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Comparison of Uniform Trust Code, DC Trust Code, Maryland Trust Act, and Virginia Trust Code, with Annotations

  • Preamble
  • Article 1
  • Article 2
  • Article 3
  • Article 4
  • Article 5
  • Article 6
  • Article 7
  • Article 8
  • UPIA-UTC Article 9
  • Article 10
  • Article 11
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A

Article 5

— Creditor’s Claim, Spendthrift and Discretionary Trusts

§ 501   § 502   § 503   § 504   § 505   § 506   § 507  —–  MD § 14.5-502   MD § 14.5-503   MD § 14.5-507   MD § 14.5-510   MD § 14.5-511   VA § 64.2-745   VA § 64.2-745.1   VA § 64.2-745.2

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §14.5-501 clarifies that traditional creditor remedies are unavailable with respect to beneficiary interests and trust property that are subject to discretionary distribution, support, or spendthrift provisions. Such remedies are also unavailable with respect to trust property that is the subject of a third party power of appointment, where the power holder acts as a surrogate for the settlor. Absent a valid discretionary distribution, support, or spendthrift provision, a creditor can ordinarily reach the interest of a beneficiary in a trust in the same manner as any other property of the beneficiary.

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UTC

§ 501. Rights of beneficiary’s creditor or assignee.

To the extent a beneficiary’s interest is not subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary’s interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances.

DC

§ 19-1305.01. Rights of beneficiary's creditor or assignee.

To the extent a beneficiary's interest is not protected by a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances. Whether or not a trust contains a spendthrift provision, the creditor of a beneficiary cannot exercise or compel the exercise of the beneficiary's right to commerce, approve, or disapprove a proposed trust termination or modification under sections 19-1304.11 through 19-1304.16, or trust combination or division under section 19-1304.17.

MD

§ 14.5-501. Creditor's claims.

 A

(a) A court may authorize a creditor or an assignee of a beneficiary to reach the interest of the beneficiary by attachment of present or future distributions to or for the benefit of the beneficiary or by other means if that interest is not subject to a discretionary distribution provision, a support provision, or a spendthrift provision.
(b) The court may limit the amount, timing, or other terms and conditions of an award under this section to relief as is appropriate under the circumstances considering, among other factors:
(1) The support needs of the beneficiary, the spouse of the beneficiary, the former spouse of the beneficiary, and the dependent children of the beneficiary;
(2) With respect to a beneficiary that is the recipient of public benefits, the supplemental needs of the beneficiary if the trust was not intended to provide for the basic support of the beneficiary; and
(3) The amount of the claim of the creditor or assignee and the likely proceeds that a sale would produce as compared to the potential value of the interest to the beneficiary.

VA

§ 64.2-742. Rights of beneficiary's creditor or assignee

To the extent a beneficiary's interest is not subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances.

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §§14.5-503 and §14.5-504 allow a settlor to retrain the transfer of a beneficiary’s interest regardless of whether the beneficiary has an interest in income, in principal or in both. Unless one of the exceptions applies, a creditor of the beneficiary is prohibited from attaching a protected interest and may only attempt to collect directly from the beneficiary after a distribution is made.

MD §14.5-504(e) provides that the use and occupancy of a residence and tangible personal property that are subject to a spendthrift provision may not be transferred by the beneficiary user and that subjecting such use and occupancy to the enforcement of creditor judgments is contrary to legitimate expectations of settlors for their intended beneficiaries.

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UTC

§ 502. Spendthrift provision.

(a) A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary’s interest.
(b) A term of a trust providing that the interest of a beneficiary is held subject to a “spendthrift trust,” or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary’s interest.
(c) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this [article], a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.

DC

§ 19-1305.02. Spendthrift provision.

(a) A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary's interest.
(b) A term of a trust providing that the interest of a beneficiary is held subject to a "spendthrift trust," or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary's interest.
(c) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this subchapter, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.

MD

§ 14.5-504. Spendthrift provisions.

 A

(a) A spendthrift provision is valid and enforceable. [MISSING "ONLY IF IT RESTRAINS . . . BENEFICIARY'S INTEREST" BUT SEE MD(e) BELOW]
(b) A provision of a trust providing that the interest of a beneficiary is held subject to a “spendthrift trust”, or words of similar import, restrains both voluntary and involuntary transfer of the beneficiary’s interest.
(c) A beneficial interest that is subject to a spendthrift provision may not be judicially foreclosed or attached by a creditor.
(d) (1) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this subtitle, a creditor or an assignee of the beneficiary may not reach the interest or a distribution by the trustee before the receipt by the beneficiary of the interest or distribution.
(2) An attempt by a beneficiary to transfer an interest in a trust in violation of a valid spendthrift provision shall be void and of no effect.
(e) (1) The use, occupancy, and enjoyment of a single parcel of residential real property, as designated by the trustee, and tangible personal property by a beneficiary whose interest is subject to a spendthrift provision may not be transferred.
(2) The use, occupancy, and enjoyment described in paragraph (1) of this subsection are not subject to the enforcement of a judgment against the beneficiary.

VA

§ 64.2-743. Spendthrift provision

A. A spendthrift provision is valid only if it restrains both voluntary and involuntary transfer of a beneficiary's interest.
B. A term of a trust providing that the interest of a beneficiary is held subject to a "spendthrift trust," or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary's interest.
C. A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this article, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §14.5-505 makes an exception for the claims of certain categories of creditors from the effects of a spendthrift provision and specifies the remedies such exception creditors may take to satisfy their claims. The exception in subsection (b)(1) for judgments or orders to support a beneficiary’s child or current or former spouse is consistent with Safe Deposit & Trust Co. v. Robertson, 192 Md. 653, 65 A.2d 292 (1949) (re alimony claims) and Zouck v. Zouck, 204 Md. 285, 104 A.2d 573 (1954) (re claims for child support).
With regard to exception creditors in Virginia, VA §64.2-744(B) is consistent with prior Virginia law. Children with support orders, but not spouses or former spouses, are exception creditors. Although government entities – the U.S., the Commonwealth, or any Virginia county, city, or town – are exception creditors in most cases, VA §64.2-745 expressly preserves Virginia’s protection for special needs or supplemental needs trusts from state claims against beneficiaries for reimbursement. MD §14.5-1002 contains Maryland’s special needs and supplemental needs trusts provision.

