Setting up a trust that best meets the needs and values of your clients while protecting the interests of their beneficiaries involves not only developing the most advantageous trust plans, but also choosing the most favorable trust state or jurisdiction. Ultimately the decision rests on the grantor’s goals for the trust and the client and attorney’s preferences.

Peak Trust Company can help you establish and administer trusts in three top-tier jurisdictions, Alaska, Nevada, and Delaware. (Note: The grantor need not live in Alaska, Nevada, or Delaware to set up trusts in these states.) By comparing the advantages of each, you can find the one best suited to your client’s unique needs.

You can download a short summary of state statutes here, or a long-form comparison of trust statutes for each state here.

Note: Peak Trust Company cannot provide legal advice. Jurisdiction-specific law should be discussed with appropriately skilled legal counsel. The differences discussed below are general statements and do not cover the many complexities of the subject. Each state frequently proposes and passes updates and clarifications to their respective statutes. Please consult legal counsel and official state sources for the most up-to-date information on jurisdiction-specific law. Peak Trust Company makes no guarantees as to the completeness or relevance of these statements.

See Specific Details Regarding Alaska, Nevada, and Delaware

• Community Property

  All states operate under either a community property or separate property system. Under a community property system, most property acquired during marriage (except for gifts or inheritances) is considered community property, owned jointly by both partners. In separate property states, assets are owned individually, generally based on whoever’s name is on the asset deed or registration. Community property can provide unique federal income-tax savings. For example, upon the death of one spouse, the entire community-property asset is “stepped-up” in basis, unlike with other types of property ownership in which just the half of the asset included in the gross estate of the spouse who dies first is stepped up. By leveraging this “step-up” in basis, a surviving spouse to sell appreciated assets for little or no capital gains tax upon the death of their spouse, when the asset is owned as community property.

  • Alaska is a separate property state with an opt-in community property regime. Alaska is one of only a few states that allow couples to opt into community property for some or all their assets, by using an Alaska Community Property Trust for non-residents (or agreement for resident Alaskans).
  • Nevada is a community property state.
  • Delaware is a separate property state.

• Confidentiality (Including Notice Requirements and Waiver of Duty to Inform)

  A trustee has a general common law duty of disclosure to beneficiaries. Alaska, Nevada, and Delaware each provide the ability for a grantor to waive this duty, in the terms of the trust, for a period of time.  In doing so, the grantor may withhold knowledge of a trust’s existence from a beneficiary for some period of time determined by the grantor in the trust provisions. One common reason for keeping the knowledge of a trust’s existence from a beneficiary is the desire for a minor beneficiary to make wise decisions and lead a self-sufficient lifestyle, without the idea that there is a large inheritance waiting for them that could de-incentivize them to make the most productive life choices.

  • Alaska has strong confidentiality protections. Alaska requires a trust to be registered with the Superior Court in the judicial district of trust administration. The trust cannot waive this registration requirement. Alaska also requires a trustee to notify current beneficiaries in writing, as well as persons who can virtually represent future beneficiaries of the court, where the trust is registered and the name and address of the trustee. The trustee has general duty to keep the beneficiaries reasonably informed of the trust and its administration. Upon reasonable request, the trustee must provide the beneficiary a copy of trust provisions that affect the beneficiary’s interest and relevant information about the trust assets administration. The grantor may exempt the trustee from this notice requirement and the duty to reveal any information regarding the trust to beneficiaries who are not entitled to mandatory distributions from the trust. This exemption from disclosure must be included in the terms of the trust or provided in a separate document and the exemption ends at the death or incapacitation of the grantor.
  • Nevada provides some of the best confidentiality laws with privacy protection for trusts and the people they serve, Nevada has minimal public reporting requirements, court authority to seal records and corporate entity laws promoting confidentiality. Nevada requires a trustee to provide a copy of the trust, upon demand, to a beneficiary who is entitled to an accounting. A grantor may restrict or eliminate the right of a beneficiary to be informed of the beneficiary’s interest for a period of time in the terms of the trust, or by separate document.

  • Delaware is world renowned for having some of the strongest confidentiality laws in the nation for corporations and other entities. In Delaware, a grantor may, in the terms of the trust, limit a beneficiary’s right to be informed of interest in trust for a period of time. This can be (but is not limited to) a period of time related to the beneficiary’s age, the lifetime of the trustor or spouse of a trustor, a term of years or specific date, or a specific event that is certain to occur.

• Creditor-Protected IRAs 

  Alaska law offers protection for an individual whose IRA is not otherwise protected from creditor claims under the law of his or her own state (such as California).

