRANSFER.

(b) ANY DISTRIBUTION TO A BENEFICIARY IS CONSIDERED TO HAVE BEEN MADE FROM THE LATEST TRANSFER TO the qualified spendthrift TRUST.

I. A qualified spendthrift TRUST IS SUBJECT TO THIS SECTION IF IT IS GOVERNED BY ARIZONA LAW pursuant to section 14-10107 AND IF IT OTHERWISE MEETS THE REQUIREMENTS OF THIS SECTION.

J. A COURT OF THIS STATE HAS EXCLUSIVE JURISDICTION OVER AN ACTION OR CLAIM FOR RELIEF THAT IS BASED ON any aspect of, or A TRANSFER OF, PROPERTY TO A qualified spendthrift TRUST THAT IS THE SUBJECT OF THIS SECTION.

K. WITH RESPECT TO A qualified spendthrift TRUST THAT IS SUBJECT TO THIS SECTION, A CLAIM BROUGHT BY A CREDITOR OF A BENEFICIARY WHO IS NOT THE SETTLOR IS SUBJECT TO this article.

L. WITH RESPECT TO AN IRREVOCABLE TRUST THAT IS NOT SUBJECT TO THIS SECTION, A CLAIM BROUGHT BY A CREDITOR OF A BENEFICIARY WHO IS THE SETTLOR IS SUBJECT TO SECTION 14-10505, subsection A, paragraph 2.

M. IF A PROVISION of THIS SECTION CONFLICTS WITH A PROVISION IN title 44, chapter 8, article 1, THE PROVISION OF THIS SECTION SUPERSEDEs THE CONFLICTING PROVISION in title 44, chapter 8, article 1.

N. AN AGREEMENT OR UNDERSTANDING, EXPRESS OR IMPLIED, BETWEEN THE SETTLOR AND THE TRUSTEE THAT ATTEMPTS TO GRANT OR allow THE RETENTION BY THE SETTLOR OF GREATER RIGHTS OR AUTHORITY THAN IS STATED IN THE TRUST INSTRUMENT IS VOID.

O. THIS SECTION does not ALTER RIGHTS VESTED OR established UNDER THIS SECTION before the effective date of this section.

P. THIS section may NOT BE INTERPRETED OR APPLIED IN A MANNER THAT REDUCES PROTECTIONS that are OTHERWISE AFFORDED A SETTLOR UNDER section 14-10505.

Q. for the purposes of this section:

1. "ADVISOR":

(a) MEANS:

(i) A PERSON, INCLUDING AN ACCOUNTANT, ATTORNEY AND FINANCIAL OR INVESTMENT ADVISOR, WHO GIVES ADVICE CONCERNING OR who is INVOLVED IN THE DRAFTING OR CREATION OF, TRANSFER OF PROPERTY TO, OR ADMINISTRATION OF a qualified spendthrift TRUST.

(ii) a person WHO PARTICIPATEs IN PREPARing ACCOUNTINGS, TAX RETURNS OR OTHER REPORTS RELATED TO a qualified spendthrift TRUST.

(iii) A PERSON WHO IS GIVEN AUTHORITY BY THE TERMS OF A TRUST INSTRUMENT TO REMOVE, APPOINT OR BOTH remove and appoint ONE OR MORE TRUSTEES OR TO DIRECT, CONSENT TO, APPROVE OR VETO A TRUSTEE'S ACTUAL OR PROPOSED INVESTMENT OR DISTRIBUTION DECISIONS, whether or not such person is a fiduciary under applicable state law.

(b) Includes a PERSON who IS CONSIDERED to be AN ADVISOR EVEN IF THE PERSON IS DENOMINATED BY ANOTHER TITLE and whether or not such person is a fiduciary under applicable state law.

2. "CREDITOR" MEANS:

(a) A PERSON HOLDING OR HAVING RIGHTS IN OR TO A CLAIM AGAINST THE SETTLOR, OR SOME OTHER RIGHT TO PAYMENT FROM THE SETTLOR, WHETHER OR NOT THE CLAIM OR INDEBTEDNESS IS any of the following:

(i) FOUNDED ON CONTRACT, TORT OR OTHER LEGAL BASIS, OR IN LAW OR IN EQUITY.

