Can a New Yorker create a trust for themself that creditors cannot reach?
A New Yorker cannot create a trust for their own benefit that keeps out their own creditors, because EPTL 7-3.1(a) makes a trust for the creator's use void against the creator's existing and future creditors.
The creditor does not have to prove that the creator meant to defraud anyone or was insolvent, as the Second Department held in Vanderbilt Credit Corp. v Chase Manhattan Bank. In April 2026 the Fourth Department applied the same rule in Matter of Anthone v Carlo, holding that a lower court erred in requiring a judgment creditor to establish a fraudulent conveyance before enforcing against the assets of the debtor's own trust.
The rule applies whether the trust is revocable or irrevocable, as the Third Department held in State of New York v Coyle. A discretionary trust gives no more protection: in Vanderbilt, the trustee could pay the creator the entire principal, so the creditor could reach the whole trust fund without proving a fraudulent conveyance.
For a revocable trust, a second statute reaches the same result: a creator who keeps an unqualified power to revoke remains the absolute owner of the trust property as far as creditors are concerned.
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EPTL 7-3.1(a) states that a disposition in trust for the use of its creator is void against the creator's existing and future creditors.
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.
See N.Y. Est. Powers & Trusts Law § 7-3.1(a).
Vanderbilt Credit Corp. holds that a creator's lack of intent to defraud and solvency at creation do not protect a self-settled discretionary trust from the creator's creditors.
It is irrelevant that in creating the discretionary trust for her benefit the settlor did not intend to defraud her creditors or was solvent at the time of the creation of the trust. It is against public policy to permit the settlorbeneficiary to tie up her own property in such a way that she can still enjoy it but can prevent her creditors from reaching it.
See Vanderbilt Credit Corp. v Chase Manhattan Bank, 100 AD2d 544, 546 (2d Dept 1984).
Matter of Anthone v Carlo holds that a judgment creditor seeking to enforce against assets of the debtor's own trust does not bear a burden to establish a fraudulent conveyance.
Initially, we agree with petitioner that the court erred in concluding that she had the burden to establish a fraudulent conveyance in order to seek enforcement of her judgment lien against any of the assets held by the Trust.
See Matter of Anthone v Carlo, 2026 NY Slip Op 02559, *1 (4th Dept Apr. 24, 2026).
State of New York v Coyle holds that EPTL 7-3.1(a) applies to self-settled trusts whether they are revocable or irrevocable.
EPTL 7-3.1 (a) is applicable to self-settled trusts regardless of whether they are revocable or irrevocable (see, Vanderbilt Credit Corp. v Chase Manhattan Bank, 100 AD2d 544).
See State of New York v Coyle, 171 AD2d 288, 290 (3d Dept 1991).
Vanderbilt Credit Corp. holds that where a self-settled trust lets the trustee pay the creator the entire principal, the creator's judgment creditor may reach the trust corpus without proving a fraudulent conveyance.
Since the trust agreement granted the trustee the power to invade the corpus and to pay the entire principal to settlor Gold, judgment creditor Vanderbilt may reach the corpus without proving the trust constituted a fraudulent conveyance.
See Vanderbilt Credit Corp. v Chase Manhattan Bank, 100 AD2d 544, 546 (2d Dept 1984).
EPTL 10-10.6 states that a creator who reserves an unqualified power of revocation remains the absolute owner of the property as far as the creator's creditors are concerned.
Where a creator reserves an unqualified power of revocation, he remains the absolute owner of the property disposed of so far as the rights of his creditors or purchasers are concerned.
See N.Y. Est. Powers & Trusts Law § 10-10.6.
Does New York allow any exceptions for trusts that benefit their creator?
New York's self-settled trust statute excludes qualified retirement accounts and plans, and it also provides that a trustee's power to pay or reimburse the creator's taxes on trust income or principal does not by itself make a trust one for the creator's use.
Retirement accounts and plans. Individual retirement accounts qualified under Internal Revenue Code section 408 or 408A, and Keogh and corporate retirement plans qualified under section 401, are not treated as a disposition in trust for the creator's use. Additions to those assets lose the exemption if they were made after the date ninety days before the interposition of the claim on which the judgment was entered, which includes additions made after the claim was interposed, or if they are voidable transactions under the Debtor and Creditor Law.
Tax-reimbursement powers. A trustee's authority to pay principal to the creator under EPTL 7-1.11, or to pay or reimburse the creator's tax on trust income or principal, does not make the trust one for the creator's use, and no creditor may reach trust property based on those powers. Section 7-1.11 itself lets a trustee, unless the trust instrument provides otherwise, pay the creator principal equal to the income taxes charged to the creator on trust principal. Read together, these provisions protect a trust whose only route back to its creator is tax reimbursement; on the statute's text they do not protect a trust that can pay its creator for other purposes, which remains subject to subdivision (a).
Medicaid trigger clauses. A separate subdivision works against the creator rather than for them. A trust clause that suspends, ends or diverts the creator's or the creator's spouse's interest if either applies for medical assistance or needs nursing or custodial care is void as against public policy, unless the trust is a testamentary trust or meets the Social Services Law requirements the statute names.
Supplemental needs trusts. A different statute, EPTL 7-1.12, allows the beneficiary of a supplemental needs trust to be the trust's creator if the trust meets those same Social Services Law requirements. That provision defines when a trust qualifies as a supplemental needs trust; this guide does not address how it interacts with private creditors' claims.
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EPTL 7-3.1(b)(1) states that assets of qualified individual retirement accounts and qualified Keogh and corporate retirement plans are not a disposition in trust for the creator's use, even when the creator is the account's settlor and depositor.
(b) (1) For purposes of paragraph (a) of this section, all trusts, custodial accounts, annuities, insurance contracts, monies, assets or interests established as part of, and all payments from, either an individual retirement account plan which is qualified under section 408 or section 408A of the United States Internal Revenue Code of 1986, as amended, or a Keogh (HR-10), retirement or other plan established by a corporation, which is qualified under section 401 of the United States Internal Revenue Code of 1986, as amended, shall not be considered a disposition in trust for the use of the creator, even though the creator is (i) in the case of an individual retirement account plan, an individual who is the settlor of and depositor to such account plan, or (ii) a self-employed individual, or (iii) a partner of the entity sponsoring the Keogh (HR-10) plan, or (iv) a shareholder of the corporation sponsoring the retirement or other plan.
See N.Y. Est. Powers & Trusts Law § 7-3.1(b)(1).
EPTL 7-3.1(b)(4) states that additions to excluded retirement assets are not exempt from a money judgment if made after the date ninety days before the interposition of the claim on which the judgment was entered, or if they are voidable transactions.
(4) Additions to an asset described in subparagraph one of this paragraph shall not be exempt from application to the satisfaction of a money judgment if (i) made after the date that is ninety days before the interposition of the claim on which such judgment was entered, or (ii) deemed to be voidable transactions under article ten of the debtor and creditor law.
See N.Y. Est. Powers & Trusts Law § 7-3.1(b)(4).
EPTL 7-3.1(d) states that a trustee's power to pay principal under EPTL 7-1.11, or to pay or reimburse the creator's tax on trust income or principal, does not make a trust one for the creator's use, and that creditors may not reach trust property based on those powers.
