2023 Illinois Compiled Statutes › Chapter 760 - TRUSTS AND FIDUCIARIES › 760 ILCS 3/ - Illinois Trust Code. › Article 5 - Creditor's Claims; Spendthrift and Discretionary Trusts

(760 ILCS 3/Art. 5 heading)
Article 5.  Creditor's Claims; Spendthrift and Discretionary Trusts.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/501)
Sec. 501. Rights of beneficiary's creditor or assignee. Except as provided in Section 504, to the extent a beneficiary's interest is not subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/502)
Sec. 502. Spendthrift provision.
(a)  A spendthrift provision is valid only if it prohibits both voluntary and involuntary transfer of a beneficiary's interest.
(b)  A term of a trust providing that the interest of a beneficiary is held subject to a "spendthrift trust", or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary's interest.
(c)  A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this Article, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.
(d)  A valid spendthrift provision does not prevent the appointment of interests through the exercise of a power of appointment.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/503)
Sec. 503. Exceptions to spendthrift provision.
(a)  In this Section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.
(b)  A spendthrift provision is unenforceable against:
(1)  a beneficiary's child, spouse, or former spouse     who has a judgment or court order against the beneficiary for child support obligations owed by the beneficiary as provided in the Income Withholding for Support Act, the Non-Support Punishment Act, the Illinois Parentage Act of 2015, the Illinois Marriage and Dissolution of Marriage Act, and similar provisions of other Acts that provide for the support of a child;
(2)  a judgment creditor who has provided services     for the protection of a beneficiary's interest in the trust; and
(3)  a claim of this State or the United States to     the extent a statute of this State or federal law so provides.
(c)  Except as otherwise provided in this subsection and in Section 504, a claimant against which a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary.  The court may limit the award to such relief as is appropriate under the circumstances.  Notwithstanding this subsection, the remedies provided in this subsection apply to a claim for unpaid child support obligations by a beneficiary's child, spouse, former spouse, judgment creditor, or claim described in subsection (b) only as a last resort upon an initial showing that traditional methods of enforcing the claim are insufficient.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/504)
Sec. 504. Discretionary distributions; effect of standard.
(a)  As used in this Section, "discretionary distribution" means a distribution that is subject to the trustee's discretion regardless of whether the discretion is expressed in the form of a standard of distribution and regardless of whether the trustee has abused the discretion.
(b)  Regardless of whether a trust contains a spendthrift provision, and regardless of whether the beneficiary is acting as trustee, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor described in subsection (b) of Section 503, may not:
(1)  compel a distribution that is subject to the     trustee's discretion; or
(2)  obtain from a court an order attaching present     or future distributions to or for the benefit of the beneficiary, except as provided in Section 2-1403 of the Code of Civil Procedure.
(c)  If the trustee's discretion to make distributions for the trustee's own benefit is limited by an ascertainable standard, a creditor may not reach or compel distribution of the beneficial interest except to the extent the interest would be subject to the creditor's claim were the beneficiary not acting as trustee.
(d)  This Section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/505)
Sec. 505. Creditor's claim against settlor.
(a)  Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:
(1)  During the lifetime of the settlor, the property     of a revocable trust is subject to claims of the settlor's creditors to the extent the property would not otherwise be exempt by law if owned directly by the settlor.
(2)  With respect to an irrevocable trust, a creditor     or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit. If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution.
(3)  Notwithstanding paragraph (2), the assets of an     irrevocable trust may not be subject to the claims of an existing or subsequent creditor or assignee of the settlor, in whole or in part, solely because of the existence of a discretionary power granted to the trustee by the terms of the trust, or any other provision of law, to pay directly to the taxing authorities or to reimburse the settlor for any tax on trust income or principal that is payable by the settlor under the law imposing the tax.
(4)  Paragraph (2) does not apply to the assets of an     irrevocable trust established for the benefit of a person with a disability that meets the requirements of 42 U.S.C. 1396p(d)(4) or similar federal law governing the transfer to such a trust.
