Section 91-8-504 - Creditors' claims 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.(2) Except as provided in the Mississippi Qualified Disposition in Trust Act and subsections (a)(3) through (5) regarding an irrevocable special needs trust, a creditor or assignee of the settlor of an irrevocable trust may reach the maximum amount that can be distributed to or for the settlor's benefit. If a trust has more than one (1) 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) For the purposes of this section, "irrevocable special needs trust" means an irrevocable trust established for the benefit of one or more disabled persons, which includes, but is not limited to, an individual who is disabled as defined in 42 U.S.C. Section 1382c(a), as well as an individual who is disabled as defined in any similar federal, state or other jurisdictional law or regulation, or has a condition that is substantially equivalent to one that qualifies the person as disabled under such a provision, even if not officially found to be disabled by a governmental body, if one (1) of the purposes of the trust, expressed in the trust instrument or implied from the trust instrument, is to allow the disabled person to qualify or continue to qualify for public, charitable or private benefits that might otherwise be available to the disabled person. The existence of one or more nondisabled remainder beneficiaries of the trust does not disqualify it as an irrevocable special needs trust for the purposes of this section.(4) A creditor or assignee of the settlor of an irrevocable special needs trust, as defined in subsection (a)(3), may not reach or compel distributions from the special needs trust, to or for the benefit of the settlor of the special needs trust, or otherwise, whether or not the irrevocable special needs trust complies with, and irrespective of the requirements of, the Mississippi Qualified Disposition in Trust Act.(5) Notwithstanding any law to the contrary, neither a creditor nor any other person shall have any claim or cause of action against the trustee or other fiduciary, or an advisor of an irrevocable special needs trust. For purposes of this subsection (a)(5), an advisor of an irrevocable special needs trust includes any person involved in the counseling, drafting, preparation, execution or funding of an irrevocable special needs trust.(6) 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 immediately preceding the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, and the expenses of the settlor's funeral and disposal of remains subject to the following: (A) With respect to claims, expenses, and taxes in connection with the settlement of the settlor's estate, any claim of a creditor that would be barred against the fiduciary of a settlor's estate, the estate of the settlor, or any creditor or beneficiary of the settlor's estate shall be barred against the trust property of a trust that was revocable at the settlor's death, the trustee of the revocable trust, and the creditors and beneficiaries of the trust.(B) Unless a personal representative of the settlor's estate has been appointed or an application or petition for appointment of a personal representative of the settlor's estate is pending, the trustee at any time may give notice to any person the trustee has reason to believe may have a claim against the settlor at death, at the claimant's last known address. The notice shall contain the name and address of the trustee to whom the claim must be presented and provide information that failure to present the claim to the trustee within ninety (90) days of the date of the notice will forever bar the claim. If the person fails to present the claim in writing within ninety (90) days from the date of the notice, then the person is forever barred from asserting or recovering on the claim from the trustee, the trust property and the creditors and beneficiaries of the trust. A person who presents a claim on or before the date specified in the notice may not later increase the claim following the expiration of the ninety-day period.(C) Unless a personal representative of the settlor's estate has been appointed or an application or petition for appointment of a personal representative of the settlor's estate is pending, a trustee may also publish in some newspaper in the county of the decedent's last residence a notice requiring all persons having unknown claims against the settlor to present their claims to the trustee, which notice shall state that failure to present the claim to the trustee within ninety (90) days of the date after the first publication of the notice will forever bar the claim. The notice must be published for three (3) consecutive weeks, and proof of publication must be maintained with the books and records of the trust. If a person fails to present a claim in writing within ninety (90) days from the date of first publication, that person shall be forever barred from asserting or recovering on the claim from the trustee, the trust property and the creditors and beneficiaries of the trust. A person who presents a claim on or before ninety (90) days from first publication may not later increase the claim following the expiration of the ninety-day period.