How Discretionary Trusts Protect Beneficiaries From Creditors in Arizona

14-10504. Discretionary trusts; effect of standard; definition A. Except as provided in subsection B of this section, whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee's discretion, even if either: 1. The discretion is expressed in the form of a standard of distribution. 2. The trustee has not complied with the applicable standard of distribution or has abused the discretion regarding distributions. B. To the extent a trustee has not complied with the applicable standard of distribution or has abused the discretion regarding distributions: 1. Except as provided in section 14-10503, a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child. 2. The court shall direct the trustee to pay to the child an amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion. C. 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, provided that this right may not be exercised by a creditor of the beneficiary or to the extent that any creditor of the beneficiary takes through the name or rights of the beneficiary. D. Whether or not a trust contains a spendthrift provision: 1. A creditor of a trust beneficiary may not compel a distribution from insurance proceeds payable to the trustee as beneficiary to the extent state law exempts the insurance proceeds from creditors' claims if it had been paid directly to the trust beneficiary. 2. To the extent that under Arizona law life insurance proceeds, policy cash surrender values or other distributions or payments are exempt from attachment or garnishment by, execution on or otherwise the reach of creditors, if the death benefit is payable to an individual beneficiary, the life insurance proceeds, policy cash surrender values or other distributions or payments are also exempt from attachment or garnishment by, execution on or otherwise the reach of creditors if payable to a trust of which a beneficiary is that individual. E. A creditor of a beneficiary, whether or not the beneficiary is also a trustee or cotrustee, may not reach the beneficiary's beneficial interest or otherwise compel a distribution if either the trustee's discretion to make distributions for the trustee's or beneficiary's own benefit is purely discretionary or is limited by an ascertainable standard, including a standard relating to the beneficiary's health, education, support or maintenance or similar language within the meaning of section 2041(b)(1)(a) of the internal revenue code. F. For the purposes of this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.