An act relating to the transfer of property to a trust
H.23 would amend Vermont trust law to clarify how property owned by spouses as tenants by the entirety is treated when transferred into a trust. Under current law, property held in a revocable trust is generally reachable by the settlor’s creditors, and certain rules already govern creditor claims against revocable and irrevocable trusts. This bill adds a specific rule for “tenants by the entirety” property placed into a joint or separate trust: if the spouses meet the bill’s conditions, the property and any proceeds from its sale would keep the same immunity from the spouses’ separate creditors that the property had before it was transferred into the trust.
The bill also states that property in a tenants by the entirety trust remains protected unless the spouses provide otherwise in writing, and that it should be treated as tenants by the entirety property for state and federal bankruptcy purposes. That protection would end if the marriage is dissolved by court order. The bill applies this rule retroactively and prospectively to trusts created before, on, or after the effective date, and to judicial proceedings commenced on or after that date.
H.23 would amend 14A V.S.A. § 505, the Vermont Uniform Trust Code provision governing creditor claims against settlors, by adding a new subsection specifically addressing tenants by the entirety property transferred into trust. It would preserve creditor immunity for qualifying marital property placed into revocable or irrevocable trusts, including joint trusts and separate trusts, and would extend that treatment to proceeds and bankruptcy-related analysis. The bill would affect spouses who use trusts for estate planning, trustees, creditors, and courts handling trust and creditor disputes, and it would apply to existing and future trusts and proceedings.
Based on the bill text and the absence of recorded committee testimony or votes, the overall sentiment appears neutral to supportive in purpose: the bill is designed to preserve existing creditor protections for married couples who move entireties property into trust for estate-planning purposes. The proposal appears aimed at clarifying law rather than changing the underlying protection, suggesting a technical or remedial intent. No recorded opposition, amendments, or vote history is available in the provided materials.
The main point of potential contention is the scope of creditor protection after property is transferred into trust, especially whether shielding entireties property in trust could limit recovery for separate creditors. Another possible issue is the bill’s retroactive application to trusts and pending or future proceedings, which can raise concerns about settled expectations and litigation outcomes. The bill also distinguishes between joint trusts and separate trusts, and between married couples who remain married versus those whose marriage is dissolved, which may prompt questions about administration and enforcement.