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UTC

§ 503. Exceptions to spendthrift provision.

(a) In this section, “child” includes any person for whom an order or judgment for child support has been entered in this or another State.
(b) A spendthrift provision is unenforceable against:
(1) a beneficiary’s child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance;
(2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust; and
(3) a claim of this State or the United States to the extent a statute of this State or federal law so provides.
(c) A claimant against which a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances.

DC

§ 19-1305.03. Exceptions to spendthrift provision.

(a) For the purposes of this section, the term "child" includes any person for whom an order or judgment for child support has been entered in this or another State.
[DC(b) IS A COMBINATION OF UTC(b)(1) AND (c), BUT IS MISSING SOME TEXT]
(b) Whether or not a trust contains a spendthrift provision, [SUBSTITUTED FOR BOTH "A SPENDTHRIFT PROVISION IS UNENFORCEABLE AGAINST:" AND "A CLAIMANT AGAINST . . . ENFORCED"] a beneficiary's child [MISSING "SPOUSE, OR FORMER SPOUSE"], who has a judgment or court order against the beneficiary for support or maintenance, may obtain from a court an order attaching present or future distributions when payable under the terms of the trust to or for the benefit of the beneficiary. [MISSING "THE COURT MAY LIMIT . . . UNDER THE CIRCUMSTANCES.]
[MISSING UTC(b)(2)]
(c) A spendthrift provision is unenforceable against a claim of the District of Columbia or the United States to the extent a statute of the District of Columbia or federal law so provides.

MD

§ 14.5-505. Spendthrift provisions -- Allowable claims.

 A

(a) In this section, “child” includes any person for whom an order or a judgment for child support has been entered in this State or another state.
(b) Subject to the provisions of § 14.5–502 of this subtitle, the interest of a beneficiary that is subject to either a spendthrift provision or a support provision or both can be reached in satisfaction of an enforceable claim against the beneficiary by the following: [SUBSTITUTED FOR "A SPENDTHRIFT PROVISION IS UNENFORCEABLE AGAINST:"]
(1) A child, spouse, or former spouse of the beneficiary that has a judgment or court order against the beneficiary for support or maintenance;
(2) A judgment creditor that has provided services for the protection of the interest of a beneficiary in the trust; or
(3) A claim of this State or the United States to the extent a statute of this State or federal law so provides.
(c) (1) A claimant described in subsection (b) of this section may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary.
(2) The court may only order the trustee to satisfy all or part of the judgment out of payments of income or principal as they become due.
(3) The court may limit the award to such relief as is appropriate under the circumstances, considering among any other factors determined appropriate by the court:
(i) The support needs of the beneficiary’s spouse, former spouse, and dependent children;
(ii) The support needs of the beneficiary; or
(iii) With respect to a beneficiary that is the recipient of public benefits, the supplemental needs of the beneficiary if the trust was not intended to provide for the basic support of the beneficiary.

VA

§ 64.2-744. Exceptions to spendthrift provision

 A

A. In this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.
B. Even if a trust contains a spendthrift provision, [SUBSTITUTED FOR "A SPENDTHRIFT PROVISION IS UNENFORCEABLE AGAINST"] a beneficiary's child [MISSING "SPOUSE, OR FORMER SPOUSE"] who has a judgment or court order against the beneficiary for support or maintenance, or a judgment creditor who has provided services for the protection of a beneficiary's interest in the trust, may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary.
C. Subject to the limitations of § 64.2-745, no spendthrift provision shall operate to the prejudice of the United States, the Commonwealth, or any county, city, or town.
D. A claimant against which a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of a beneficiary. The court may limit the award of such relief as is appropriate under the circumstances.

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UTC

§ 504. Discretionary trusts; effect of standard.

(a) In this section, “child” includes any person for whom an order or judgment for child support has been entered in this or another State.
(b) Except as otherwise provided in subsection (c), whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee’s discretion, even if:
(1) the discretion is expressed in the form of a standard of distribution; or
(2) the trustee has abused the discretion.
(c) To the extent a trustee has not complied with a standard of distribution or has abused a discretion:
(1) a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary’s child, spouse, or former spouse; and
(2) the court shall direct the trustee to pay to the child, spouse, or former spouse such amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion.
(d) This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.
(e) If the trustee’s or cotrustee’s discretion to make distributions for the trustee’s or cotrustee’s own benefit is limited by an ascertainable standard, a creditor may not reach or compel distribution of the beneficial interest except to the extent the interest would be subject to the creditor’s claim were the beneficiary not acting as trustee or cotrustee.

DC

§ 19-1305.04. Discretionary trusts; effect of standard.

RESERVED.

MD

Omitted.

VA

§ 64.2-746. Discretionary trusts; effect of standard

A. In this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.
B. Except as otherwise provided in subsection C and § 64.2-745, whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee's discretion, even if:
1. The discretion is expressed in the form of a standard of distribution; or
2. The trustee has abused the discretion.
C. To the extent a trustee has not complied with a standard of distribution or has abused a discretion:
1. A distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child [MISSING "SPOUSE, OR FORMER SPOUSE"]; and
2. The court shall direct the trustee to pay to the child [MISSING "SPOUSE, OR FORMER SPOUSE"] such amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion.
D. This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.
E. A creditor may not reach the interest of a beneficiary who is also a trustee or cotrustee, or otherwise compel a distribution [MISSING "EXCEPT TO THE EXTENT . . . AS TRUSTEE OR COTRUSTEE"], if the trustee's [MISSING "OR COTRUSTEE'S"] discretion to make distributions for the trustee's [MISSING "OR COTRUSTEE'S"] own benefit is limited by an ascertainable standard.

UTC §505(a)(3) provides that, after the death of the settlor, the assets of a revocable trust are 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. Both DC §19-1305.05(3) and VA §64.2-747(A)(3) include the same provision. MD §14.5-508(a)(5), however, provides that the asset of a revocable trust are subject to claims of the settlor’s creditors, but it does not include costs of administration, funeral expenses and statutory allowances.

