700.7506 Creditor's claim against settlor; "settlor" explained.

Sec. 7506.

    (1) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:

    (a) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors.

    (b) 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 at the settlor's death was revocable by the settlor, either alone or in conjunction with another person, is subject to expenses, claims, and allowances as provided in section 7605.

    (c) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach no more than the lesser of the following:

    (i) The claim of the creditor or assignee.

    (ii) The maximum amount that can be distributed to or for the settlor's benefit exclusive of sums to pay the settlor's taxes during the settlor's lifetime.

    (2) If a trust has more than 1 settlor, the amount a creditor or assignee of a particular settlor may reach under subsection (1)(c) must not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution.

    (3) A trust beneficiary is not considered a settlor merely because of a lapse, waiver, or release of a power of withdrawal over the trust property.

    (4) An individual who creates a trust is not considered a settlor with regard to the individual's retained beneficial interest in the trust that follows the termination of the individual's spouse's prior beneficial interest in the trust if all of the following apply:

    (a) During the lifetime of the individual's spouse, the only distributees or permissible distributees of the trust income or principal are either of the following:

    (i) The individual's spouse.

    (ii) The individual's spouse and either of the following:

    (A) The individual's issue.

    (B) The issue of the individual's spouse.

    (b) The individual retains a beneficial interest in the trust income, trust principal, or both, which beneficial interest follows the termination of the individual's spouse's prior beneficial interest in the trust.

    (5) An individual is not considered a settlor of a trust for the benefit of the individual:

    (a) If the settlor is the individual's spouse, regardless of whether or when the individual was the settlor of a trust for the benefit of that spouse.

    (b) To the extent that the property of trust was subject to a general power of appointment in another individual.