4-10-521. Avoidance of qualified transfer.

(a) A qualified transfer to a qualified spendthrift trust is avoided only to the extent necessary to satisfy the settlor's debt to the creditor at whose instance the qualified transfer had been avoided, together with costs, including attorney's fees if otherwise authorized, as the court may allow. If any qualified transfer is avoided as provided in this section, then:

(i) If the court is satisfied that a qualified trustee has not acted in bad faith in accepting or administering the property that is the subject of the qualified transfer:

(A) The qualified trustee has a first and paramount lien against the property that is the subject of the qualified transfer in an amount equal to the entire cost, including attorney's fees, court costs, penalties, fines, fees and other amounts paid or payable, which were properly incurred by the qualified trustee in the defense of the action or proceedings to avoid the qualified transfer. It shall be presumed that the qualified trustee did not act in bad faith merely by accepting the property; and

(B) The qualified transfer is avoided subject to the proper fees, costs, preexisting rights, claims and interests of the qualified trustee, and of any predecessor trustee that has not acted in bad faith.

(ii) If the court is satisfied that a beneficiary of a qualified spendthrift trust has not acted in bad faith, the avoidance of the qualified transfer is subject to the right of the beneficiary to retain any distribution made upon the exercise of a trust power or discretion vested in the qualified trustee of the trust, which power or discretion was properly exercised prior to the creditor's commencement of an action to avoid the qualified transfer. It shall be presumed that the beneficiary, including a beneficiary who is also a settlor of a qualified spendthrift trust, did not act in bad faith merely by creating the trust or by accepting a distribution made in accordance with the terms of the trust.

(b) A creditor shall have the burden of proving by clear and convincing evidence that a trustee or beneficiary of a qualified spendthrift trust acted in bad faith under paragraph (a)(i) or (ii) of this section.