By The Wyoming LLC Attorney Team
May 16, 2021APPLICATION TO CONTRIBUTIONS
QUALIFIED SPENDTHRIFT AND DISCRETIONARY DISTRIBUTION TRUSTS (DOMESTIC ASSET PROTECTION TRUSTS)
The Wyoming Uniform Trust Code and Uniform Fraudulent Transfers Act (“UFTA”) have been amended, in part, effective July 1, 2021, through adjustments to W.S. §§4-10-514 and 34-14-210. The changes are dramatic and far reaching and apply to “transfers” or, in trust language, contributions (either way, collectively, a “contribution” or “contributions”) by the founder, settlor, grantor, trustor, or subsequent contributor (collectively, “contributors” and, individually, a “contributor”) to spendthrift and discretionary distribution trusts (collective a “DAPT”).
These amendments have substantially reduced the recovery periods pertaining to contributions and have, for the first time, availed contributors of notice provisions to further lessen recovery periods. These provisions are divided between current, future, known, and unknown creditors.
This statute unequivocally provides that in any action against “qualified trust property” or to set aside a “qualified transfer,” UFTA is the exclusive remedy involving a DAPT, unless §W.S. 4-10-518 applies, which lessens the impact of UFTA on certain persons involved in the trust process or scheme.
W.S. §4-10-518 governs legal claims against the trustee, trust protector, trust advisor, and fiduciaries of a DAPT, as well as any person involved in the counseling, drafting, preparation, administration, execution, or funding of the trust. This statute precludes action against these persons if, as of the date of the proceeding, a creditor would be barred under W.S. §4-10-517, which limits a creditor’s recovery against the contributor to the provisions of W.S. §§4-10-514 to 523, inclusive, and requires if not so barred, the substantiation of the creditor’s claims against those persons set forth in W.S. §4-10-518 to “clear and convincing evidence” under UFTA.
This statute has shortened the period during which a creditor may pursue a claim against a contributor from four to two years in some instances and from one year to six months in the remaining instances as follows:
W.S. §34-14-205 “Transfers fraudulent as to present and future creditors” applies to (i) creditor claims existing at contribution and (ii) those subsequently arising.
Subsection (a)(i) allows recovery of contributions made with the actual intent to hinder, delay, or defraud any of the contributor’s creditors.
Subsection (a)(ii) allows recovery of contributions if the contributor did not receive reasonably equivalent value in exchange for the transfer, and the contributor
W.S. §34-14-206 titled “Transfers fraudulent as to present creditors” applies solely to existing and not subsequently arising creditors.
Subsection (a) allows recovery if the contribution occurred without reasonably equivalent value in exchange and the contributor was insolvent or became insolvent from the contribution. Subsection (b) allows recovery if the contribution was made to an insider for an antecedent debt, the contributor was insolvent at that time, and the insider had reasonable cause to believe that the contributor was insolvent. An insider is generally a relative or business organization related to the contributor.
This addition pertains solely to contributions to (i) a “qualified spendthrift trust” formed under W.S. §§4-10-510 through 4-10-515 and (ii) an “irrevocable discretionary trust” under §W.S. 4-10-506(c). (These were collectively defined above as a “DAPT.”). This subsection distinguishes between creditors known and unknown to the contributor on the date of contribution.
Subsection (b)(i) provides with respect to a known creditor that all claims are extinguished unless an action is brought no later than 90 days after notice is mailed. The notice must provide
Subsection (b)(ii) provides with respect to an unknown creditor that all claims are extinguished unless an action is brought no later than 90 days after the notice is first published in a newspaper of general circulation in the county in which the contributor resides, as long as the notice provisions under (b)(i) are complied with.
Subsection (b)(iii) provides that, notwithstanding subsections (i) and (ii), a claim will not be extinguished if within the later of two years after the transfer is made or six months after the transfer is or reasonably could have been discovered by the creditor, the creditor can demonstrate by clear and convincing evidence that the creditor asserted a specific claim against the settlor before the transfer.
The recent UTC and UFTA amendments dramatically impact the application of UFTA on contributions to a DAPT. The added notice provisions, if used, provide a level of certainty to trust funding that did not previously exist and allow creditors the opportunity to defend themselves at a time when recovery, if warranted, would generally be more effective and substantive than at a later date.
If notice is not provided, the amendments act to enforce the commercial reality that if a creditor has not acted within a reasonable two-year or six-month time frame, they probably never will and any claims beyond those periods are generally predatory in any event. Finally, the circumscription of liability against those professionals who engage in the trust formation industry provides a much needed level of protection for those who professionally and ethically represent founders and who make a pittance in comparison to the amounts at issue.