9083 / Are there any situations where a creditor can reach assets held for a beneficiary in an Alaska trust?

Yes. There are circumstances under which a creditor can reach the assets held in a valid Alaska trust when the creditor is a creditor of the settlor. First, a creditor of the settlor may reach Alaska trust assets if the creditor establishes that the transfer of property to the trust was made with the intent to defraud the creditor (a settlor's expressed intent to protect the assets from the beneficiary's potential future creditors does not show an intent to defraud).¹ A creditor may reach trust assets under this exception if the creditor was a creditor before the assets were transferred, and an action to prove intent to defraud is brought within either:

1. four years after the transfer was made, or


2. within one year after the transfer is (or reasonably could have been) discovered by the creditor if (a) the creditor can demonstrate that it brought a specific claim against the settlor before the transfer or (b) the creditor files another action (other than one asserting an intent to defraud) that is based on an act or omission of the settlor that occurred before the transfer, and an action asserting an intent to defraud is filed within four years of the transfer.²

A creditor who became a creditor subsequent to the asset transfer may only reach the assets if it brings an action claiming intent to defraud within four years of the transfer.³

A creditor who is a creditor of the settlor may also reach trust assets if the trust provides that the settlor may revoke or terminate all or part of the trust without the beneficiary's consent, and the trust interest would be adversely affected if the settlor exercised the power to revoke or terminate. A settlor is not considered to have retained these powers if he or she has the right to veto a trust distribution, or if he or she holds a non-general power of appointment. Retention of the rights to receive income in the circumstances discussed below also does not constitute a power to revoke or terminate trust interests.⁴

If the trust provides that all or a part of the trust income or principal must be distributed to the settlor, a creditor of the settlor may reach trust assets unless the distribution is one of the following types of distribution:

1. a distribution of income or principal from a charitable remainder annuity trust or charitable remainder unitrust;


2. a distribution of a percentage of the value of the trust each year as determined each year under the trust document;


3. actual or potential use of real property held under a qualified personal residence trust;


4. a distribution of income or principal from a grantor retained annuity trust or grantor retained unitrust.⁵

A creditor of the settlor may also reach trust assets if the settlor is, at the time of transfer, in default for 30 days or more in making child support payments that are due under a valid support judgment or order.⁶