(d) A disposition in trust shall not be considered to be for the use of the creator under paragraph (a) of this section by reason of the trustee's authority to pay trust principal to the creator pursuant to section 7-1.11 of this article. Nor shall a disposition in trust be considered to be for the use of the creator under paragraph (a) of this section where the trustee is authorized under the trust instrument or any other provision of law to pay or reimburse the creator for any tax on trust income or trust principal that is payable by the creator under the law imposing such tax or to pay any such tax directly to the taxing authorities. No creditor of a trust creator shall be entitled to reach any trust property based on the discretionary powers described in this paragraph.
See N.Y. Est. Powers & Trusts Law § 7-3.1(d).
EPTL 7-1.11(a) permits the trustee of an express trust, unless the instrument provides otherwise, to pay the creator principal equal to income taxes charged to the creator on trust principal.
(a) Notwithstanding any contrary provision of law, the trustee of an express trust, unless otherwise provided in the disposing instrument, may, from time to time, pay from principal to the creator of such trust an amount equal to any income taxes on any portion of the trust principal with which he is charged.
See N.Y. Est. Powers & Trusts Law § 7-1.11(a).
EPTL 7-3.1(c) states that a clause suspending, terminating or diverting the creator's or spouse's interest if either applies for medical assistance or needs nursing or custodial care is void as against public policy, except in a testamentary trust or a trust meeting the named Social Services Law requirements.
(c) A provision in any trust, other than a testamentary trust or a trust which meets the requirements of subparagraph two of paragraph (b) of subdivision two of section three hundred sixty-six of the social services law and of the regulations implementing such clauses, which provides directly or indirectly for the suspension, termination or diversion of the principal, income or beneficial interest of either the creator or the creator's spouse in the event that the creator or creator's spouse should apply for medical assistance or require medical, hospital or nursing care or long term custodial, nursing or medical care shall be void as against the public policy of the state of New York, without regard to the irrevocability of the trust or the purpose for which the trust was created.
See N.Y. Est. Powers & Trusts Law § 7-3.1(c).
EPTL 7-1.12(a)(5)(v) permits the beneficiary of a supplemental needs trust to be the trust's creator if the trust meets the named Social Services Law requirements.
(v) Notwithstanding subparagraph (iv) of this paragraph, the beneficiary of a supplemental needs trust may be the creator of the trust if such trust meets the requirements of subparagraph two of paragraph (b) of subdivision two of section three hundred sixty-six of the social services law and of the regulations implementing such clauses.
See N.Y. Est. Powers & Trusts Law § 7-1.12(a)(5)(v).
How long do creditors have to challenge a New York trust or a transfer into it?
A creditor's claim that a self-settled trust is void under EPTL 7-3.1 has been held subject to a six-year limitations period, while a claim to set aside a transfer as voidable under the Debtor and Creditor Law generally must be brought within four years.
Claims that the trust is void. EPTL 7-3.1 sets no limitations period of its own. The Second Circuit observed in Thea v. Kleinhandler that New York courts have therefore required these claims to be brought within six years. In State of New York v Cetero, the Third Department applied the six-year period to a claim that would set aside trust provisions placing the trust assets beyond a creditor's reach. In Christopher v Tomeck, the same court held claims under EPTL 7-3.1 and the former fraudulent-conveyance sections time-barred where the last transfer to the trust occurred in 2001, the creditor was notified in 2002, and suit came in 2008.
When the six years begin is less settled. In Christopher v Tomeck, the court placed accrual at the transfer to the trust or, at the latest, when the creditor learned of the allegedly fraudulent activity. No decision found in our review addresses when the period begins for a creditor whose claim arises years after the trust was funded while the trust remains in place, so that timing is an open question.
Claims against the transfer. For a transfer made with actual intent to hinder, delay or defraud, the claim is extinguished unless brought within four years after the transfer or, if later, one year after the creditor discovered or reasonably could have discovered it. Claims based on a transfer for less than reasonably equivalent value carry a flat four-year limit.
Which statute applies. Those deadlines belong to the Uniform Voidable Transactions Act, which Assembly Bill 5622 of 2019 enacted in place of the former fraudulent-conveyance provisions. The Second Department noted in Rosenfeld v Brody that the Act became effective April 4, 2020. In Palmerone v Staples, the same court applied the version of the Debtor and Creditor Law in effect at the time of the conveyances, which was former section 274. Read together, a transfer made before April 4, 2020 is judged under the former provisions. On our reading, its limitations analysis then follows the CPLR 213 decisions above, such as Christopher v Tomeck, rather than section 278.
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Thea v. Kleinhandler states that because EPTL 7-3.1 prescribes no limitations period, New York courts have required actions under it to be brought within six years.
As N.Y. Est. Powers & Trusts Law § 7-3.1 does not specifically prescribe a statute of limitations period, New York courts have required actions commenced under this statute to be brought within six years.
See Thea v. Kleinhandler, 807 F.3d 492, 498 (2d Cir. 2015).
State of New York v Cetero holds that the six-year limitations period applies to a claim seeking to set aside trust provisions that would place trust assets beyond the creditor's reach.
Whether viewed as an attempt to collect upon a liability imposed under Mental Hygiene Law article 43 (see, Mental Hygiene Law § 43.07 [c]) or, alternatively, as an attempt to merely set aside two provisions in the trust agreement that, in violation of the cited statutory provisions, would place the trust assets beyond the State’s reach (see, CPLR 213 [1]), it is clear that the six-year Statute of Limitations applies.
See State of New York v Cetero, 233 AD2d 580, 582 (3d Dept 1996).
Christopher v Tomeck holds that claims under EPTL 7-3.1 and the former Debtor and Creditor Law sections were time-barred where the last transfer to the trust occurred in 2001, the creditor was notified in 2002 and suit was filed in 2008.
As the final transfer of funds to the trust from decedent occurred in 2001 and plaintiff was notified of that transfer in February 2002, plaintiffs claims asserted in June 2008 based on fraud, Debtor and Creditor Law §§ 273, 274, 275 and 276 and EPTL 7-3.1 are all time-barred (see CPLR 213 [8]; Fiber Consultants, Inc. v Fiber Optek Interconnect Corp., 56 AD3d 605, 605 [2008]; Ehrler v Cataffo, 42 AD3d 424, 425 [2007]; Durazinski v Chandler, 41 AD3d 918, 919 [2007]; State of New York v Cetero, 233 AD2d 580, 582 [1996]).
See Christopher v Tomeck, 82 AD3d 1307, 1309 (3d Dept 2011).
Christopher v Tomeck states that the creditor's claims against the trust arose no later than the transfer to the trust or, at the latest, when the creditor learned of the allegedly fraudulent activity.
Indeed, plaintiff’s claims against the trust either arose when she executed the spousal refusal (see Commissioner of Dept. of Social Servs. of City of N.Y. v Fishman, 280 AD2d at 398), or otherwise during her lifetime when she engaged in some allegedly fraudulent or illegal transfer to the trust or, at the latest, when plaintiff learned of some allegedly fraudulent activity (see CPLR 203 [g]).
See Christopher v Tomeck, 82 AD3d 1307, 1309 (3d Dept 2011).
Debtor and Creditor Law § 278 extinguishes an actual-intent claim unless brought within four years after the transfer or, if later, one year after it was or could reasonably have been discovered, and extinguishes constructive-fraud claims unless brought within four years.
