Types of Delaware Trusts

There are many types of Delaware Trusts to suit your clients' needs. Advocates Trust helps you achieve a wide variety of wealth management, asset protection and preservation, charitable / legacy creation, tax avoidance, and wealth transfer objectives. 

Dynasty Trusts

A Delaware Dynasty Trust can hold assets in trust in perpetuity for the benefit of future generations. Not only does this allow for the preservation of wealth for multiple generations, such a trust can provide asset protection to the assets held in trust and avoids federal transfer taxes (estate tax, gift tax, and generation skipping transfer tax) for future generations. This is a particularly valuable planning tool if the trust is funded with rapidly appreciating assets.


Directed Trusts

To enhance investment flexibility, yet still secure the safety that comes with the appointment of a corporate trustee, Delaware permits the creation of directed trusts. These trusts explicitly allow the use of third party investment advisors but shield the trustee from liability for investment decisions made by this third party. Common powers or duties include investment authority, management authority, distribution authority, or any other decision affecting the administration of the trust. This Delaware law makes it easy for a trust to use a family member or a family’s existing financial advisor as the investment manager of all or a portion of a trust’s assets.  
 

Asset Protection Trusts

Delaware law authorizes asset protection trusts which allow the trust creator and the trust beneficiaries to benefit from the trust assets while shielding them from all types of creditors. In addition, a Delaware trust that contains a “spendthrift” clause provides significantly greater protection from creditors’ claims than is available in other states.  Delaware’s “spendthrift” provisions can even protect Individual Retirement Accounts (IRAs) and rollover IRAs from attachment. Delaware offer a proven domestic trust alternative to risky offshore accounts and offshore trusts.


Total Return Uni-Trusts

Delaware permits the creation of very flexible total return uni-trusts that align the interests of the income and remainder beneficiaries. Asset allocation does not need to be skewed in favor of low appreciation, income-producing assets to provide a reasonable payout to an income beneficiary. The trustee can pay current beneficiaries from 3% to 5% of trust principal, regardless of the trust’s actual income; either the trust or current beneficiaries can pay capital gains taxes;  beneficiary payments can be calculated based on the trust’s average value over more than a three year time period, the limit in many other states. Delaware also allows the easy conversion of certain existing trusts to total return trusts.


Delaware Irrevocable Non-Grantor (DING) Trusts / Tax Advantaged Trusts

When selling highly appreciated assets on retirement, or to diversify an investment portfolio with substantial imbedded capital gains, residents of high income tax states often use an irrevocable non-grantor Delaware trust to sell the assets because Delaware eliminates or limits the state income tax liability for its resident trusts. Delaware irrevocable trusts are exempt from Delaware income tax on accumulated earnings and capital gains so long as no remainder beneficiaries are Delaware residents.  In addition to the exemption from these state taxes, intangible assets held in trust are not subject to estate or personal property taxes.

 

Life Insurance Trusts (ILIT)

A properly drafted Delaware Life Insurance Trust will keep proceeds from a life insurance policy out of a grantor's estate and provides beneficiaries with liquidity to pay estate taxes, keep a family business operating, provide for inheritance or pay other immediate expenses.  


Special Needs Trusts (SNT)

A special needs trust can be utilized to provide services, care or treatment to trust beneficiaries with disabilities or seniors without interfering with their eligibility for government benefits. 


Minor's Trusts

A trust can control gifts to a child and provides asset management until the child reaches age of 21. A minor's trust can have control as to what income and distributions can be used for including educational purposes. The trust can be continued after the child reaches age with consent of the grantor.


Charitable Trusts & Family Foundations

Charitable Trust are particularly useful for highly appreciates assets or for families with charitable intent. A Family Foundation or Donor-Advised Funds can be a great way to leave a lasting legacy and pass the tradition of philanthropy to future generations. 

The most common type of charitable trust is a charitable remainder trust (CRT). By gifting assets to charity, a donor and beneficiaries may receive income from assets, an income-tax deduction, elimination or deferral of capital gains tax, minimization of estate and gift taxes, and creation of a lasting legacy for a charity or family foundation. Charitable trusts can can be combined with other estate planning strategies. For example, the assets gifted to charity could be leveraged by a wealth replacement strategy using life insurance. Another type of charitable trust is the charitable lead trusts (CLT). In a CLT, the charity(s) become the income beneficiary with the assets passing to the heirs at the death of the owner. For either the CRT or the CLT, the payments can be a fixed amount (annuity trust) or a percentage of principle (unitrust).


Qualified Terminal Interest Property Trusts (QTIP)


Credit Shelter Trusts