Personal trusts are an important tool for transferring and protecting wealth. Trusts established under Delaware law, such as dynasty trusts and asset protection trusts, help to facilitate the preservation of wealth.
DYNASTY TRUSTS
Traditionally, the duration of a trust was limited to a finite period of time based on the lives of individuals who were living at the time the trust was created. This common law rule, known as the Rule Against Perpetuities, was codified under many state laws and restricted the ability to transfer wealth in trust for succeeding generations. In 1995, Delaware repealed its Rule Against Perpetuities and paved the way for perpetual trusts, also known as dynasty trusts. Dynasty trusts can provide a pool of assets that will benefit family members and heirs for generations to come. These trusts are typically structured to take advantage of exemptions from transfer taxes including the Generation Skipping Transfer (GST) Tax exemption. This approach helps to minimize the impact of taxes on the growth of trust assets over multiple generations. Under Delaware law, you can build administrative and investment flexibility into a dynasty trust and also benefit from Delaware’s favorable state income tax laws. A beneficiary’s interest in the trust can be structured to help protect trust assets from creditors, divorce proceedings and federal transfer taxes while assisting you in providing an ongoing family legacy.
ASSET PROTECTION TRUSTS
We live in a litigious society. Effective planning often involves some aspect of asset protection. Delaware is one of a small number of states that recognizes domestic asset protection trusts as a tool in the quest for effective asset protection. The Delaware Qualified Dispositions in Trust Act, 12 Del. C. § 3570 et. seq. (the “Act”) allows a grantor, through use of an irrevocable trust, to place a portion of their assets beyond the reach of creditors while allowing the grantor to retain certain interests in, and powers over, such assets. The essentials of an asset protection trust in Delaware are straightforward. The trust must be irrevocable, governed by Delaware law and contain spendthrift language.
DELAWARE
As the initial state to ratify the United States Constitution in 1787, Delaware is referred to as the “First State.” Over time, Delaware’s favorable laws and well respected Judiciary have also earned it the reputation as the “First State” when it comes to trusts. Delaware is a “pro trust” state, combining an appreciation for wealth and a commitment to flexibility with a respect for privacy and a tax friendly environment. This unique combination provides an excellent framework for helping you achieve your wealth transfer and estate planning goals.