§ 278. Extinguishment of claim for relief. A claim for relief with respect to a transfer or obligation under this article is extinguished unless action is brought: (a) under paragraph one of subdivision (a) of section two hundred seventy-three of this article, not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant; (b) under paragraph two of subdivision (a) of section two hundred seventy-three or subdivision (a) of section two hundred seventy-four of this article, not later than four years after the transfer was made or the obligation was incurred; or (c) under subdivision (b) of section two hundred seventy-four of this article, not later than one year after the transfer was made.
See N.Y. Debt. & Cred. Law § 278.
The New York Assembly's record for Assembly Bill 5622 of 2019 summarizes the bill as enacting the Uniform Voidable Transactions Act and repealing the fraudulent-conveyance provisions.
Enacts the uniform voidable transactions act and repeals provisions relating to fraudulent conveyances.
See N.Y. Assembly Bill A5622, 2019–2020 Reg. Sess. (2019) (bill summary).
Rosenfeld v Brody states that New York's Uniform Voidable Transactions Act, enacted in 2019, repealed and replaced the fraudulent-conveyance provisions and became effective April 4, 2020.
In 2019, New York enacted the Uniform Voidable Transactions Act, which repealed and replaced certain provisions of the Debtor and Creditor Law relating to fraudulent conveyances and which became effective April 4, 2020 ( see Uniform Voidable Transactions Act [L 2019, ch 580, § 2] [eff Apr. 4, 2020]; L & M 353 Franklyn Ave. LLC v Steinman , 202 AD3d 440 , 440; see also McCormack Family Charitable Found. v Fidelity Brokerage Servs., LLC , 195 AD3d 420 , 421 n).
See Rosenfeld v Brody, 2025 NY Slip Op 03091, *2 (2d Dept May 21, 2025).
Palmerone v Staples applies the version of Debtor and Creditor Law § 274 in effect at the time of the conveyances, the former statute, to conveyances made before the Uniform Voidable Transactions Act.
Pursuant to the version of Debtor and Creditor Law § 274 applicable at the time of the subject conveyances, a conveyance is fraudulent as to creditors without regard to actual intent when it is "made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his [or her] hands after the conveyance is an unreasonably small capital" (Debtor and Creditor Law former § 274; see L 2019, ch 580, § 2; Stout St. Fund I, L.P. v Halifax Group, LLC, 148 AD3d 744, 747-748).
See Palmerone v Staples, 195 AD3d 736, 2021 NY Slip Op 03598, *2 (2d Dept 2021).
Does a Nevada, Connecticut or other out-of-state self-settled trust protect a New York resident from creditors?
No New York appellate decision found in our review decides whether another state's self-settled trust law protects a New York resident's trust from New York creditors, and the New York authority that exists points toward exposure. A creditor has two separate lines of attack, and they turn on different law.
Attacking the transfer. In a New York court, a claim against an individual's transfer is governed by the law of the place where the individual has their principal residence when the transfer is made. Read together, this means a New York resident's transfer to a Nevada or Connecticut trustee is tested under New York's Debtor and Creditor Law in a New York court, whatever law the trust instrument chooses. Under that law, a transfer made with actual intent to hinder, delay or defraud any creditor is voidable by creditors whose claims arose before or after the transfer. The statute's listed signs of intent include a transfer to an insider, the debtor's keeping possession or control of the transferred property, and a transfer made shortly before or after a substantial debt was incurred.
Attacking the trust itself. Whether a New York court would apply EPTL 7-3.1 to treat a trust validly formed under another state's statute as void is an open question. The legal cause is a gap in the statutes: New York's provision giving effect to a trust's choice of New York law covers only creators who are not domiciled in New York, and no statute found in our review addresses a New York domiciliary's choice of another state's law.
The closest New York-forum decision is In re Portnoy, where a bankruptcy court applied New York law, despite a Jersey (Channel Islands) governing-law clause, to decide whether the creator of a self-settled offshore trust kept a property interest he had to disclose. The Portnoy court also held that a creator who is the only party to a trust's choice-of-law clause cannot use it to take property out of his own reach. The decision has two limits: it resolved a bankruptcy discharge dispute rather than a New York collection action, and the court noted that the debtor had waived any argument that New Jersey law applied instead. In In re Huber, a Washington bankruptcy court found that Alaska, whose law the trust chose, had only a minimal relation to the trust, while Washington had a substantial relation and a strong public policy against self-settled asset protection trusts. The Huber court then held the debtor's transfers into the trust void under Washington's statute; that decision is nonbinding in New York.
Reaching assets held elsewhere. A New York court may also lack power over trust property located outside the state. In Riechers v Riechers, a Westchester County court held that it had no jurisdiction over the corpus of a Cook Islands trust, although it had personal jurisdiction over the husband who created it. That trial court also said that, even with jurisdiction, a cause of action would not lie to set aside a trust established for the legitimate purpose of protecting family assets; it said so while assuming a jurisdiction it held it did not have.
Divorce is a separate route. In Riechers, the court used its personal jurisdiction over the husband to treat the value of marital assets placed in the offshore trust as subject to equitable distribution. The Second Department affirmed the award of half the trust's value, increasing it to correct a computation error. New York's equitable-distribution statute lists, among the factors a court considers, the wasteful dissipation of assets and any transfer made in contemplation of a matrimonial action without fair consideration.
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Debtor and Creditor Law § 279 locates an individual debtor at the individual's principal residence and applies the law of the debtor's location at the time of the transfer to a voidable-transaction claim.
§ 279. Governing law. (a) In this section, the following rules determine a debtor's location: (1) A debtor who is an individual is located at the individual's principal residence. (2) A debtor that is an organization and has only one place of business is located at its place of business. (3) A debtor that is an organization and has more than one place of business is located at its chief executive office. (b) A claim for relief in the nature of a claim for relief under this article is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.
See N.Y. Debt. & Cred. Law § 279(a)(1), (b).
Debtor and Creditor Law § 273(a) makes a transfer voidable by creditors whose claims arose before or after it if the debtor made it with actual intent to hinder, delay or defraud any creditor, or without reasonably equivalent value in the listed circumstances.
(a) A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
See N.Y. Debt. & Cred. Law § 273(a).
Debtor and Creditor Law § 273(b) lists factors a court may consider in finding actual intent, including a transfer to an insider, the debtor's retained possession or control, and a transfer shortly before or after a substantial debt was incurred.
(b) In determining actual intent under paragraph one of subdivision (a) of this section, consideration may be given, among other factors, to whether: (1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.
See N.Y. Debt. & Cred. Law § 273(b).
EPTL 7-1.10(a) gives effect to a trust's choice of New York law only when the creator is not domiciled in New York, and only for the listed trust property.
(a) Whenever a person, not domiciled in this state, creates a trust which provides that it shall be governed by the laws of this state, such provision shall be given effect in determining the validity, effect and interpretation of the disposition in such trust of: (1) Any trust property situated in this state at the time the trust is created. (2) Personal property, wherever situated, if the trustee of the trust is a person residing, incorporated or authorized to do business in this state or a national bank having an office in this state.
See N.Y. Est. Powers & Trusts Law § 7-1.10(a).