DC §19-1305.05(d) provides that the trustee of a deceased settlor’s revocable trust can publish a notice and obtain for the trust the same protection from claims afforded to a decedent’s estate. This probate-type notice has the effect of barring claims against the trustee and the trust property 6 months after the date of the first publication of the notice.
Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

UTC §505(a)(3) provides that, after the death of the settlor, the assets of a revocable trust are 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. Both DC §19-1305.05 (3) and VA §64.2-747(A)(3) include the same provision. MD §14.5-508(a)(5), however, provides that the asset of a revocable trust are subject to claims of the settlor’s creditors, but it does not include costs of administration, funeral expenses and statutory allowances.

MD §14.5-508(a) codifies the common law rule that a debtor may not place his or her assets beyond the reach of his or her creditors by using a trust that he or she can revoke. Under this section, whether or not the trust contains a discretionary provision, a support provision, or a spendthrift provision with regard to distributions to the settlor, a settlor’s creditor can reach all of the property of his revocable trust and the maximum amount that the trustee of an irrevocable could distribute to the settlor-beneficiary.

MD §14.5-508(b), which became effective on October 1, 2015, provides that property of a deceased settlor’s revocable trust is not subject to claims of the settlor’s creditors unless such claims are filed in the settlor’s estate proceeding before the Orphans’ Court as provided in MD EST & TRUSTS §§8-103 and 8-107; this applies to regular estate proceedings and not to a small estate proceeding under MD EST & TRUSTS §5-601 et seq. If a small estate proceeding is underway, or if no estate proceeding occurs, the trustee of the deceased settlor’s revocable trust can publish notice, the form of which is provided in MD §14.5-508(b), in order to establish a six-month claims period, which begins on the date of first publication. The procedures and requirements for filing a claim are provided in MD §14.5-508(b).

MD §14.5-508(c) provides that the holder of a withdrawal power is treated as if the holder were the settlor of the property in a revocable trust whenever the power is in effect. This subsection was previously codified in subsection (b) – before enactment of the above-described revocable trust claims provision – and it relates to the ability of a withdrawal powerholder’s creditors to reach trust property. N.B. Pursuant to MD §14.5-1003, an individual who creates a lifetime QTIP trust for his or her spouse, and who retains a secondary life estate if the spouse predeceases the transferor, is not considered a settlor for purposes of creditor claims.
VA §64.2-747(A)(2) provides that a trustee’s discretionary authority to pay directly or to reimburse the settlor for any tax on trust income or principal that is payable by the settlor shall not be considered to be an amount distributable to or for the settlor’s benefit and a creditor of the settlor shall not be entitled to reach any amount solely by reason of this discretionary authority. This provision is intended to prevent a creditor from reaching the assets of a grantor trust for income tax purposes solely because of the settlor’s liability for the tax on the trust income. MD §14.5-1003(a)(1) similarly provides that a settlor’s liability for income taxes on trust property, i.e., grantor trust status, does not per se enable the settlor’s creditors to reach property of such trust.

UTC §505(a)(3) provides that, after the death of the settlor, the assets of a revocable trust are 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. Both DC §19-1305.05 (3) and VA §64.2-747(A)(3) include the same provision. MD §14.5-508(a)(5), however, provides that the asset of a revocable trust are subject to claims of the settlor’s creditors, but it does not include costs of administration, funeral expenses and statutory allowances.

VA §64.2-747(A)(3) provides protection against creditors for the deceased settlor’s revocable trust assets after two years following the settlor’s death.

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UTC

§ 505. 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.
(2) With respect to an irrevocable trust, 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.
(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].
(b) For 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; and
(2) 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 the amount specified in Section 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986, or Section 2503(b) of the Internal Revenue Code of 1986, in each case as in effect on [the effective date of this [Code]] [, or as later amended].

DC

§ 19-1305.05. Creditor's claim against settlor.

 A

(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) With respect to an irrevocable trust, 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.
(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 under sections 19-101.02, 19-101.03, and 19-101.04, to the extent the settlor's residuary probate estate is inadequate to satisfy those claims, costs, expenses, and allowances.
(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; and
(2) 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 the amount specified in section 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986, or section 2503(b) of the Internal Revenue Code of 1986, in each case as in effect on the effective date of this chapter [March 10, 2004], or as later amended.
(c) If a proceeding other than a small estate proceeding is commenced in the District of Columbia to administer the estate of a deceased settlor as provided in Title 20, property of the trust of which the decedent was a settlor is not liable for payment of claims against the settlor that were not properly presented in the estate proceeding.
(d) If a proceeding as described in subsection (c) of this section has not been commenced, the trustee of the trust of which the decedent was a settlor may publish a notice substantially similar to, and in the same manner as provided for the notice described in section 20-704, and thereby obtain for the trust the same protection from claims afforded to a decedent's estate under section 20-903. Claims against a deceased settlor are barred as against the trustees and the trust property unless presented to the trustee at the address provided in the notice within 6 months after the date of the first publication of the notice. Except to the extent inconsistent with this subsection, Chapter 9 of Title 20 applies to the trustee and trust created by a deceased settlor in the same manner as it applies to a personal representative and decedent's estate.
(e) If a notice under subsection (d) of this section is published and a proceeding to administer the settlor's estate is later commenced, claims against a deceased settlor are barred as against the trustee and trust property as of the date provided in subsection (d) of this section, and not the date provided in section 20-903.

MD

§ 14.5-508. Trust property subject to claims of creditors or assigns.