(5)  After the death of a settlor, and subject to the     settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory awards to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, expenses, and awards. Distributees of the trust take property distributed after payment of such claims; subject to the following conditions:
(A)  sums recovered by the personal         representative of the settlor's estate must be administered as part of the decedent's probate estate, and the liability created by this subsection does not apply to any assets to the extent that the assets are otherwise exempt under the laws of this State or under federal law;
(B)   with respect to claims, expenses, and taxes         in connection with the settlement of the settlor's estate, any claim of a creditor that would be barred against the personal representative of a settlor's estate or the estate of the settlor is barred against the trust property of a trust that was revocable at the settlor's death, the trustee of the revocable trust, and the beneficiaries of the trust; and
(C)  Sections 18-10 and 18-13 of the Probate Act         of 1975, detailing the classification and priority of payment of claims, expenses, and taxes from the probate estate of a decedent, or comparable provisions of the law of the deceased settlor's domicile at death if not Illinois,  apply to a revocable trust to the extent the assets of the settlor's probate estate are inadequate and the personal representative or creditor or taxing authority of the settlor's estate has perfected its right to collect from the settlor's revocable trust.
(6)  After the death of a settlor, a trustee of a     trust that was revocable at the settlor's death is released from liability under this Section for any assets distributed to the trust's beneficiaries in accordance with the governing trust instrument if:
(A)  the trustee made the distribution 9 months         or later after the settlor's death; and
(B)  the trustee did not receive a written notice         from the decedent's personal representative asserting that the decedent's probate estate is or may be insufficient to pay allowed claims or, if the trustee received such a notice, the notice was withdrawn by the personal representative or revoked by the court before the distribution.
(b)  For purposes of this Section:
(1)  during the period the power may be exercised,     the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power; and
(2)  upon the lapse, release, or waiver of the power,     the holder is treated as the settlor of the trust only to the extent the value of the property affected by the lapse, release, or waiver exceeds the greater of the amount specified in Section 2041(b)(2) or 2514(e) of the Internal Revenue Code.
(Source: P.A. 101-48, eff. 1-1-20; 102-279, eff. 1-1-22.)
(760 ILCS 3/506)
Sec. 506. Overdue distribution.
(a)  In this Section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the trust instrument, including a distribution upon termination of the trust. The term does not include a distribution subject to the exercise of the trustee's discretion even if (1) the discretion is expressed in the form of a standard of distribution, or (2) the terms of the trust authorizing a distribution couple language of discretion with language of direction.
(b)  Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/507)
Sec. 507. Personal obligations of trustee. Trust property is not subject to personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/508)
Sec. 508. Lapse of power to withdraw.  A beneficiary of a trust may not be considered to be a settlor or to have made a transfer to the trust merely because of a lapse, release, or waiver of his or her power of withdrawal to the extent that the value of the affected property does not exceed the greatest of the amounts specified in Sections 2041(b)(2), 2514(e), and 2503(b) of the Internal Revenue Code.
(Source: P.A. 101-48, eff. 1-1-20.)
(760 ILCS 3/509)
Sec. 509. Trust for beneficiary with a disability.
(a)  As used in this Section:
(1) "Discretionary trust" means a trust in which the     trustee has discretionary power to determine distributions to be made under the trust.
(2) "Resources" includes, but is not limited to, any     interest in real or personal property, judgment, settlement, annuity, maintenance, support for minor children, and support for non-minor children.
(b)  A discretionary trust for the benefit of an individual who has a disability that substantially impairs the individual's ability to provide for his or her own care or custody and constitutes a substantial disability, is not liable to pay or reimburse this State or any public agency for financial aid or services to the individual except to the extent the trust was created by the individual or trust property has been distributed directly to or is otherwise under the control of the individual, except that this exception does not apply to a trust created with the property of the  individual with a disability or property within his or her control if the trust complies with Medicaid reimbursement requirements of federal law. Notwithstanding any other provisions to the contrary, a trust created with the property of the individual with a disability or property within his or her control is liable, after the reimbursement of Medicaid expenditures, to this State for reimbursement of any other service charges outstanding at the death of the individual with a disability. Property, goods, and services purchased or owned by a trust for and used or consumed by a beneficiary  with a disability shall not be considered trust property distributed to or under the control of the beneficiary.
(c) Except as otherwise prohibited by law, the court or a person with a disability may irrevocably assign resources of that person to either or both of: (i) an ABLE account, as defined under Section 16.6 of the State Treasurer Act; or (ii) a discretionary trust that complies with the Medicaid reimbursement requirements of federal law. A court may reserve the right to determine the amount, duration, or enforcement of the irrevocable assignment.
(Source: P.A. 101-48, eff. 1-1-20.)