(ii) REDUCED TO JUDGMENT OR OTHER COURT OR ADJUDICATIVE ORDER, AWARDED OR CONFIRMED.

(iii) LIQUIDATED OR UNLIQUIDATED, FIXED, CONTINGENT, MATURED, UNMATURED, DISPUTED OR UNDISPUTED.

(iv) SECURED OR UNSECURED.

(b) A PERSON WHOSE CLAIM OR RIGHTS AGAINST THE SETTLOR AROSE OR EXISTED, IN WHOLE OR IN PART, before THE ASSETS were transferred TO A QUALIFIED SPENDTHRIFT TRUST TO OR AGAINST WHICH A CLAIM IS MADE.

3. "INSOLVENT" MEANS:

(a) HAVING CEASED TO PAY DEBTS IN THE ORDINARY COURSE OF BUSINESS OTHER THAN AS A RESULT OF A BONA FIDE DISPUTE.

(b) BEING UNABLE TO PAY DEBTS AS THEY BECOME DUE.

4. "PAID AND DELIVERED" DOES NOT INCLUDE:

(a) THE SETTLOR'S USE OR OCCUPANCY OF REAL PROPERTY OR PERSONAL PROPERTY OWNED BY a QUALIFIED SPENDTHRIFT TRUST, IF THE USE OR OCCUPANCY IS IN ACCORDANCE WITH THE TRUSTEE'S DISCRETIONARY AUTHORITY UNDER THE TRUST INSTRUMENT.

(b) PAYMENT FOR THE BENEFIT OF THE SETTLOR TO THIRD PARTIES WHERE AUTHORIZED BY THE TRUST INSTRUMENT.

5. "QUALIFIED SPENDTHRIFT TRUST" MEANS A TRUST THAT SATISFIES THE REQUIREMENTS OF SUBSECTION C of this section.

6. "QUALIFIED TRUSTEE" MEANS A PERSON, OTHER THAN THE SETTLOR, that MEETS THE FOLLOWING requirements:

(a) The trustee is one of the following:

(i) FOR AN INDIVIDUAL, A RESIDENT OF THIS STATE.

(ii) AUTHORIZED TO ACT AS A TRUSTEE pursuant to section 6-851, subsection a, paragraph 2 or section 14-5651, subsection k, paragraph 2.

(iii) A PRIVATE FIDUCIARY LICENSED BY THE SUPREME COURT AS PROVIDED IN section 14-5651, subsection a.

(b) The trustee mAINTAINS OR ARRANGES FOR CUSTODY IN THIS STATE OF SOME OR ALL OF THE PROPERTY THAT IS THE SUBJECT OF a QUALIFIED spendthrift trust AND ADMINISTERS ALL OR PART OF THE QUALIFIED SPENDTHRIFT TRUST IN THIS STATE.

(c) THE trustee's USUAL PLACE OF BUSINESS WHERE SOME OR ALL OF THE RECORDS PERTAINING TO THE QUALIFIED SPENDTHRIFT TRUST ARE KEPT IS LOCATED IN THIS STATE. IF THE trustee DOES NOT HAVE SUCH A PLACE OF BUSINESS, THE trustee'S RESIDENCE IS IN THIS STATE. If the trustee is A CORPORATE TRUSTEE, THE USUAL PLACE OF BUSINESS IS THE BUSINESS LOCATION OF THE TRUST OFFICER WITH PRIMARY RESPONSIBILITY FOR administering the qualified spendthrift TRUST.

7. "SPECIFIED DOMESTIC OBLIGATION" MEANS:

(a) A CHILD SUPPORT JUDGMENT OR ORDER.

(b) AN UNSATISFIED CLAIM ARISING FROM A PROPERTY DIVISION IN A DIVORCE PROCEEDING, INCLUDING LEGAL SEPARATION AND ANNULMENT, IF THE former SPOUSE WAS MARRIED TO THE SETTLOR BEFORE OR ON the DATE OF TRANSFER OF ASSETS TO THE QUALIFIED SPENDTHRIFT TRUST.

8. "TRANSFER" MEANS ANY FORM OF PROPERTY TRANSFER, INCLUDING GRATUITOUS TRANSFERS, WHETHER BY DEED, CONVEYANCE, OR ASSIGNMENT. END_STATUTE