 A

(a) The following rules apply, whether or not the terms of a trust contain a spendthrift provision:
(1) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the creditors of the settlor;
(2) With respect to an irrevocable trust, a creditor or an assignee of the settlor may reach only the lesser of:
(i) The claim of the creditor or assignee; and
(ii) The maximum amount that can be distributed to or for the benefit of the settlor;
(3) If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the interest of the settlor in the portion of the trust attributable to the contribution of that settlor;
(4) With respect to a trust described in 42 U.S.C. § 1396p(d)(4)(a) or (c), the court may limit the award of the creditor of a settlor under items (1) and (2) of this subsection to the relief that is appropriate under the circumstances, considering among other factors determined appropriate by the court, the supplemental needs of the beneficiary; and
(5) After the death of a settlor, and subject to subsection B of this section and the right of the settlor to direct the source from which liabilities will be paid, the property of a trust that was revocable at the death of the settlor is subject to claims of the creditors of the settlor. [MISSING "COSTS OF ADMINISTRATION . . . EXPENSES, AND [ALLOWANCES]"]
(b)(1)Whether or not the terms of a trust contain a spendthrift provision, if a proceeding other than for a small estate under Title 5, Subtitle 6 of this article is commenced to administer the estate of a deceased settlor as provided in Title 5 of this article, property of a trust that was revocable at the death of the settlor is not subject to, and the trustee and beneficiaries of that trust may not be held liable for, claims of the creditors of the settlor that are not properly presented in the estate proceeding within the time periods specified in § 8–103 of this article or that are disallowed and barred as provided in § 8–107 of this article.
(2) (i) If a proceeding as described under paragraph (1) of this subsection has not been commenced, the trustee of the trust of which the decedent was a settlor may publish a notice once a week for 3 successive weeks in a newspaper of general circulation in what would otherwise be the proper venue for an administrative or judicial probate for that decedent under
§ 5–103 of this article.
(ii) the notice shall:
1. Announce the death of the decedent;
2. Provide the name and address of the trustee;
3. Notify creditors of the decedent to present their claims to the trustee; and
4. Be substantially in the following form:
Notice to creditors of a settlor of a revocable trust
To all persons interested in the trust of ___________: this is to give notice that __________________ died on or about ______________.
Before the decedent’s death, the decedent created a revocable trust for which the undersigned, ___________________, whose address is __________________________________, is now a trustee.
To have a claim satisfied from the property of this trust, a person who has a claim against the decedent must present the claim on or before the date that is 6 months after the date of the first publication of this notice to the undersigned trustee at the address stated above. The claim must include the following information: • a verified written statement of the claim indicating its basis;
• the name and address of the claimant;
• if the claim is not yet due, the date on which it will become due;
• if the claim is contingent, the nature of the contingency; if the claim is secured, a description of the security;
• and the specific amount claimed.
Any claim not presented to the trustee on or before that date or any extension provided by law is unenforceable.
______________________________ Trustee
Date of first publication: _____________________.
(3) the publication of a notice in accordance with paragraph (2) of this subsection shall afford the trust property, the trustee, and the beneficiaries of the trust those protections under § 8–103 of this article afforded to a decedent’s estate, personal representative, and heirs and legatees against claims presented more than 6 months after the date of the first publication of the notice.
(4) claims against a deceased settlor are forever barred as against the trust property, the trustee, and the trust beneficiaries unless, within 6 months after the date of the first publication of a notice in accordance with paragraph (2) of this subsection, the creditor:
(i) files an action against the trustee on the creditor’s claim and serves a copy of the complaint on the trustee within 30 days of the filing; or
(ii) presents to the trustee at the address provided in the notice:
1. A verified written statement of the claim indicating its basis;
2. The name and address of the claimant;
3. If the claim is not yet due, the date on which it will become due;
4. If the claim is contingent, the nature of the contingency;
5. If the claim is secured, a description of the security; and 6. The specific amount claimed.
(5) a claim may not be deemed to have been presented to the trustee unless the claimant has provided all the information specified in paragraph (4) of this subsection.
(6) (i) if a claim is presented to the trustee as provided in paragraph (4) of this subsection and the trustee disallows the claim wholly or in a stated amount, the claimant is forever barred to the extent of the disallowance unless the claimant files an action against the trustee or against any person to whom trust property has been distributed.
(ii) an action under subparagraph (i) of this paragraph shall be filed within 60 days after the mailing of the notice of disallowance by the trustee to the claimant.
(iii) the notice informing the claimant of the disallowance shall contain a warning to the claimant concerning the time limitation under subparagraph (ii) of this paragraph for commencing an action.
(c) (1) During the period the power of withdrawal may be exercised, the holder of a power of withdrawal shall be treated in the same manner as the settlor of a revocable trust to the extent of the property subject to that power.
(2) After the lapse, waiver, or release of a power of withdrawal, the former power holder shall no longer be considered a settlor of the trust [SUBSTITUTED FOR "THE HOLDER IS TREATED . . . WAIVER EXCEEDS THE GREATER . . . OR AS [LATER AMENDED]"].

VA

§ 64.2-747. Creditor's claim against settlor

 A

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. With respect to an irrevocable trust, except to the extent otherwise provided in §§ 64.2-745.1 and 64.2-745.2, 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. A trustee's discretionary authority to pay directly or to reimburse the settlor for any tax on trust income or principal that is payable by the settlor shall not be considered to be an amount that can be distributed to or for the settlor's benefit, and a creditor or assignee of the settlor shall not be entitled to reach any amount solely by reason of this discretionary 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 including the family allowance, the right to exempt property, and the homestead allowance to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and allowances. This section shall not apply to life insurance proceeds under § 38.2-3122. No proceeding to subject a trustee, trust assets, or distributees of such assets to such claims, costs, and expenses shall be commenced unless the personal representative of the settlor has received a written demand by a surviving spouse, a creditor, or one acting for a minor or dependent child of the settlor, and no proceeding shall be commenced later than two years following the death of the settlor. This section shall not affect the right of a trustee to make distributions required or permitted by the terms of the trust prior to being served with process in a proceeding brought by the personal representative.
B. For 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; and
2. 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 greatest of (i) the amount specified in § 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986, (ii) the amount specified in § 2503(b) of the Internal Revenue Code of 1986 [MISSING "IN EACH CASE AS IN EFFECT . . . AS LATER AMENDED]"], or (iii) two times the amount specified in § 2503(b) of the Internal Revenue Code of 1986 if the donor was married at the time of the transfer to which the power of withdrawal applies.
3. The assets in a trust that are attributable to a contribution to an inter vivos marital deduction trust described in either § 2523(e) or (f) of the Internal Revenue Code of 1986, after the death of the spouse of the settlor of the inter vivos marital deduction trust shall be deemed to have been contributed by the settlor's spouse and not by the settlor.

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts. <BR
Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §14.5-506 makes clear a creditor’s right to reach the present or future mandatory distribution interest of a trust beneficiary if that interest is not subject to a support provision or a spendthrift provision.

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UTC

§ 506. Overdue distribution.

(a) In this section, “mandatory distribution” means a distribution of income or principal which the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. The term does not include a distribution subject to the exercise of the trustee’s discretion even if (1) the discretion is expressed in the form of a standard of distribution, or (2) the terms of the trust authorizing a distribution couple language of discretion with language of direction.
(b) Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.