In re Portnoy holds that New York law, not the law of the Jersey trust's chosen jurisdiction, governs whether the debtor retained a property interest in his self-settled offshore trust for bankruptcy discharge purposes.
Based on New York’s deep-rooted policies and absent a more compelling countervailing Jersey policy, New York law applies to the determination of whether Portnoy retained a property interest in the assets of the offshore trust for the purposes of determining whether he is entitled to the bankruptcy discharge for which he has petitioned.
See Marine Midland Bank v. Portnoy (In re Portnoy), 201 B.R. 685, 700 (Bankr. S.D.N.Y. 1996).
In re Portnoy holds that a settlor who is the only party to a self-settled trust's choice-of-law clause cannot use that clause to remove the characterization of the property as his.
Here, the only person that is party to this choice of law provision is Portnoy himself. Portnoy may not unilaterally remove the characterization of property as his simply by incorporating a favorable choice of law provision into a self-settled trust of which he is the primary beneficiary. Equity would not countenance such a practice.
See Marine Midland Bank v. Portnoy (In re Portnoy), 201 B.R. 685, 701 (Bankr. S.D.N.Y. 1996).
In re Portnoy notes that the debtor argued New York law and waived any argument that New Jersey law applied.
However, Portnoy has argued New York law and has not contended that New Jersey law applies to this adversary proceeding; he has therefore waived the argument.
See Marine Midland Bank v. Portnoy (In re Portnoy), 201 B.R. 685 n.7 (Bankr. S.D.N.Y. 1996).
In re Huber, a Washington bankruptcy decision, finds that Alaska had only a minimal relation to the self-settled trust, that Washington had a substantial relation, and that Washington has a strong public policy against self-settled asset protection trusts.
Accordingly, while Alaska had only a minimal relation to the Trust, using the test set forth in Comment b, Washington had a substantial relation to the Trust when the Trust was created. Additionally, Washington State has a strong public policy against self-settled asset protection trusts.
See Waldron v. Huber (In re Huber), 493 B.R. 798, 809 (Bankr. W.D. Wash. 2013).
In re Huber holds the debtor's transfers into his self-settled trust void under Washington's statute, RCW 19.36.020.
In accordance with RCW 19.36.020, the Debtor’s transfers of assets into the Trust were void as transfers made into a self-settled trust.
See Waldron v. Huber (In re Huber), 493 B.R. 798, 809 (Bankr. W.D. Wash. 2013).
Riechers v Riechers holds that the New York court had no jurisdiction over the corpus of the Cook Islands trust but had personal jurisdiction over the husband who created it.
In the case at bar, this court has no jurisdiction over the corpus of the Cook Islands Riechers family irrevocable trust. Nevertheless, the court has in personam jurisdiction over the defendant.
See Riechers v Riechers, 178 Misc 2d 170, 174 (Sup Ct, Westchester County 1998), affd as mod 267 AD2d 445 (2d Dept 1999).
Riechers v Riechers states, while assuming jurisdiction it held it lacked, that a cause of action would not lie to set aside a trust established for the legitimate purpose of protecting family assets.
Assuming, arguendo, that this court had jurisdiction over the corpus of the Riechers Family Trust, which it does not, a cause of action would not lie to set aside the trust since the trust was established for the legitimate purpose of protecting family assets for the benefit of the Riechers family members (Ciaffone v Ciaffone, 228 AD2d 949, 953 [1996]).
See Riechers v Riechers, 178 Misc 2d 170, 174 (Sup Ct, Westchester County 1998).
Riechers v Riechers holds that the value of marital assets placed in an irrevocable trust is subject to equitable distribution even without a finding of economic fault.
The question remains, therefore, whether in the absence of a finding of economic fault, as determined in the case at bar, the value of marital assets placed in an irrevocable trust, is subject to equitable distribution? The answer is in the affirmative.
See Riechers v Riechers, 178 Misc 2d 170, 174 (Sup Ct, Westchester County 1998).
The Second Department in Riechers v Riechers holds that the trial court properly awarded the wife half the value of the offshore trust, and increases the award to correct a computation error.
Moreover, the court properly awarded the plaintiff one-half of the value of that trust as of December 1994. However, due to a computation error, the amount awarded to the plaintiff should be increased by the sum of $178,865.
See Riechers v Riechers, 267 AD2d 445, 446 (2d Dept 1999).
Domestic Relations Law § 236(B)(5)(d) lists wasteful dissipation of assets and transfers made in contemplation of a matrimonial action without fair consideration among the factors for equitable distribution.
(9) the probable future financial circumstances of each party; (10) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; (11) the tax consequences to each party; (12) the wasteful dissipation of assets by either spouse; (13) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;
See N.Y. Dom. Rel. Law § 236(B)(5)(d)(12)–(13).
Can a bankruptcy trustee undo a New Yorker's transfer to a self-settled trust made years earlier?
A bankruptcy trustee can avoid a debtor's transfer to a self-settled trust or similar device made within ten years before the bankruptcy filing, if the debtor is a beneficiary and made the transfer with actual intent to hinder, delay or defraud a creditor.
Because section 548(e) is federal law, its ten-year reach-back does not depend on which state's trust law the trust chooses. The trustee can also use any avoidance right that an actual unsecured creditor holds under state law, which for a New York debtor includes the Debtor and Creditor Law. A trust's restriction on transferring a beneficial interest binds the bankruptcy estate only if the restriction is enforceable under applicable nonbankruptcy law. Read together with EPTL 7-3.1(a), this suggests that where New York law governs the trust, its spendthrift clause gives the creator no protection in bankruptcy, because New York law makes the trust void against the creator's creditors.
Two out-of-state bankruptcy decisions show how courts have applied the ten-year rule; both are nonbinding in New York. In Battley v. Mortensen, the Alaska bankruptcy court avoided an Alaska resident's transfer of land into his own Alaska asset protection trust. The court reasoned that applying the state law that permits such trusts would be an odd result for a federal statute aimed at closing that loophole, and it treated the trust's express purpose of protecting assets from creditors as evidence of intent. In In re Huber, a Washington bankruptcy court granted the trustee summary judgment under the same provision on evidence that supported an inference of actual intent.
Sources for this answer
Section 548(e)(1) of the Bankruptcy Code lets the trustee avoid a debtor's transfer to a self-settled trust or similar device made within ten years before the petition if the debtor is a beneficiary and acted with actual intent to hinder, delay or defraud.
(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if— (A) such transfer was made to a self-settled trust or similar device; (B) such transfer was by the debtor; (C) the debtor is a beneficiary of such trust or similar device; and (D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.
See 11 U.S.C. § 548(e)(1).
Section 544(b)(1) of the Bankruptcy Code lets the trustee avoid any transfer that is voidable under applicable law by an unsecured creditor holding an allowable claim.
Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
See 11 U.S.C. § 544(b)(1).
Section 541(c)(2) of the Bankruptcy Code enforces a restriction on transferring a debtor's beneficial interest in a trust only if the restriction is enforceable under applicable nonbankruptcy law.
A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
See 11 U.S.C. § 541(c)(2).
EPTL 7-3.1(a) states that a disposition in trust for the use of its creator is void against the creator's existing and future creditors, which is the New York rule a bankruptcy court would look to under section 541(c)(2).
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.
See N.Y. Est. Powers & Trusts Law § 7-3.1(a).