• Decanting

  Alaska, Nevada, and Delaware all have excellent decanting statutes. Nevada and Delaware’s decanting statutes are some of the most flexible, which provide for an effective means to modify trust provisions to accommodate evolving family needs, changing tax laws or outdated trust provisions.

• Directed Trusts and Separated Trustee Roles

  Alaska, Nevada, and Delaware all allow for directed trusts and trusts with separated trustee roles.

  • Alaska specifically permits the separation of trustee duties. Alaska law permits a grantor to separate the trust’s investment duties, distribution duties and administrative duties by appointing different trustees for each area of responsibility. A trustee who has not been given a responsibility cannot be held liable under Alaska law for another trustee’s actions. A trust may also require the trustee to follow the direction of an adviser and in these cases the adviser is considered a fiduciary. A trustee is not liable and has no duty to inquire or investigate direction given while under this requirement.
  • Nevada statutes specifically allows for directed trusts. Nevada law relieves directed trustees from responsibility for the actions of the advisor with discretion under the trust agreement. A trust adviser is considered a fiduciary unless the trust instrument states otherwise.
  • Delaware specifically permits the separation of trustee duties. Delaware law permits a grantor to separate the trust’s investment duties, distribution duties and administrative duties by appointing different trustees for each area of responsibility. A trustee who has not been given a responsibility cannot be held liable under Delaware law for another trustee’s actions. Advisers and protectors (person granted authority to direct, consent to or disapprove fiduciary’s investment, distribution and other decisions of the fiduciary) are fiduciaries, unless the trust provides that they act in a non-fiduciary capacity.

• Dynasty or Perpetual Trusts

  Alaska, Nevada, and Delaware have all abolished the common law rule against perpetuities, which provides the ability to minimize transfer taxes by creating a trust that can continue for many generations. Using perpetual trusts can significantly increase wealth passing from generation to generation by avoiding unnecessary estate, gift and generation-skipping transfer (GST) taxes.

  • • Alaska trusts can last forever; however, if a beneficiary exercises a special power of appointment, the trust is limited to 1000 years.
    • Nevada statutes permit trusts to last up to 365 years.

  • • Delaware trusts can last forever. In Delaware there is no rule against perpetuities for personal property with the exception of direct ownership by a trust of real property. Real property owned directly by a trust in Delaware is subject to 110-year limitation, however, because there is no limit on ownership of LLC interests, real property may be held in an LLC, which the trust may then own the LLC interest with no limitation.

   

   

• Irrevocable Life Insurance Trusts (ILITs) 

  • Alaska is a leading jurisdiction for trusts and LLCs that hold large life insurance policies, because of its competitive insurance premium tax rates for insurance premiums, currently at 2.7% on the first $100,000 and 0.08% for premium amounts over $100,000 which are some of the lowest in the nation. This is particularly advantageous for estate plans that use private placement life insurance products with large face amounts and high annual premium amounts.
  • Nevada’s insurance premium tax rate is 3.5% on all amounts.
  • Delaware is a top jurisdiction for trusts that hold large life insurance policies, because of its competitive insurance premium tax rates for insurance premiums, currently at 2.0% on the first $100,000 and 0.00% for premium amounts over $100,000 which are the lowest in the nation. This is particularly advantageous for estate plans that use private placement life insurance products with large face amounts and high annual premium amounts.

• Protective LLC and LP Statutes

  Alaska, Nevada and Delaware all have superb limited partnership (LP) and limited liability company (LLC) statutes.

  • Alaska has excellent LLC and LP statutes with some reporting requirements.
  • Nevada has some of the most flexible LLC and LP statutes.
  • Delaware is world-renown as a jurisdiction for establishment of corporations, LLCs, and LPs and other entities, due its excellent flexibility and privacy.

• Self-Settled Trusts – Asset Protection and Fraudulent Conveyance 

  Alaska, Nevada, and Delaware are all top jurisdictions for self-settled trusts. The statutes of each state have many similarities, but there are some distinct differences. Specific differences should be noted in the statute of limitations for a fraudulent conveyance in each state, as well as the differences in exception creditors allowed by each state. (An exception creditor is a creditor or potential future creditor that may be exempt from the creditor protections afforded by a self-settled trust, for instance, a divorcing spouse in the case of Delaware.) While each state has safeguards against fraudulent conveyance (attempting to establish a self-settled trust to intentionally defraud existing or known creditors), Alaska and Delaware have a higher hurdle of a 4-year lookback, versus Nevada’s 2-year lookback for known creditors. It is a matter of preference for many attorneys. Some prefer Nevada’s shorter time window, while others prefer Alaska or Delaware’s more robust hurdle and longer history with examples of case law handling fraudulent transfer attempts.

