The Benefits of Delaware Trusts

While trusts are a valuable Estate Planning tool, Delaware Trusts offers many additional advantages. In addition to its favorable corporate laws, Delaware law provides favorable estate planning solutions to wealth preservation, asset protection, and tax minimization planning. Some of the key advantages of having a trust administered under Delaware law include:

Income Tax, Capital Gains Tax & GST Tax Savings

In Delaware no fiduciary income tax or capital gains tax is imposed on the taxable income of an irrevocable trust which has been accumulated in trust for the benefit of non-resident beneficiaries. This can be a significant advantage depending on the taxing jurisdiction where the grantor and the beneficiaries reside. Federal, State and city governments can impose hefty income taxes, thus allowing a trust to grow free of state and local income taxation will be a significant advantage for a trust. Delaware is also an attractive trust jurisdiction for non-U.S. citizens and can provide significant tax advantages and an alternative to "off-shore" trusts. Without proper planning, taxes can substantially erode the wealth passed from generation to generation. By allocating a GST exemption to a transfer to a Delaware Trust, all subsequent transfers from the trust are exempt from GST tax. 

Trust Perpetuity - Dynasty Trusts 

For many families the ability to transfer assets from one generation to the next is a key component in the ability to preserve and protect its wealth. Many states place a limit on the number of years a trust can exist called the rule against perpetuities. In Delaware, trusts are allowed to exist into perpetuity, which is commonly referred to as a dynasty trust.  A dynasty trust is a multi-generational trust that is used to provide a legacy for future generations, provide the beneficiaries of the trust with asset protection, and avoid transfer taxes on the wealth passed to future generations through the dynasty trust. A Delaware Dynasty Trust may be free of estate, gift, inheritance and generation-skipping transfer (GST) taxes for an indefinite period of time. 

Note: There is a 110 year limit for Delaware trusts that directly own real estate, but if the interest is owned by an intervening entity such as a LLC or LP, this limitation does not apply.

Investment Flexibility 

Delaware allows for great flexibility in determining investment management and how assets will be invested. A trustee is free to utilize outside investment advisors, assign multiple managers and allow those advisors to select investments. Based on the client's wishes and attorney guidance, Advocates Trust Services can give a specified third-party investment manager the power to control trust investments or can shop for an advisor to meet the needs. Advocates Trust Services does not have any proprietary investment products and is able to work with a number of trading platforms and outside custodians. 

Asset, Creditor & Beneficiary Protection

Delaware Trusts offer an exceptional level of asset protection while offering great flexibility to suit the needs of the client. Asset protection is especially important for individuals in risky occupations (physicians, attorneys, accountants, entrepreneurs, contractors, and financial planners, to name a few) or those who may be a target for lawsuits and creditor claims. 

Delaware law provides that grantors can create self-settled asset protection trust that protect assets from future creditor claims (including future spouses), while allowing grantors to be a permissible beneficiary, as long as the provisions of the statute are followed. Further, through various “spendthrift” provisions, the trust assets can also be protected from claims by creditors of the trust’s beneficiaries. Therefore, Delaware asset protection trusts can be a tool for pre-marital property protection for future generations.

Note: A creditor may be able to reach trust assets if it can prove that the grantor has committed a fraudulent conveyance. An asset protection trust can also be pierced to satisfy qualified court ordered child support payments or alimony for a former spouse whom the grantor was married to at the time of, or before the time, the assets were transferred into the trust; or personal injury claims arising prior to the creation of the trust. 

Trust & Administrative Flexibility

Delaware has adopted some of the most favorable laws and grants wide flexibility in trust design and control for trust grantors and trustees. Numerous types of trusts are available under Delaware law. The trust instrument can be used to expand, restrict, eliminate, or otherwise vary the rights of beneficiaries per the guidance of the client. In addition, establishing a Delaware trust and using a professional trustee allows for the separation of specified trust functions from the trustee's administration responsibilities (known as a Directed Trust). The grantor of a trust can delegate specific responsibilities of the trustee among other individuals, family members or trusted professionals. Common powers that a grantor may want to delegate include investment authority, management authority and distribution authority, and the assignment of trust protectors to oversee and provide guidance.

Delaware allows for "Decanting" an alternative to modifying or reforming an otherwise irrevocable trust and to make all types of administrative changes. Examples include adding or changing successor trustees, granting the power to remove and appoint trustees, changing the structure of a trust for tax purposes,  adding a distribution committee, updating outdated investment or other administrative provisions, adding a trust advisor to direct the trustee, and transferring an existing trust to Delaware. 
Advocates Trust Services works with the attorney to understand each client's situation and provide a tailored trust structure that best meets the clients needs. Trusts are most successful when the grantor, trustees, beneficiaries and advisors all have a clear understanding of their responsibilities and role in the trust.

Confidentiality & Privacy

Delaware's laws guard and protect privacy of clients, their families and beneficiaries. Delaware does not require any public recordings or filings, annual meetings, or court supervision of trust administration. If registered voluntarily, only the trust name and trustee must be disclosed. In the event of a dispute, the court can seal the record, keeping the trust agreement and dispute out of the public eye. Further, if your clients wishes, Delaware law allows grantors to keep the existence or value of a beneficial trust from the beneficiary (beneficiary non-disclosure).  

Delaware Chancery Court System

A sometimes overlooked advantage of Delaware as the situs for administration of a trust is the Delaware court system, which is routinely ranked number one by the U.S. Chamber of Commerce.  All fiduciary and commercial matters come before the Court of Chancery, which allows for quick access to Delaware courts and prevents a backlog in cases that tend to delay effective trust administration in other states. The Delaware Court of Chancery and Delaware Supreme Court have a long history of judicial excellence, fair court rulings and have routinely upheld Delaware's favorable trust laws and business friendly environment.

There are many compelling reasons why it may make sense for clients to utilize Delaware trusts as part of their estate, charitable and tax plans. To learn more about specific plans and strategies for your clients, contact Advocates Trust Group or become a member today.