DC

§ 19-1305.06. Overdue distribution.

[MISSING UTC(a)]
Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.

MD

§ 14.5-506. Mandatory distribution provisions other than support provision -- Attachment.

 A

[UTC(a) INCLUDED AS MTA 103(o)]
(a) To the extent that the interest of a beneficiary subject to a mandatory distribution provision, other than a support provision, does not contain a spendthrift provision, the court may authorize a creditor or an assignee of the beneficiary to attach present or future mandatory distributions to or for the benefit of the beneficiary, or to reach the beneficiary’s interest by other means, as provided in § 14.5–501 of this subtitle.
(b) A creditor or an assignee of a beneficiary may reach a mandatory distribution of a trust if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date, whether or not the trust contains a spendthrift provision or a support provision.

VA

§ 64.2-748. Overdue distribution

A. In this section "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. The term does not include a distribution subject to the exercise of the trustee's discretion even if (i) the discretion is expressed in the form of a standard of distribution or (ii) the terms of the trust authorizing a distribution use language of discretion with language of direction.
B. Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

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UTC

§ 507. Personal obligations of trustee.

Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.

DC

§ 19-1305.07. Personal obligations of trustee.

Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.

MD

§ 14.5–509. Trust property not subject to obligations of trustee.

 A

Trust property is not subject to personal obligations of the trustee of the trust, even if the trustee becomes insolvent or bankrupt.

VA

§ 64.2-749. Personal obligations of trustee

Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.

Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §14.5-502 allows a settlor to use discretionary distribution provisions to protect trust property and intended beneficiaries. In the case of a discretionary trust, a creditor only has a right to attach distributions when and as made by the trustee directly to the beneficiary.

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UTC

No equivalent.

DC

No equivalent.

MD

§ 14.5-502. Discretionary distribution provision.

 A

(a) (1) A beneficiary of a discretionary distribution provision has no property right in a trust interest that is subject to a discretionary distribution provision.
(2) A beneficial interest that is subject to a discretionary distribution provision may not be judicially foreclosed, attached by a creditor, or transferred by the beneficiary.
(b) (1) The creditor of the beneficiary of a discretionary distribution provision created by someone other than that beneficiary has no enforceable right to trust income or principal that may be distributed only in the exercise of the discretion of the trustee.
(2) Trust property that is subject to a discretionary distribution provision is not subject to the enforcement of a judgment until income or principal or both is distributed directly to the beneficiary.
(c) A creditor of a beneficiary may not compel a distribution that is subject to a discretionary distribution provision created by someone other than that beneficiary.
(d) A trust may contain a discretionary distribution provision with respect to one or more but less than all beneficiaries.
(e) If a beneficiary of a discretionary distribution provision has a power of withdrawal created by someone other than that beneficiary:
(1) During the period the power may be exercised, the portion of the trust the beneficiary may withdraw may not be deemed to be subject to the discretionary distribution provision with respect to that beneficiary;
(2) During the period the power may be exercised, the portion of the trust the beneficiary may not withdraw shall be deemed to be subject to the discretionary distribution provision with respect to that beneficiary; and
(3) During periods in which the beneficiary does not have a power of withdrawal, the trust interest of the beneficiary shall be deemed to be subject to the discretionary distribution provision with respect to that beneficiary.
(f) If a beneficiary and one or more others have made contributions to a trust subject to a discretionary distribution provision, the portion of the trust attributable to the contributions of the beneficiary may not be deemed to be subject to that discretionary distribution provision with respect to that beneficiary, but the portion of the trust attributable to the contributions of others shall be deemed to be subject to the discretionary distribution provision with respect to that beneficiary.
(g) The interest of a beneficiary who is blind or disabled as defined in 42 U.S.C. § 1382c(a)(3) may be subject to a discretionary distribution provision notwithstanding:
(1) Precatory language in the trust instrument regarding the intended purpose of the trust of providing supplemental goods and services to or for the benefit of the beneficiary, and not to supplant benefits from public assistance programs; or
(2) A prohibition against providing food, clothing, and shelter to the beneficiary.

VA

No equivalent.
Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §§14.5-503 and §14.5-504 allow a settlor to retrain the transfer of a beneficiary’s interest regardless of whether the beneficiary has an interest in income, in principal or in both. Unless one of the exceptions applies, a creditor of the beneficiary is prohibited from attaching a protected interest and may only attempt to collect directly from the beneficiary after a distribution is made.

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UTC

No equivalent.

DC

No equivalent.

MD

§ 14.5-503. Effect of support provision.

 A

(a) Except as provided in §§ 14.5–505 and § 14.5–506(b) of this subtitle:
(1) A beneficial interest that is subject to a support provision may not be judicially foreclosed, attached by a creditor, or transferred by the beneficiary; and
(2) Trust property that is subject to a support provision is not subject to the enforcement of a judgment until income or principal or both is distributed directly to the beneficiary.
(b) (1) The use, occupancy, and enjoyment of a single parcel of residential real property, as designated by the trustee, and tangible personal property by a beneficiary whose interest is subject to a support provision may not be transferred by the beneficiary of the use, occupancy, or enjoyment.
(2) The use, occupancy, and enjoyment described in paragraph (1) of this subsection are not subject to the enforcement of a judgment against the beneficiary.

VA

No equivalent.
Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

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UTC

No equivalent.

DC

No equivalent.

MD

§ 14.5-507. Power of appointment.

 A

(a) (1) A power of appointment held by a person other than the settlor of the trust is not a property interest.
(2) A power of appointment described in paragraph (1) of this subsection and property subject to that power of appointment may not be judicially foreclosed or attached by a creditor of the holder of the power.
(b) None of the following shall be sufficient to create a general power of appointment or a power of withdrawal with respect to a beneficiary or settlor:
(1) The beneficiary serving as a trustee or cotrustee;
(2) The settlor or the beneficiary holding an unrestricted power to remove or replace a trustee;
(3) The settlor or the beneficiary of a trust serving as a trust administrator, a partner of a partnership, a manager of a limited liability company, or an officer of a corporation, or serving in another managerial function of another type of entity if part or all of the trust property consists of an interest in the entity;
(4) A person related by blood or adoption to the settlor or the beneficiary serving as trustee of the trust;
(5) The agent, accountant, attorney, financial adviser, or friend of the settlor or beneficiary serving as trustee of the trust;
(6) A business associate of the settlor or the beneficiary serving as trustee of the trust;
(7) A power of appointment held by the settlor other than the reserved power of the settlor to withdraw trust property for the benefit of the settlor, the creditors of the settlor, the estate of the settlor, or the creditors of the estate of the settlor;
(8) A power to substitute property of equivalent value for trust property as defined in § 675(4)(c) of the Internal Revenue Code of 1986, as amended; or
(9) A power to borrow trust property for less than adequate interest or without security as defined in § 675(2) of the Internal Revenue Code of 1986, as amended.

