November 8, 2023 - Introduced by Representatives O’Connor, Dittrich, Rettinger and Nedweski, cosponsored by Senators Knodl and Felzkowski. Referred to Committee on Judiciary.
AB648,,22An Act to create chapter 699 of the statutes; relating to: domestic asset protection trusts. AB648,,33Analysis by the Legislative Reference Bureau This bill creates a new type of trust, called a legacy trust. A legacy trust is an irrevocable trust that contains a spendthrift provision and that appoints at least one qualified trustee. Under the bill, a person, called a transferor, may create a legacy trust into which he or she may place assets that will be managed by the trustee. The transferor may also be a co-trustee or a beneficiary of the legacy trust. The terms of the trust may grant a transferor the power to remove and replace a trustee or advisor and to direct trust investments.
A person who places assets in a trust is a settlor. Under current law, generally, the assets of a settlor are subject to creditor claims. If the assets are placed in a revocable trust, the assets are subject to the claims of the settlor’s creditors. If the assets are placed in an irrevocable trust and the trust is not for an individual with a disability, the court may, if the trust instrument requires or authorizes the trustee to make payments of income or principal to or for the settlor, order the trustee to satisfy part or all of a judgment out of payments from the trust.
Current law also provides a spendthrift provision, which is a term of a trust that restricts voluntary or involuntary transfers of a beneficiary’s interest in the trust. Under current law, a spendthrift provision is valid only if the beneficiary is someone other than the settlor, or if the beneficiary is disabled. Under current law there are exceptions that provide that a spendthrift provision does not protect assets from claims for child support under any circumstance or claims for public support unless the beneficiary is disabled.
Under the bill, a legacy trust must have a spendthrift provision, and none of the current law restrictions to spendthrift trusts apply. Assets in a legacy trust are not subject to claims for public support, but they are subject to claims for child support. Additionally, under the bill, a creditor generally may not bring an action of any kind against a transferor, against a trustee of a legacy trust, or against any assets that are held by a legacy trust. There are three exceptions to this prohibition. First, an action may be brought if the transfer of the asset was made to hinder, delay, or defraud the creditor. Second, an action may be brought by a creditor who was a creditor of the transferor when the disposition was made if the creditor commences the action within the later of 18 months after the transfer or six months after the creditor discovers or reasonably should have discovered the transfer. Third, an action may be brought by a creditor who becomes a creditor after the transfer occurs if the creditor commences the action no later than 18 months after the transfer occurred. Under the bill, a creditor includes a person seeking to enforce a judgment entered by a court or other authorized adjudicative body. No other actions are permitted for any reason.
AB648,,44The people of the state of Wisconsin, represented in senate and assembly, do enact as follows: AB648,15Section 1. Chapter 699 of the statutes is created to read: AB648,,88699.01 Definitions. In this chapter: AB648,,99(1) “Advisor” means a person who, under the terms of a legacy trust, is granted the power to do any of the following: AB648,,1010(a) Remove or appoint a trustee of the legacy trust. AB648,,1111(b) Direct, consent to, or disapprove a trustee’s actual or proposed investment, distribution, or any other action related to assets of the legacy trust. AB648,,1212(2) “Asset” means property of a transferor but does not include any of the following: AB648,,1313(a) Property to the extent it is encumbered by a valid lien. AB648,,1414(b) Property to the extent it is generally exempt under nonbankruptcy law at the time of a qualified disposition. AB648,,1515(c) Property held as marital property with rights of survivorship to the extent that under the law governing the marital property at the time of a qualified disposition the property is not subject to process by a creditor holding a claim against only one spouse. AB648,,1616(d) Property transferred from a nonlegacy trust to a legacy trust to the extent that the property would not be subject to attachment under applicable nonbankruptcy law that governs the nonlegacy trust. AB648,,1717(3) “Beneficiary” has the meaning given in s. 701.0103 (3). AB648,,1818(4) “Claim” means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. AB648,,1919(5) “Creditor” means a person who has a claim against a transferor and includes any transferee of, assignee of, or successor to the claim.