The Mortensen reconsideration memorandum confirms that the court's earlier decision and judgment avoided the debtor's transfer of real property to an asset protection trust.
The defendants have filed a timely motion for reconsideration of this court’s memorandum decision and resulting judgment avoiding the debtor’s transfer of real property to an asset protection trust.
See Battley v. Mortensen (In re Mortensen), Adv. No. A09-90036-DMD, slip op. at 1 (Bankr. D. Alaska July 8, 2011).
The Mortensen memorandum decision reasons that a court interpreting section 548(e), a statute aimed at closing the self-settled trust loophole, should not apply the state law that permits such trusts.
It would be a very odd result for a court interpreting a federal statute aimed at closing a loophole to apply the state law that permits it.
See Battley v. Mortensen (In re Mortensen), Adv. No. A09-90036-DMD, slip op. at 16 (Bankr. D. Alaska May 26, 2011).
The Mortensen reconsideration memorandum states that when property goes into a self-settled trust whose express purpose is protection from creditors, the trust and the transfer manifest the same intent.
However, when property is transferred to a self-settled trust with the intention of protecting it from creditors, and the trust’s express purpose is to protect that asset from creditors, both the trust and the transfer manifest the same intent.
See Battley v. Mortensen (In re Mortensen), Adv. No. A09-90036-DMD, slip op. at 3 (Bankr. D. Alaska July 8, 2011).
In re Huber holds that the trustee's evidence supported an inference of actual intent under section 548(e)(1)(D) and grants the trustee summary judgment on that claim.
Accordingly, the evidence presented by the Trustee supports an inference of actual fraudulent intent by the Debtor to hinder, delay, or defraud his current or future creditors, in violation of § 548(e)(1)(D). The Trustee is entitled to summary judgment on this claim as a matter of law.
See Waldron v. Huber (In re Huber), 493 B.R. 798, 814 (Bankr. W.D. Wash. 2013).
Is a trust someone else creates for a New Yorker protected from that New Yorker's creditors?
Property held in trust for a New York judgment debtor is exempt from the debtor's money judgments when someone other than the debtor created the trust or supplied the trust fund, subject to the exceptions the statute lists. Those exceptions preserve rights under a qualified domestic relations order, and rights under any order of support, alimony or maintenance to enforce arrears or past-due support, whether or not the arrears have been reduced to a money judgment, and deny the exemption to retirement-plan additions made after the date ninety days before the interposition of the claim on which the judgment was entered, or that are voidable transactions.
The income interest is also protected by a restraint on transfer: a beneficiary's right to receive trust income cannot be assigned or otherwise transferred unless the trust instrument gives the beneficiary that power. For a trust that is not one of the retirement arrangements the statute names, ninety per cent of the income or other payments from a trust whose principal is exempt is itself exempt, except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and dependents. For income or payments from an individual retirement account plan, or a Keogh (HR-10), retirement or other plan described in CPLR 5205(c)(2), that reasonable-requirements exception does not apply, and the ninety percent exclusion becomes a one hundred percent exclusion. Where the trustee has discretion over payments, a creditor of a beneficiary who did not create the trust cannot compel the trustee to pay the beneficiary anything, as the Second Department stated in Vanderbilt Credit Corp. v Chase Manhattan Bank.
Trusts funded partly by the beneficiary. The exemption's text reaches property where the trust was created by, or the fund proceeded from, a person other than the debtor. When the beneficiary also contributed, Fordyce v Fordyce said that even in a self-settled trust creditors reach only the interest the settlor retained for himself. No New York decision found in our review apportions a trust between a beneficiary's own contributions and contributions from others, so our review found no answer to how much of a partly self-funded trust the exemption protects; the conservative course is to hold the beneficiary's own contributions in a separate trust from property others supply.
In Pangea Capital Mgmt., LLC v. Lakian, the Second Circuit conditionally certified whether a settlor who holds title in a revocable trust for himself and another beneficiary remains the absolute owner as against his creditors. The New York Court of Appeals did not answer that question in 2019, because its answer to the first certified question made the second immaterial, and no New York decision resolving that certified question was found in our review; the conservative course is to assume that creditors can reach property the settlor can recover by revoking the trust.
Sources for this answer
CPLR 5205(c)(1) exempts from money judgments property held in trust for a judgment debtor where the trust was created by, or the fund proceeded from, a person other than the judgment debtor.
(c) Trust exemption. 1. Except as provided in paragraphs four and five of this subdivision, all property while held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor, is exempt from application to the satisfaction of a money judgment.
See N.Y. C.P.L.R. 5205(c)(1).
CPLR 5205(c)(4) states that the trust exemption does not impair rights under a qualified domestic relations order, or rights under an order of support, alimony or maintenance to enforce arrears or past-due support, whether or not reduced to a money judgment.
4. This subdivision shall not impair any rights an individual has under a qualified domestic relations order as that term is defined in section 414(p) of the United States Internal Revenue Code of 1986, as amended or under any order of support, alimony or maintenance of any court of competent jurisdiction to enforce arrears/past due support whether or not such arrears/past due support have been reduced to a money judgment.
See N.Y. C.P.L.R. 5205(c)(4).
CPLR 5205(c)(5) states that additions to exempt retirement assets are not exempt from a money judgment if made after the date ninety days before the interposition of the claim on which the judgment was entered, or if they are voidable transactions.
5. Additions to an asset described in paragraph two of this subdivision shall not be exempt from application to the satisfaction of a money judgment if (i) made after the date that is ninety days before the interposition of the claim on which such judgment was entered, or (ii) deemed to be voidable transactions under article ten of the debtor and creditor law.
See N.Y. C.P.L.R. 5205(c)(5).
EPTL 7-1.5(a)(1) states that a beneficiary's right to receive income from an express trust cannot be transferred unless the trust instrument confers that power.
(1) The right of a beneficiary of an express trust to receive the income from property and apply it to the use of or pay it to any person may not be transferred by assignment or otherwise unless a power to transfer such right, or any part thereof, is conferred upon such beneficiary by the instrument creating or declaring the trust.
See N.Y. Est. Powers & Trusts Law § 7-1.5(a)(1).
CPLR 5205(d)(1) exempts ninety percent of the income from a trust whose principal is exempt, except any part a court finds unnecessary for the reasonable requirements of the debtor and dependents. For income or payments from a qualifying individual retirement account plan or a Keogh, retirement or other plan described in paragraph two of subdivision (c), the reasonable-requirements exception does not apply and the exclusion becomes one hundred percent.
(d) Income exemptions. The following personal property is exempt from application to the satisfaction of a money judgment, except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents: 1. ninety per cent of the income or other payments from a trust the principal of which is exempt under subdivision (c); provided, however, that with respect to any income or payments made from trusts, custodial accounts, annuities, insurance contracts, monies, assets or interest established as part of an individual retirement account plan or as part of a Keogh (HR-10), retirement or other plan described in paragraph two of subdivision (c) of this section, the exception in this subdivision for such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents shall not apply, and the ninety percent exclusion of this paragraph shall become a one hundred percent exclusion;
See N.Y. C.P.L.R. 5205(d)(1).
Vanderbilt Credit Corp. states that a creditor of a discretionary-trust beneficiary who is not the settlor cannot compel the trustee to pay any income or principal to the beneficiary.