VA

No equivalent.
Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

MD §14.5-510(a) clarifies that a non-settlor beneficiary’s fiduciary powers as a trustee will not add to his/her rights as a beneficiary in determining whether the beneficiary’s interest or trust property is subject to claims by the beneficiary-trustee’s creditors. MD §14.5-510(b) makes is clear that the power of a beneficiary or other person to remove or replace a trustee will not by itself make trust property subject to the claims of that person’s creditors and thereby make such property taxable to the power holder for estate or gift tax purposes.

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UTC

No equivalent.

DC

No equivalent.

MD

§ 14.5-510. Attaching, exercising, reaching, or otherwise compelling distribution of beneficial interest prohibited; exceptions.

 A

(a) A creditor may not attach, exercise, reach, or otherwise compel distribution of the beneficial interest of a beneficiary that is a trustee or the sole trustee of the trust, but that is not a settlor of the trust, except to the extent that the interest would be subject to the claim of the creditor were the beneficiary not acting as cotrustee or sole trustee of the trust.
(b) A creditor may not attach, exercise, reach, or otherwise compel distribution of the beneficial interest of a beneficiary or any other person that holds an unconditional or conditional power to remove a trustee, to replace a trustee, or to remove and replace a trustee, except to the extent that the interest would be subject to the claim of the creditor if the beneficiary or other person did not have the power to remove, replace, or remove and replace a trustee.

VA

No equivalent.
Subtitle 5 of the MTA differs substantially from UTC Article 5. Much of the common law of Maryland regarding creditors’ rights is well established and follows closely the statement of the law as found in the Restatement (Second) of Trusts.

Article 5 of the UTC is primarily modeled on the precepts of the Restatement (Third) of the Law of Trusts and does not recognize the distinctions recognized by Maryland common law limiting the rights of creditors to reach discretionary trusts, support trusts, and spendthrift trusts. In particular, First National Bank v. Department of Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979), provides guidance on the creation and administration of discretionary and support trusts.

Under Maryland common law, it is well-settled that limited powers of appointment are not property and therefore are not subject to remedies for the benefit of the limited powerholder’s creditors. See, United State v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978) and Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A.2d 21 (1934). In order to explain and support the provisions of Subtitle 5 of the MTA, a number of definitions are included in MD §14.5-103 which are omitted from the UTC. Those definitions are “discretionary distribution provision,” “support provision,” “mandatory distribution provision,” “power of appointment,” “general power of appointment,” “power of withdrawal,” and “spendthrift provision.”

Prior MD §14-113 was largely recodified in MD §14.5-511, which provides that property that was held by spouses as tenants by the entirety and subsequently conveyed to the trustee(s) of one or more trusts, of which both spouses are beneficiaries, continues to have the same immunity from the claims of the separate creditors of each spouse as if the spouses had continued to hold the property as tenants by the entirety. After the death of either spouse, the immunity continues to apply to the separate creditors of the decedent, but the immunity no longer applies to the separate creditors of the surviving spouse. VA §55-20.2 provides the same protection to tenancy-by-the-entirety property.

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UTC

No equivalent.

DC

No equivalent.

MD

§ 14.5-511. Immunity of marital trust property from claims of separate creditors of husband or wife.

 A

***Former MD E&T 14-113 re-enacted***
(a) In this section, “proceeds” means:
(1) Property acquired by the trustee on the sale, lease, license, exchange, or other disposition of property originally conveyed by a husband and wife to a trustee or trustees;
(2) Property collected by the trustee on, or distributed on account of, property originally conveyed by a husband and wife to a trustee or trustees;
(3) Rights arising out of property originally conveyed by a husband and wife to a trustee;
(4) Claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to property originally conveyed by a husband and wife to a trustee;
(5) Insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to property originally conveyed by a husband and wife to a trustee; Or
(6) Property held by the trustee that is otherwise traceable to property originally conveyed by a husband and wife to a trustee or the property proceeds described in items (1) through (5) of this subsection.
(b) Property of a husband and wife that was held by them as tenants by the entirety and subsequently conveyed to the trustee or trustees of one or more trusts, and the proceeds of that property, shall have the same immunity from the claims of the separate creditors of the husband and wife as would exist if the husband and wife had continued to hold the property or the proceeds from the property as tenants by the entirety, as long as:
(1) The husband and wife remain married;
(2) The property or the proceeds from the property continue to be held in trust by the trustee or trustees or the successors in trust of the trustee or trustees;
(3) Both the husband and wife are beneficiaries of the trust or trusts; and
(4) The trust instrument, deed, or other instrument of conveyance provides that this section shall apply to the property or the proceeds from the property.
[FORMER MD E&T 14-113(c)(2) OMITTED]
(c) After the death of the first of the husband or wife to die, all property held in trust that was immune from the claims of their separate creditors under subsection (b) of this section immediately prior to the death of the individual shall continue to have the same immunity from the claims of the separate creditors of the decedent as would have existed if the husband and wife had continued to hold the property conveyed in trust, or the proceeds from the property, as tenants by the entirety.
(d) The immunity from the claims of separate creditors under subsections (b) and (c) of this section may be waived, as to each specific creditor or all separate creditors of a husband and wife or specifically described trust property, or all former tenancy by the entirety property conveyed to the trustee or trustees, by:
(1) The express provisions of a trust instrument; or
(2) The written consent of both the husband and the wife.
(e) (1) Except as provided in paragraph (2) of this subsection, immunity from the claims of separate creditors under subsections (b) and (c) of this section shall be waived if a trustee executes and delivers a financial statement for the trust that fails to disclose the requested identity of property held in trust that is immune from the claims of separate creditors.
(2) Immunity is not waived under this subsection if the identity of the property that is immune from the claims of separate creditors is otherwise reasonably disclosed by:
(i) A publicly recorded deed or other instrument of conveyance by the husband and wife to the trustee;
(ii) A written memorandum by the husband and wife, or by a trustee, that is recorded among the land records or other public records in the county or other jurisdiction where the records of the trust are regularly maintained; or
(iii) The terms of the trust instrument, including a schedule or exhibit attached to the trust instrument, if a copy of the trust instrument is provided with the financial statement.
(3) A waiver under this subsection shall be effective only as to:
(i) The person to whom the financial statement is delivered by the trustee;
(ii) The particular trust property held in trust for which the immunity from the claims of separate creditors is insufficiently disclosed on the financial statement; and
(iii) The transaction for which the disclosure was sought.
(f) In a dispute relating to the immunity of trust property from the claims of a separate creditor of a husband or wife, the trustee has the burden of proving the immunity of the trust property from the claims of the creditor.
(g) After a conveyance to a trustee described in subsection (b) of this section, the property transferred shall no longer be held by the husband and wife as tenants by the entirety.
(h) This section may not be construed to affect existing State law with respect to a tenancy by the entirety.
(i) This section applies only to tenancy by the entirety property conveyed to a trustee or trustees on or after October 1, 2010.