(D) In addition to subsection (a)(6)(B) and (a)(6)(C), if a claim is not presented in writing to the personal representative of the settlor's estate or to the trustee: (i) within six (6) months from the date of the appointment of the initial personal representative of the settlor's estate; or(ii) if no personal representative is appointed within six (6) months from the settlor's date of death and a claim is not presented in writing to the trustee within six (6) months from the settlor's date of death, a trustee is not chargeable for any assets that the trustee may pay or distribute in good faith in satisfaction of any lawful claims, expenses, or taxes or to any beneficiary before the claim was presented. A payment or distribution of assets by a trustee is deemed to have been made in good faith unless the creditor can prove that the trustee had actual knowledge of the claim at the time of the payment or distribution. The six-month period shall not be interrupted or affected by the death, resignation, or removal of a trustee, except that the time during which there is no trustee in office shall not be counted as part of the period.(E) A claim presented to the trustee under subsection (a)(6)(B) or (a)(6)(C) must contain substantially the same information as required in Section 91-7-149.(F) The provisions of Section 91-7-261 detailing the priority of payment of claims, expenses, and taxes from the probate estate of a decedent apply to a revocable trust to the extent the assets of the settlor's probate estate are inadequate and the personal representative or creditor or taxing authority of the settlor's estate has perfected its right to collect from the settlor's revocable trust.(G) If a personal representative has been appointed for the settlor's estate, assets of the trust shall abate pari passu with assets of the settlor's estate. If no personal representative has been appointed for the settlor's estate, assets of the trust shall abate in the same order of preference as would apply to a decedent's estate.(H) Nothing in this paragraph (6) obligates a trustee to seek appointment of a personal representative of a settlor's estate, and a trustee is not liable to any beneficiary or other third party for failure to do so.(b) For purposes of this section during the period a power of withdrawal may be exercised or upon the lapse, release, or waiver of the power, the holder is treated as the settlor of the trust only to the extent the value of the property affected by the lapse, release, or waiver exceeds the greater of: (1) The amount specified in Section 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986 (26 U.S.C. Section 2041(b)(2) and Section 2514(e));(2) If the donor of the property subject to holder's power of withdrawal is not married at the time of the transfer of property to the trust, the amount specified in Section 2503(b) of the Internal Revenue Code of 1986 (26 U.S.C. Section 2503(b)); or(3) If the donor of the property subject to holder's power of withdrawal is married at the time of the transfer of property to the trust, twice the amount specified in Section 2503(b) of the Internal Revenue Code of 1986 (26 U.S.C. Section 2503(b)).(4) A power to withdraw is not considered to exceed the greater of the amounts specified in subsection (b)(1) through (3) if the amount subject to a withdrawal right granted to the holder in any calendar year does not exceed the greater of such amounts even if the total amount subject to the holder's power to withdraw exceeds the greater of such amounts in any subsequent calendar year.(5) Except to the extent provided in this subsection (b), a person who is the holder of a power of withdrawal is not considered a settlor of the trust by failing to exercise the power of withdrawal, releasing the power of withdrawal, or waiving the power of withdrawal.(c) For purposes of subsection (a)(2), the following are not considered an amount that may be distributed to or for the settlor's benefit: (1) The power of a trustee of an irrevocable trust, whether arising under the trust agreement or any other provision of law, to make a distribution to or for the benefit of a settlor for the purpose of reimbursing the settlor in an amount equal to any income taxes payable on any portion of the trust principal and income that are includable in the settlor's personal income under applicable law, as well as distributions made by the trustee under such authority; and(2) The power of the settlor to exercise any of the powers described in Section 675 of the Internal Revenue Code of 1986 (26 U.S.C. Section 675).(d) Property contributed to the following trusts is not considered to have been contributed by the settlor, and a person who would otherwise be treated as a settlor or deemed settlor of the following trusts may not be treated as a settlor:(1) An irrevocable inter vivos marital trust if:(A) The settlor is a beneficiary of the trust after the death of the settlor's spouse; and(B) The trust is treated as: (i) Qualified terminable interest property under Section 2523(f), Internal Revenue Code of 1986; or(ii) A general power of appointment trust under Section 2523(e), Internal Revenue Code of 1986;(2) An irrevocable inter vivos trust of which the settlor's spouse is a beneficiary if the settlor is a beneficiary of the trust after the death of the settlor's spouse; or(3) An irrevocable trust for the benefit of any person to the extent that the property of the trust was subject to a power of appointment in another person, whether the settlor's interest was created by the lapse or exercise of such power. The effect of this subsection (d) shall be that the power of a trustee, and any benefit resulting to the settlor, whether arising under the trust agreement or any other provision of the law, to make a distribution to or for the benefit of a settlor or to otherwise permit the settlor to use or benefit from trust property following the death of the settlor's spouse, shall not be considered an amount that may be distributed to or for the settlor's benefit for purposes of subsection (a)(2).