Where there is a discretionary trust, the law is clear that a creditor of a beneficiary, who is not the settlor, cannot compel the trustee to pay any part of the income or principal to the beneficiary (see Matter of Sand v Beach, 270 NY 281; Hamilton v Drogo, 241 NY 401; Matter of Duncan, 80 Misc 2d 32; Matter of Owen, 44 Misc 2d 842; 2 Scott, Trusts [3d ed], § 155).
See Vanderbilt Credit Corp. v Chase Manhattan Bank, 100 AD2d 544, 546 (2d Dept 1984).
Fordyce v Fordyce states that even in a self-settled trust, creditors can reach only the interest the settlor retained for himself.
Even in the case of a self-settled trust, creditors can only reach the interest the settlor retained for himself.
See Fordyce v Fordyce, 80 Misc 2d 909, 913 (Sup Ct 1974).
Pangea Capital Mgmt., LLC v. Lakian conditionally certifies to the New York Court of Appeals whether a settlor who holds title in a revocable trust for himself and another beneficiary remains the absolute owner as against his creditors.
If a settlor creates a trust solely for the purpose of holding title to property for the benefit of himself and another beneficiary, and the settlor retains the unfettered right to revoke the trust, does the settlor remain the absolute owner of the trust property relative to his creditors, or is the trust property conveyed to the beneficiaries?
See Pangea Capital Mgmt., LLC v. Lakian, 906 F.3d 1 (2d Cir. 2018).
The New York Court of Appeals in Pangea Capital Mgt., LLC v Lakian declines to answer the Second Circuit's second certified question because its answer to the first made the second immaterial.
The Second Circuit posed a second question. We do not address that question because, as the Second Circuit indicated, our answer to the first question renders the second question immaterial to the disposition of this case.
See Pangea Capital Mgt., LLC v Lakian, No. 53, slip op. at 2 n.1 (N.Y. June 25, 2019).
Can New York spouses protect assets by creating trusts for each other?
On the statute's text, a trust one spouse creates solely for the other is not a disposition for the creator's own use under EPTL 7-3.1(a), but the transfer into it can still be challenged under New York's voidable-transactions law.
The transfer. A transfer is voidable by existing creditors when the debtor receives no reasonably equivalent value in exchange and is insolvent at the time or becomes insolvent as a result. In our reading, a gift into a trust for a spouse returns nothing of equivalent value to the creator, so a spouse who is insolvent, or made insolvent by the gift, makes a transfer that existing creditors can avoid. A spouse is a relative under the Debtor and Creditor Law, a relative of an individual debtor is an insider, and a transfer to an insider is one of the listed signs of actual intent to hinder, delay or defraud.
Crossed trusts. When each spouse creates a trust for the other at about the same time, a further question arises: whether a court would treat each spouse as the real creator of the trust that benefits them. The idea comes from the reciprocal-trust doctrine, which the Supreme Court applied in United States v. Estate of Grace under the federal estate tax; that doctrine requires only that the trusts be interrelated and leave the settlors in about the same economic position as if each had created a trust for themself. No New York or Second Circuit decision found in our review applies that doctrine to a creditor's claim, so whether a New York court would uncross spousal trusts under EPTL 7-3.1 is an open question. The legal cause is that Grace answered a federal estate tax question, while EPTL 7-3.1 asks whether a disposition was for the use of its creator. If a court did uncross the trusts, each spouse would be treated as the creator of the trust that benefits them, and that trust would be void against that spouse's creditors; this is our inference, not a holding.
The closest New York facts. In Matter of Tomeck, a wife created an irrevocable trust and, about a month later, her husband transferred his half interest in the marital home to her. The Court of Appeals did not reach the other issues the creditor agency raised and left them for the Surrogate on remand. In the later action against the trust, Christopher v Tomeck, the Surrogate's Court granted the defendants summary judgment on the merits, but the Third Department affirmed on statute-of-limitations grounds instead, holding the EPTL 7-3.1 and fraudulent-conveyance claims time-barred, so no appellate court ruled on the merits.
Sources for this answer
EPTL 7-3.1(a) makes void against creditors a disposition in trust for the use of the creator, so the statute's test turns on whether the disposition is for its own creator's use.
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.
See N.Y. Est. Powers & Trusts Law § 7-3.1(a).
Debtor and Creditor Law § 274(a) makes a transfer voidable by existing creditors when the debtor receives no reasonably equivalent value and is insolvent at the time or becomes insolvent as a result.
(a) A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
See N.Y. Debt. & Cred. Law § 274(a).
Debtor and Creditor Law § 270(n) defines relative to include a spouse.
(n) "Relative" means an individual related by consanguinity within the third degree as determined by the common law, a spouse or an individual related to a spouse within the third degree as so determined, and includes an individual in an adoptive relationship within the third degree.
See N.Y. Debt. & Cred. Law § 270(n).
Debtor and Creditor Law § 270(h)(1)(i) defines an insider of an individual debtor to include a relative of the debtor.
(h) "Insider" includes: (1) if the debtor is an individual: (i) a relative of the debtor or of a general partner of the debtor; (ii) a partnership in which the debtor is a general partner; (iii) a general partner in a partnership described in subparagraph (ii) of this paragraph; or (iv) a corporation of which the debtor is a director, officer, or person in control; (2) if the debtor is a corporation: (i) a director of the debtor; (ii) an officer of the debtor; (iii) a person in control of the debtor;
See N.Y. Debt. & Cred. Law § 270(h)(1)(i).
Debtor and Creditor Law § 273(b)(1) lists a transfer to an insider among the factors a court may consider in finding actual intent.
(b) In determining actual intent under paragraph one of subdivision (a) of this section, consideration may be given, among other factors, to whether: (1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor's assets;
See N.Y. Debt. & Cred. Law § 273(b)(1).
United States v. Estate of Grace holds, under the federal estate tax laws, that the reciprocal trust doctrine applies when trusts are interrelated and leave the settlors in about the same economic position as if each had created a trust naming themselves as life beneficiary.
As we have said above, standards of this sort, which rely on subjective factors, are rarely workable under the federal estate tax laws. Rather, we hold that application of the reciprocal trust doctrine requires only that the trusts be interrelated, and that the arrangement, to the extent of mutual value, leaves the settlors in approximately the same economic position as they would have been in had they created trusts naming themselves as life beneficiaries.
See United States v. Estate of Grace, 395 U.S. 316, 324 (1969).
Matter of Tomeck recites that the wife created an irrevocable trust in July 1996 and the husband transferred his half interest in the marital home to the wife in August 1996.
On July 29, 1996, the wife set up the Margaret M. Tomeck Irrevocable Trust, funded with $20,000, and on August 26, 1996, the husband transferred his undivided half interest in the marital home to the wife.
See Matter of Tomeck, 8 NY3d 724, 731 (2007).
Matter of Tomeck states that the Court of Appeals did not reach the agency's other issues and left them for the Surrogate on remand.
We do not reach any of the other issues raised by the County DSS, which the Surrogate should review in light of our decision.
See Matter of Tomeck, 8 NY3d 724, 740 (2007).
Christopher v Tomeck reports that the Surrogate's Court granted the defendants summary judgment on the merits without reaching limitations, and the Third Department affirmed on the ground that the action was time-barred.
