§554G-10 Effect of avoidance of permitted transfers. (a) A creditor may avoid a permitted transfer pursuant to section 554G-8 only to the extent necessary to satisfy the transferor's debt to the creditor at whose instance the transfer has been avoided, together with costs including attorney's fees as allowed by a court.

(b) In an action pursuant to subsection (a) to avoid a permitted transfer:

(1) If a court finds that a trustee has not acted with intent to defraud, hinder, or delay the creditor in accepting or administering the property that is the subject of the permitted transfer:

(A) The trustee shall have a first and paramount lien against the property that is the subject of the permitted transfer in an amount equal to the entire cost including attorney's fees properly incurred by the trustee in the defense of the action or proceedings to avoid the permitted transfer;

(B) The permitted transfer shall be avoided, subject to payment of proper fees, costs, preexisting rights, claims, and interests of the trustee and of any predecessor trustee who has not acted with intent to defraud, hinder, or delay the creditor; and

(C) For purposes of this paragraph, it shall be presumed that the trustee did not act with intent to defraud, hinder, or delay the creditor merely by accepting the property; and

(2) If the court is satisfied that a beneficiary of the trust has not acted with intent to defraud, hinder, or delay the creditor, the permitted transfer shall be avoided subject to the beneficiary's right to retain any distribution made prior to the creditor's commencement of an action to avoid the permitted transfer; provided that for purposes of this paragraph, it shall be presumed that a beneficiary did not act with intent to defraud, hinder, or delay the creditor merely by creating the trust or by accepting a distribution made in accordance with the terms of the trust.

(c) A creditor who brings an action pursuant to section 554G-8 to avoid a permitted trust shall have the burden of proving by clear and convincing evidence that a trustee or beneficiary acted with intent to defraud, hinder, or delay the creditor; provided that in the case of a beneficiary who is also the transferor, the burden on the creditor shall be to prove by a preponderance of the evidence that the transferor-beneficiary acted with intent to defraud, hinder, or delay the creditor.

(d) For purposes of this chapter, attachment, garnishment, sequestration, or other legal or equitable process shall be permitted only where permitted by the express terms of this chapter.

(e) Notwithstanding any other provision of this chapter, a creditor shall have no right against the interest of a beneficiary to a trust based solely on the beneficiary's right to authorize or direct the trustee to use all or part of the trust property to pay:

(1) Estate or inheritance taxes imposed upon or due to the beneficiary's estate;

(2) Debts of the beneficiary's estate; or

(3) Expenses of administering the beneficiary's estate,

unless the beneficiary actually directs the payment of taxes, debts, or expenses and then only to the extent of that direction.

(f) Where spouses make a permitted transfer of property and, immediately before the permitted transfer, the property, any part of the permitted property, or any accumulation to the permitted property was, pursuant to applicable law, owned by them as tenants by the entirety, then notwithstanding the permitted transfer and except where the provisions of the trust instrument expressly provide to the contrary, the property and any accumulation to the property, while held in trust during the lifetime of both spouses, shall be treated as though it were held in tenancy by the entirety and shall be subject to all applicable law; provided that in every other respect, the property shall be subject to the terms of the trust instrument.

In any action concerning whether a creditor of either or both spouses may recover the debt from the trust, upon avoidance of the permitted transfer the sole remedy available to the creditor with respect to trust property treated as though it were held in tenancy by the entirety shall be an order directing the trustee to transfer the property to both spouses as tenants by the entirety.

(g) Subject to all of the provisions of this section and except as otherwise provided in subsection (f), upon avoidance of a qualified disposition to the extent permitted under subsection (a), the sole remedy available to the creditor shall be an order directing the trustee to transfer to the transferor the amount necessary to satisfy the transferor's debt to the creditor at whose instance the disposition has been avoided. [L 2010, c 182, pt of §2; am L 2011, c 161, §10]