VA

No equivalent.
With regard to exception creditors in Virginia, VA §64.2-744(B) is consistent with prior Virginia law. Children with support orders, but not spouses or former spouses, are exception creditors. Although government entities – the U.S., the Commonwealth, or any Virginia county, city, or town – are exception creditors in most cases, VA §64.2-745 expressly preserves Virginia’s protection for special needs or supplemental needs trusts from state claims against beneficiaries for reimbursement. MD §14.5-1002 contains Maryland’s special needs and supplemental needs trusts provision.

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UTC

No equivalent.

DC

No equivalent.

MD

No equivalent.

VA

§ 64.2-745. Certain claims for reimbursement for public assistance

 A

A. Notwithstanding any contrary provision in the trust instrument, if a statute or regulation of the United States or Commonwealth requires a beneficiary to reimburse the Commonwealth or any agency or instrumentality thereof, for public assistance, including medical assistance, furnished or to be furnished to the beneficiary, the Attorney General or an attorney acting on behalf of the state agency responsible for the program may file a petition in the circuit court having jurisdiction over the trustee requesting reimbursement. The petition may be filed prior to obtaining a judgment. The beneficiary, the guardian of his estate, his conservator, or his committee shall be made a party.
B. Following its review of the circumstances of the case, the court may:
1. Order the trustee to satisfy all or part of the liability out of all or part of the amounts to which the beneficiary is entitled, whether presently or in the future, to the extent the beneficiary has the right under the trust to compel the trustee to pay income or principal to or for the benefit of the beneficiary; or
2. Regardless of whether the beneficiary has the right to compel the trustee to pay income or principal to or for the benefit of the beneficiary, order the trustee to satisfy all or part of the liability out of all or part of any future payments that the trustee chooses to make to or for the benefit of the beneficiary in the exercise of discretion under the trust.
C. A duty in the trustee under the instrument to make disbursements in a manner designed to avoid rendering the beneficiary ineligible for public assistance to which he might otherwise be entitled, however, shall not be construed as a right possessed by the beneficiary to compel such payments.
D. The court shall not issue an order pursuant to this section if the 1. The settlor's making of a subsequent transfer shall be disregarded in determining whether a creditor's claim with respect to a prior transfer is valid under this section;
2. With respect to each subsequent transfer by the settlor, the five-year limitations period provided in subsection D, with respect to actions brought under Chapter 5 of Title 55 with respect to the subsequent transfer, commences on the date of such subsequent transfer; and
3. Any distribution to a beneficiary is deemed to have been made from the latest such transfer.
G. The movement to the Commonwealth of the administration of an existing trust, which, after such movement to the Commonwealth, meets for the first time all of the requirements of a qualified self-settled spendthrift trust, shall be treated, for purposes of this section, as a transfer to this trust by the settlor on the date of such movement of all of the assets previously transferred to the trust by the settlor.

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UTC

No equivalent.

DC

No equivalent.

MD

No equivalent.

VA

§ 64.2-745.1. Self-settled spendthrift trusts

A. A settlor may transfer assets to a qualified self-settled spendthrift trust and retain in that trust a qualified interest, and, except as otherwise provided in this article, § 64.2-747 shall not apply to such qualified interest.
B. Section 64.2-747 shall continue to apply with respect to any interest held by a settlor in a qualified self-settled spendthrift trust, other than a qualified interest.
C. A settlor's transfer to a qualified self-settled spendthrift trust shall not, to the extent of the settlor's qualified interest, be deemed to have been made with intent to delay, hinder, or defraud creditors, for purposes of § 55-80, merely because it is made to a trust with respect to which the settlor retains a qualified interest and merely because it is made without consideration. A settlor's transfer to a qualified self-settled spendthrift trust may, however, be set aside under § 55-80 or 55-81 on other bases, such as if the transfer renders the settlor insolvent.
D. A settlor's creditor may bring an action under § 55-82 to avoid a transfer to a qualified self-settled spendthrift trust or otherwise to enforce a claim that existed on the date of the settlor's transfer to such trust within five years after the date of the settlor's transfer to such trust to which such claim relates.
E. A creditor shall have only such rights with respect to a settlor's transfer to a qualified self-settled spend-thrift trust as are provided in this section. No creditor and no other person shall have any claim or cause of action against any trustee, trust adviser, trust director, or any person involved in the counseling, drafting, preparation, or execution of, or transfers to a qualified self-settled spendthrift trust.
F. If a settlor makes more than one transfer to the same qualified self-settled spendthrift trust, the following rules shall apply:
1. The settlor's making of a subsequent transfer shall be disregarded in determining whether a creditor's claim with respect to a prior transfer is valid under this section;
2. With respect to each subsequent transfer by the settlor, the five-year limitations period provided in subsection D, with respect to actions brought under Chapter 5 of Title 55 with respect to the subsequent transfer, commences on the date of such subsequent transfer; and
3. Any distribution to a beneficiary is deemed to have been made from the latest such transfer.
G. The movement to the Commonwealth of the administration of an existing trust, which, after such movement to the Commonwealth, meets for the first time all of the requirements of a qualified self-settled spendthrift trust, shall be treated, for purposes of this section, as a transfer to this trust by the settlor on the date of such movement of all of the assets previously transferred to the trust by the settlor.