Surrogate’s Court awarded summary judgment to defendants on the merits, explicitly choosing not to reach the statute of limitations issue. Plaintiff appeals. We affirm on the basis that the action is barred by the statute of limitations.
See Christopher v Tomeck, 82 AD3d 1307, 1308 (3d Dept 2011).
Christopher v Tomeck holds the agency's EPTL 7-3.1 and Debtor and Creditor Law claims against the Tomeck trust time-barred.
As the final transfer of funds to the trust from decedent occurred in 2001 and plaintiff was notified of that transfer in February 2002, plaintiffs claims asserted in June 2008 based on fraud, Debtor and Creditor Law §§ 273, 274, 275 and 276 and EPTL 7-3.1 are all time-barred (see CPLR 213 [8]; Fiber Consultants, Inc. v Fiber Optek Interconnect Corp., 56 AD3d 605, 605 [2008]; Ehrler v Cataffo, 42 AD3d 424, 425 [2007]; Durazinski v Chandler, 41 AD3d 918, 919 [2007]; State of New York v Cetero, 233 AD2d 580, 582 [1996]).
See Christopher v Tomeck, 82 AD3d 1307, 1309 (3d Dept 2011).
How do a joint trust and tenancy-by-the-entirety property affect creditor protection for New York spouses?
A joint trust that both spouses fund and can benefit from is self-settled as to each of them, so on the text of EPTL 7-3.1(a) it does not protect either spouse's contribution from that spouse's own creditors.
Joint trust or separate trusts. Separate trusts change the result only for a trust the creating spouse cannot benefit from, and that trust raises the transfer and crossed-trust questions covered in the previous answer. How much of a jointly funded trust each spouse's creditors can reach is not settled. Fordyce v Fordyce said that creditors of a self-settled trust's creator reach only the interest the settlor retained, but no New York decision found in our review apportions a trust between two contributing spouses.
Property held as tenants by the entirety. New York real property conveyed to spouses is held as tenants by the entirety unless the conveyance declares a joint tenancy or tenancy in common, and the same rule applies to cooperative apartment shares conveyed on or after January 1, 1996. Each spouse may sell, mortgage or otherwise encumber their own rights in the property, subject to the other spouse's continuing rights. A grantee of one spouse's interest holds it as a tenant in common, not as a tenant by the entirety. The Court of Appeals in V.R.W., Inc. v Klein described the spouses' survivorship right as fixed: it cannot be destroyed without the consent of both spouses. A conveyance by one spouse without the other's consent cannot impair the nonconsenting spouse's survivorship interest, and a grantee or mortgagee of one spouse takes subject to both spouses' reciprocal survivorship rights. The voidable-transactions article's definition of asset excludes an entirety interest only to the extent the interest is not subject to process by a creditor holding a claim against only one spouse. The captured authorities do not say how far New York entirety property is subject to that process, so this guide states no rule on it.
Moving entirety property into a trust. No New York statute or decision found in our review says whether entirety property keeps its character, or its protection, after the spouses convey it into a trust. Two textual signals point against it, though neither is a holding: co-trustees take property as joint tenants, and entirety status is reserved to co-owners who are married to each other. This suggests that a conveyance into a trust gives up the entirety form, and whether any protection survives then depends on the trust's terms and on EPTL 7-3.1.
A deed that conveys both spouses' interests to two or more co-trustees on the assumption that the property stays held by the entirety can instead create a joint tenancy.
Sources for this answer
EPTL 7-3.1(a) makes a disposition in trust for the use of its creator void against the creator's existing and future creditors, which on its text applies to each spouse who funds and benefits from a joint trust.
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.
See N.Y. Est. Powers & Trusts Law § 7-3.1(a).
Fordyce v Fordyce states that even in a self-settled trust, creditors can reach only the interest the settlor retained for himself.
Even in the case of a self-settled trust, creditors can only reach the interest the settlor retained for himself.
See Fordyce v Fordyce, 80 Misc 2d 909, 913 (Sup Ct 1974).
EPTL 6-2.2(b) and (c) state that a disposition of real property, or of cooperative apartment shares on or after January 1, 1996, to a husband and wife creates a tenancy by the entirety unless expressly declared otherwise.
(b) A disposition of real property to a husband and wife creates in them a tenancy by the entirety, unless expressly declared to be a joint tenancy or a tenancy in common. (c) A disposition on or after January first, nineteen hundred ninety-six of the shares of stock of a cooperative apartment corporation allocated to an apartment or unit together with the appurtenant proprietary lease to a husband and wife creates in them a tenancy by the entirety, unless expressly declared to be a joint tenancy or a tenancy in the common.
See N.Y. Est. Powers & Trusts Law § 6-2.2(b)–(c).
V.R.W., Inc. v Klein states that each tenant by the entirety may sell, mortgage or otherwise encumber his or her own rights in the property, subject to the other's continuing rights.
To the contrary, each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other (Kline v Payne, 1 NY2d 15; Matter of Goodrich v Village of Otego, supra; Hiles v Fisher, supra).
See V.R.W., Inc. v Klein, 68 NY2d 560, 565 (1986).
V.R.W., Inc. v Klein states that entirety status is reserved to married co-owners, so the grantee of one spouse's unilateral conveyance holds as a tenant in common.
Since the status of a tenant by the entirety is reserved exclusively to those co-owners who are married to each other, the interest acquired by a grantee or mortgagee of such a unilateral conveyance is not denominated a tenancy by the entirety, but rather is labeled a tenancy in common.
See V.R.W., Inc. v Klein, 68 NY2d 560, 565 (1986).
V.R.W., Inc. v Klein states that the survivorship right of tenants by the entirety remains fixed and cannot be destroyed without the consent of both spouses.
What makes this right of survivorship unique and differentiates it from the right of survivorship inherent in an ordinary joint tenancy is that it remains fixed and cannot be destroyed without the consent of both spouses (see, Kahn v Kahn, 43 NY2d 203; compare, Matter of Polizzo, 308 NY 517; Matter of Suter, 258 NY 104, with Matter of Klatzl, supra, pp 86-87; Hiles v Fisher, supra).
See V.R.W., Inc. v Klein, 68 NY2d 560, 564 (1986).
V.R.W., Inc. v Klein states that one tenant's conveyance without the other's consent cannot bind the entire fee or impair the nonconsenting spouse's survivorship interest.
It is well established that a conveyance by one tenant, to which the other has not consented, cannot bind the entire fee or impair the nonconsenting spouse’s survivorship interest (Hiles v Fisher, supra; Lawriw v City of Rochester, 14 AD2d 13, affd 11 NY2d 759).
See V.R.W., Inc. v Klein, 68 NY2d 560, 564 (1986).
V.R.W., Inc. v Klein states that a grantee or mortgagee of one spouse's entirety interest holds shared possession and ownership subject to the original spouses' reciprocal survivorship rights.
Nonetheless, the grantee’s or mortgagee’s rights in the property are essentially the same as those possessed by the grantor or mortgagor: a right to shared possession and ownership subject to the original cotenants’ reciprocal rights of survivorship (Hiles v Fisher, supra, p 316; Lawriw v City of Rochester, supra).
See V.R.W., Inc. v Klein, 68 NY2d 560, 565 (1986).
Debtor and Creditor Law § 270(b)(3) excludes from the defined assets of a debtor an entirety interest only to the extent it is not subject to process by a creditor holding a claim against one tenant alone.