(e) A beneficiary is not considered to be a settlor, to have made a voluntary or involuntary transfer of the beneficiary's interest in the trust, or to have the power to make a voluntary or involuntary transfer of the beneficiary's interest in the trust, merely because the beneficiary holds, exercises, waives, releases, or allows to lapse: (1) A presently exercisable power to: (A) Consume, invade, appropriate, or distribute property to or for the benefit of the beneficiary, if the power is: (i) Exercisable only on consent of another person holding an interest adverse to the beneficiary's interest; or(ii) Limited by an ascertainable standard, including health, education, support, or maintenance of the beneficiary;or(B) Appoint any property of the trust to or for the benefit of a person other than the beneficiary, a creditor of the beneficiary, the beneficiary's estate, or a creditor of the beneficiary's estate;(2) A testamentary power of appointment; or(3) A presently exercisable right described by subsection (b).(f) For purposes of subsection (a)(2) and subsection (g), a person who becomes a beneficiary of a trust due to the exercise of a power of appointment by someone other than such person shall not be considered a settlor of the trust.(g)(1) Notwithstanding Section 15-3-115, no person shall bring an action with respect to a transfer of property to a spendthrift trust if the person is a creditor when the transfer is made, unless the action is commenced within the later of two (2) years after the transfer is made or six (6) months after the person discovers or reasonably should have discovered the transfer; and(2) If subsection (g)(1) applies: (A) A person is deemed to have discovered the existence of a transfer at the time any public record is made of the transfer, including, but not limited to, a conveyance of real property that is recorded in the office of the county register of deeds of the county in which the property is located or the filing of a financing statement Uniform Commercial Code, or the equivalent recording or filing of either with the appropriate person or official under the laws of a jurisdiction other than this state;(B) A creditor cannot bring an action with respect to a transfer of property to a spendthrift trust unless that creditor proves by clear and convincing evidence that the settlor's transfer to the trust was made with the intent to defraud that specific creditor; and(i) Notwithstanding any law to the contrary, a creditor or any other person does not have a claim or cause of action against the trustee, other fiduciary, or an advisor of a spendthrift trust if that claim or cause of action is based in any way on any person making use of the benefits of this subsection (g);(ii) For purposes of subsection (g)(2)(B), an advisor of a spendthrift trust includes, but is not limited to, any person involved in the counseling, drafting, preparation, execution or funding of a spendthrift trust;(iii) For purposes of subsection (g)(2)(B)(i), counseling, drafting, preparation, execution or funding of a spendthrift trust includes the counseling, drafting, preparation, execution and funding of a limited partnership, a limited liability company or any other type of entity if interests in the limited partnership, limited liability company or other entity are subsequently transferred to a spendthrift trust;(3) Notwithstanding subsection (g)(2)(B), in the same manner as provided other than by this section to trusts in general, a beneficiary, settlor, cotrustee, trust advisor or trust protector retains the right to bring a claim against a trustee or against another cotrustee, trust advisor, trust protector or any of their predecessors; however, no such claim shall arise solely because a person used, or attempted to use, the benefits of this subsection (g);(4) If more than one (1) transfer of property is made to a spendthrift trust, the subsequent transfer of property to the spendthrift trust shall be disregarded for the purpose of determining whether a person may bring an action under this subsection (g) with respect to a prior transfer of property to the spendthrift trust; any distribution to a beneficiary from the spendthrift trust shall be deemed to have been made from the most recent transfer made to the spendthrift trust;(5) With the exception of a claim brought under subsection (g)(3), notwithstanding any other law, no action of any kind, including, without limitation, an action to enforce a judgment entered by a court or other body having adjudicative authority, shall be brought at law or in equity against the trustee, other fiduciary or advisor of a spendthrift trust if, as of the date the action is brought, an action by a creditor with respect to a transfer of property to the spendthrift trust would be barred under this subsection (g); and(6) This subsection (g) shall not abridge the rights of a creditor, to the extent otherwise provided by this section, to reach the maximum amount that can be distributed to or for the settlor's benefit under a spendthrift trust.Added by Laws, 2020, ch. 406, SB 2851,§ 62, eff. 7/1/2020.