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Clarifying Trusts, Creditors’ Rights, And the Related Tax Implications

UNDER New York’s Estates, Powers and Trusts Law “a disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” The statute has been interpreted as denying a settlor protection from creditors where the trust was settled for the exclusive use of the settlor: It is not clear, however, as to whether creditors of a settler can reach trust assets even if the trustees have absolute discretion to pay nothing to the settlor, and the settlor cannot compel the trustees to make any payments.

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