(b) "Asset" means property of a debtor, but the term does not include: (1) property to the extent it is encumbered by a valid lien; (2) property to the extent it is generally exempt under non-bankruptcy law; or (3) an interest in property held in tenancy by the entirety to the extent it is not subject to process by a creditor holding a claim against only one tenant.
See N.Y. Debt. & Cred. Law § 270(b)(3).
EPTL 6-2.2(e) states that a disposition of property to two or more persons as trustees creates a joint tenancy.
(e) A disposition of property to two or more persons as executors, trustees or guardians creates in them a joint tenancy.
See N.Y. Est. Powers & Trusts Law § 6-2.2(e).
Can a surviving spouse's creditors reach property the other spouse's will leaves to the survivor's own trust?
No New York decision found in our review decides whether a surviving spouse's creditors can reach a deceased spouse's bequest to the survivor's own trust, but the statutory text points toward protecting that principal, subject to limits for support claims, trust income and the survivor's powers over it. The limits are these: rights under a qualified domestic relations order, and under an order of support, alimony or maintenance to enforce arrears or past-due support, are not impaired ; for a trust that is not one of the retirement arrangements the statute names, only ninety per cent of the income from a trust whose principal is exempt is itself exempt, and not any part a court determines to be unnecessary for the reasonable requirements of the judgment debtor and dependents ; and, on our reading, the protection fails if the survivor's power over the bequeathed property, such as a revocation or withdrawal power that would return it to the survivor, works as a presently exercisable general power of appointment.
The exemption therefore protects principal more fully than income: a creditor of the survivor may still reach part of the trust income, and a support creditor collecting arrears is not stopped by the trust exemption.
The legal cause is the wording of EPTL 7-3.1(a), which asks whether a disposition in trust is for the use of its creator. For property passing under the deceased spouse's will, the deceased spouse makes that disposition. On the statute's text, then, the survivor's benefit from that portion is not a benefit from the survivor's own disposition; this is our inference, and no New York authority found in our review addresses it. CPLR 5205(c)(1) points the same way, because it exempts trust property where the fund held in trust proceeded from a person other than the judgment debtor. The survivor's powers over the bequeathed property can still expose it. If the survivor holds a presently exercisable general power over that property, EPTL 10-7.2 subjects the property to the survivor's creditors regardless of who created the power, except for a power exercisable solely for the survivor's support, maintenance, health and education. A power of appointment is general to the extent that it is exercisable wholly in favor of the donee, the donee's estate, the donee's creditors or the creditors of the donee's estate. On our reading, a revocation or withdrawal power that lets the survivor take the bequeathed property for themself is exercisable in the survivor's favor and so is general to that extent.
Two complications remain. The survivor's own contributions to the same trust stay within EPTL 7-3.1(a); Fordyce v Fordyce indicates that creditors reach the interest the settlor retained, and no decision found in our review says how a court would separate the two portions of a mixed trust. If the survivor reserved an unqualified power to revoke the trust, EPTL 10-10.6 also makes the survivor the absolute owner, as far as creditors are concerned, of the property the survivor disposed of into it. Property that passes to the survivor outright and is later added to the survivor's trust is, on the statute's text, the survivor's own disposition for the survivor's use.
A will clause that leaves property to the surviving spouse outright, intending it to fund the survivor's existing trust, can instead make the survivor's later contribution to that trust a disposition for the survivor's own use, which EPTL 7-3.1(a) makes void against the survivor's creditors.
Sources for this answer
EPTL 7-3.1(a) makes void against creditors only a disposition in trust for the use of its own creator.
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.
See N.Y. Est. Powers & Trusts Law § 7-3.1(a).
CPLR 5205(c)(1) exempts from money judgments trust property where the fund held in trust proceeded from a person other than the judgment debtor.
(c) Trust exemption. 1. Except as provided in paragraphs four and five of this subdivision, all property while held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor, is exempt from application to the satisfaction of a money judgment.
See N.Y. C.P.L.R. 5205(c)(1).
CPLR 5205(c)(4) states that the trust exemption does not impair rights under a qualified domestic relations order, or rights under an order of support, alimony or maintenance to enforce arrears or past-due support, whether or not reduced to a money judgment.
4. This subdivision shall not impair any rights an individual has under a qualified domestic relations order as that term is defined in section 414(p) of the United States Internal Revenue Code of 1986, as amended or under any order of support, alimony or maintenance of any court of competent jurisdiction to enforce arrears/past due support whether or not such arrears/past due support have been reduced to a money judgment.
See N.Y. C.P.L.R. 5205(c)(4).
CPLR 5205(d)(1) exempts ninety per cent of the income from a trust whose principal is exempt under subdivision (c), except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and dependents. For income or payments from a qualifying individual retirement account plan or a Keogh, retirement or other plan described in paragraph two of subdivision (c), the reasonable-requirements exception does not apply and the exclusion becomes one hundred percent.
(d) Income exemptions. The following personal property is exempt from application to the satisfaction of a money judgment, except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents: 1. ninety per cent of the income or other payments from a trust the principal of which is exempt under subdivision (c); provided, however, that with respect to any income or payments made from trusts, custodial accounts, annuities, insurance contracts, monies, assets or interest established as part of an individual retirement account plan or as part of a Keogh (HR-10), retirement or other plan described in paragraph two of subdivision (c) of this section, the exception in this subdivision for such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his dependents shall not apply, and the ninety percent exclusion of this paragraph shall become a one hundred percent exclusion;
See N.Y. C.P.L.R. 5205(d)(1).
EPTL 10-10.6 states that a creator who reserves an unqualified power of revocation remains the absolute owner, as far as the creator's creditors are concerned, of the property that creator disposed of.
Where a creator reserves an unqualified power of revocation, he remains the absolute owner of the property disposed of so far as the rights of his creditors or purchasers are concerned.
See N.Y. Est. Powers & Trusts Law § 10-10.6.
EPTL 10-3.2(b) defines a power of appointment as general to the extent that it is exercisable wholly in favor of the donee, the donee's estate, the donee's creditors or the creditors of the donee's estate.
(b) A power of appointment is general to the extent that it is exercisable wholly in favor of the donee, his estate, his creditors or the creditors of his estate.
See N.Y. Est. Powers & Trusts Law § 10-3.2(b).
EPTL 10-7.2 states that property covered by a presently exercisable general power of appointment, other than one exercisable solely for the donee's support, maintenance, health and education, is subject to the donee's creditors, whoever created the power.
Property covered by a general power of appointment (other than one exercisable solely for the support, maintenance, health and education of the donee within the meaning of sections 2041 and 2514 of the Internal Revenue Code) which is presently exercisable, or of a postponed power which has become exercisable, is subject to the payment of the claims of creditors of the donee, his estate and the expenses of administering his estate. It is immaterial whether the power was created in the donee by himself or by some other person, or whether the donee has or has not purported to exercise the power.
See N.Y. Est. Powers & Trusts Law § 10-7.2.
Fordyce v Fordyce states that even in a self-settled trust, creditors can reach only the interest the settlor retained for himself.
Even in the case of a self-settled trust, creditors can only reach the interest the settlor retained for himself.
See Fordyce v Fordyce, 80 Misc 2d 909, 913 (Sup Ct 1974).