§ 28-72-712 — Transfer of property to trust - Actions against advisers, settlors, and trustees - Limitations

(a) A person may not bring an action with respect to a transfer of property to a spendthrift trust or domestic asset protection trust if the person: (1) Is a creditor when the transfer is made, unless the action is commenced within: (A) Two (2) years after the transfer is made; or (B) Six (6) months after the person discovers or reasonably should have discovered the transfer, whichever is later; or (2) Becomes a creditor after the transfer is made, unless the action is commenced within two (2) years after the transfer is made. (b) A person is deemed to have discovered a transfer under subsection (a) of this section at the time a public record is made of the transfer, including without limitation at the time of: (1) The conveyance of real property that is recorded in the office of the county recorder of the county in which the property is located; or (2) The filing of a financing statement under the Uniform Commercial Code, § 4-1-101 et seq. (c) (1) A creditor shall not be awarded a judgment in an action with respect to a transfer of property to a spendthrift trust or domestic asset protection trust unless the creditor proves by clear and convincing evidence that the transfer of property: (A) Was a fraudulent transfer under the Uniform Voidable Transactions Act, § 4-59-201 et seq.; or (B) Violates a legal obligation owed to the creditor under a contract or a valid court order that is legally enforceable by that creditor. (2) In the absence of clear and convincing evidence, the property transferred is not subject to the claims of the creditor. (3) Clear and convincing evidence: (A) That is established by a creditor showing that a transfer of property was fraudulent or wrongful does not constitute clear and convincing evidence as to any other creditor; and (B) Of a fraudulent or wrongful transfer of property as to a creditor shall not invalidate any other transfer of property. (d) (1) If property transferred to a spendthrift trust or domestic asset protection trust is conveyed to the settlor or to a beneficiary for the purpose of obtaining a loan secured by a mortgage or deed of trust on the property and is later reconveyed to the trust, for the purpose of bringing an action under subsection (a) of this section, the transfer is disregarded and the reconveyance relates back to the date the property was originally transferred to the trust. (2) The mortgage or deed of trust on the property shall be enforceable against the trust. (e) A person shall not be awarded a judgment in an action against an adviser to the settlor or trustee of a spendthrift trust or domestic asset protection trust unless the person proves by clear and convincing evidence that the adviser: (1) Acted knowingly and in bad faith in violation of the laws of the State of Arkansas; and (2) Directly caused the damages suffered by the person. (f) (1) A person other than a beneficiary or settlor shall not be awarded a judgment in an action against a trustee of a spendthrift trust or domestic asset protection trust unless the person proves by clear and convincing evidence that the trustee: (A) Acted knowingly and in bad faith in violation of the laws of the State of Arkansas; and (B) Directly caused the damages suffered by the person. (2) As used in this subsection,"trustee" includes a cotrustee and a predecessor trustee. (g) If more than one (1) transfer is made to a spendthrift trust or domestic asset protection trust: (1) The subsequent transfer to the spendthrift trust or domestic asset protection trust shall be disregarded for the purpose of determining whether a person may bring an action under subsection (a) of this section with respect to a prior transfer to the spendthrift trust or domestic asset protection trust; and (2) Any distribution to a beneficiary from the spendthrift trust or domestic asset protection trust shall be deemed to have been made from the most recent transfer made to the spendthrift trust or domestic asset protection trust. (h) Notwithstanding any other provision of 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 of a spendthrift trust or domestic asset protection trust if, as of the date the action is brought, an action by a creditor with respect to a transfer to the spendthrift trust or domestic asset protection trust would be barred pursuant to this section. (i) For purposes of this section, if a trustee exercises his or her discretion or authority to distribute trust income or principal to or for a beneficiary of the spendthrift trust or domestic asset protection trust, by appointing the property of the original spendthrift trust or domestic asset protection trust in favor of a second spendthrift trust or domestic asset protection trust for the benefit of one (1) or more of the beneficiaries under the Trustee Division of Trusts Act, § 28-69-701 et seq., the time of the transfer for purposes of this section shall be deemed to have occurred on the date the settlor of the original spendthrift trust or domestic asset protection trust transferred assets into the original spendthrift trust or domestic asset protection trust, regardless of whether the property of the original spendthrift trust or domestic asset protection trust may have been transferred to a second spendthrift trust or domestic asset protection trust.

Legislative History

Added by Act 2023, No. 291,§ 1, eff. 8/1/2023.