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UTC

No equivalent.

DC

No equivalent.

MD

No equivalent.

VA

§ 64.2-745.2. Definitions; vacancies; right to withdraw

A. As used in this article, unless the context requires a different meaning:
"Independent qualified trustee" means a qualified trustee who is not, and whose actions are not, subject to direction by:
1. The settlor;
2. Any natural person who is not a resident of the Commonwealth;
3. Any entity that is not authorized under Title 6.2 to engage in trust business within the Commonwealth;
4. The settlor's spouse;
5. A parent of the settlor;
6. Any issue of the settlor;
7. A sibling of the settlor;
8. An employee of the settlor;
9. A business entity in which the settlor's holdings represent at least 30 percent of the total voting power of all interests entitled to vote;
10. A subordinate employee of the settlor; or
11. A subordinate employee of a business entity in which the settlor is an executive.
"Qualified interest" means a settlor's interest in a qualified self-settled spendthrift trust, to the extent that such interest entitles the settlor to receive distributions of income, principal, or both, in the sole discretion of an independent qualified trustee. A settlor may have a qualified interest in a qualified self-settled spendthrift trust and also have an interest in the same trust that is not a qualified interest, and the rules of § 64.2-747 shall apply to each interest of the settlor in the same trust other than the settlor's qualified interest.
"Qualified self-settled spendthrift trust" means a trust if:
1. The trust is irrevocable; 2. The trust is created during the settlor's lifetime;
3. There is, at all times when distributions could be made to the settlor pursuant to the settlor's qualified interest, at least one beneficiary other than the settlor (i) to whom income may be distributed, if the settlor's qualified interest relates to trust income, (ii) to whom principal may be distributed, if the settlor's qualified interest relates to trust principal, or (iii) to whom both income and principal may be distributed, if the settlor's qualified interest relates to both trust income and principal;
4. The trust has at all times at least one qualified trustee, who may be, but need not be, an independent qualified trustee;
5. The trust instrument expressly incorporates the laws of the Commonwealth to govern the validity, construction, and administration of the trust;
6. The trust instrument includes a spendthrift provision, as defined in § 64.2-743, that restrains both voluntary and involuntary transfer of the settlor's qualified interest; and
7. The settlor does not have the right to disapprove distributions from the trust.
"Qualified trustee" means any person who is a natural person residing within the Commonwealth or a legal entity authorized to engage in trust business within the Commonwealth and who maintains or arranges for custody within the Commonwealth of some or all of the property that has been transferred to the trust by the settlor, maintains records within the Commonwealth for the trust on an exclusive or nonexclusive basis, prepares or arranges for the preparation within the Commonwealth of fiduciary income tax returns for the trust, or otherwise materially participates within the Commonwealth in the administration of the trust. A trustee is not a qualified trustee if such trustee's authority to make distributions of income or principal or both are subject to the direction of someone who, were that person a trustee of the trust, would not meet the requirements to be a qualified trustee.
B. A vacancy in the position of qualified trustee that occurs for any reason, whether or not there is then serving another trustee, shall be filled in the following order of priority:
1. By a person eligible to be a qualified trustee and who is designated pursuant to the terms of the trust to act as successor trustee;
2. By a person eligible to be a qualified trustee and who is designated by unanimous agreement of the qualified beneficiaries; or
3. By a person eligible to be a qualified trustee and who is appointed by the court pursuant to §§ 64.2-1405 and 64.2-1406 or pursuant to § 64.2-712.
C. A vacancy in the position of independent qualified trustee that occurs for any reason, whether or not there is then serving another trustee, shall be filled in the following order of priority:
1. By a person eligible to be an independent qualified trustee and who is designated pursuant to the terms of the trust to act as successor trustee;
2. By a person eligible to be an independent qualified trustee and who is designated by unanimous agreement of the qualified beneficiaries; or
3. By a person eligible to be an independent qualified trustee and who is appointed by the court pursuant to §§ 64.2-1405 and 64.2-1406 or pursuant to § 64.2-712.
D. A trust instrument shall not be deemed revocable on account of the settlor's estate or the creditors of the settlor's estate;
1. A power of appointment, exercisable by the settlor by will or other written instrument effective only upon the settlor's death, other than a power to appoint to Revenue Code);
2. The settlor's qualified interest in the trust;
3. The settlor's right to receive income or principal pursuant to an ascertainable standard;
4. The settlor's potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust (each within the meaning of § 664(d) of the Internal Revenue Code) and the settlor's right, at any time, and from time to time, to release, in writing delivered to the qualified trustee, all or any part of the settlor's retained interest in such trust;
5. The settlor's receipt each year of a percentage, not to exceed five percent, specified in the trust instrument of the initial value of the trust assets or their value determined from time to time pursuant to the trust instrument;
6. The settlor's right to remove a trustee and to appoint a new trustee;
7. The settlor's potential or actual use of real property held under a personal residence trust (within the meaning of § 2702(c) of the Internal Revenue Code);
8. The settlor's potential or actual receipt or use of a qualified annuity interest (within the meaning of § 2702 of the Internal the inclusion of any one or more of the following rights, powers, and interests:
9. The ability of a qualified trustee, whether pursuant to discretion or direction, to pay, after the settlor's death, all or any part of the settlor's debts outstanding at the time of the settlor's death, the expenses of administering the settlor's estate, or any estate inheritance tax imposed on or with respect to the settlor's estate; and
10. A settlor's potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on trust income, or the direct payment of such taxes to the applicable tax authorities, pursuant to a provision in the trust instrument that expressly provides for the direct payment of such taxes or the reimbursement of the settlor for such tax payments.
E. A beneficiary who has the right to withdraw his entire beneficial interest in a trust shall be treated as its settlor to the extent of such withdrawal right, when such right to withdraw has lapsed, been released, or otherwise expired, without regard to the limitations otherwise imposed by subsection B of § 64.2-747.

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