  • Alaska has no exception creditors for self-settled trusts. Alaska is notably the only state that has a definition in its statutes of a so-called “pre-existing creditor.” In Alaska a fraudulent conveyance can only be set aside if the creditor can prove actual fraud as to that specific creditor. An Alaska resident who is married or will be married within 30 days, must obtain spousal consent prior to creation and funding of a self-settled trust.
  • Nevada also has no exception creditors for self-settled trusts. Under Nevada statutes, a fraudulent transfer can be set aside based upon constructive fraud as to any creditor.
  • Delaware has several exemption creditors for self-settled trusts including a grantor’s spouse, former spouse, and children.

• Self-Settled Trusts - Use of Lifetime Estate and Gift Tax Exemption 

  While Alaska, Nevada, and Delaware all allow for the creation of self-settled trusts for use of a grantor’s lifetime gift and estate tax exemption, Alaska is notably the only state that has received a favorable ruling from the IRS regarding self-settled trusts. Assets placed in self-settled trusts may be excluded from the grantor’s taxable estate even though the grantor is a trust beneficiary. In the IRS issued Private Letter Ruling, PLR 200944002, the IRS agreed that the Grantor of a trust can be a Trust Beneficiary of an Alaska Self-Settled Spendthrift Trust and the assets of the trust will not be included in the Grantor’s Estate.

• Spendthrift Provisions 

  Alaska, Nevada, and Delaware all provide for self-settled spendthrift trusts. Good spendthrift statutes generally allow the grantor to set up an irrevocable trust, be a discretionary beneficiary and avoid having the assets be subject to creditor claims of either the grantor or another beneficiary.

  • • Alaska statutes specifically exclude the interest of any beneficiary of a trust containing a spendthrift provision from being considered property subject to division in the event of divorce of a beneficiary.
    • Nevada’s spendthrift statute provides that a beneficiary’s interest in a spendthrift trust cannot be transferred or attached by a court order or any other process but may be subject to claims of a former spouse, if claims are brought within the applicable limitation period.

  • • Delaware’s spendthrift statute does not provide creditor protection for claims for support or alimony in favor of grantor’s spouse, former spouse or children, or for a division of property in respect to separation or divorce in favor of grantor’s spouse or former spouse.

• State Income Tax 

  Neither Alaska or Nevada has a state income tax. Delaware does have a state income tax, but has an exemption for trusts with non-resident beneficiaries. This provides the opportunity to potentially transfer income earning assets into an Alaska, Nevada, or Delaware trust and eliminate local or state taxes that would otherwise be paid, based upon the residence of the grantor. Under a series of private letter rulings, the IRS has held that trusts drafted with certain provisions allow for transfers to the trust to be considered incomplete for gift tax purposes and for the trust to be deemed a non-grantor trust. All three states allow for incomplete non-grantor trusts. Under this structure, any trust that is created in a state without income tax is able to avoid state income tax. These trusts are most commonly referred to as “ING trusts.”

  • Alaska has no state income tax, capital gains tax, estate tax, or gift tax. Many of the ING trust Private Letter Rulings involved Alaska law.
  • Nevada has no state income tax, capital gains tax, estate tax, or gift tax.  Nevada law has more private letter rulings related to ING trusts than any other state.
  • Delaware has a state income tax with an exemption for tax on trust income for trusts with non-resident beneficiaries. With this exemption, Delaware has no state income tax or capital gains tax, on Delaware trusts with non-resident beneficiaries, nor any estate or gift tax. Because of this, Delaware remains a popular state for ING trusts.

• No-Contest Clause, Premortem Validation and Premortem Probate

  Alaska, Nevada and Delaware each allow some form of pre-mortem validation for both wills and trusts, and each have strong no-contest provisions. Each of these states have robust no-contest clause provisions, providing an effective method to eliminate challenges to trust provisions or beneficiary interests. This provision penalizes (for example, disinherits) a beneficiary for taking certain action, such as contesting the trust, the decedent’s will or for suing another family member. Although there are differences between each of the states’ statutes dealing with pre-mortem validation, there are some distinct similarities. Each state has adopted a “contest model” of pre-mortem validation, meaning that those seeking to challenge the will or trust are provided with notice and have the right to challenge the document in court within a defined period of time from the time which the notice was given. Alaska and Nevada statutes have a filing process whereby the grantor may petition the appropriate court to determine the validity of the document (trust or will) in question as part of the pre-mortem validation process. Delaware on the other hand, has no judicial filing requirement on the part of the grantor or trustee, only the notice procedure to ensure the contest limitation goes into effect for the trust.

  • Alaska statutes enforce a no-contest provision in trusts, whether or not any probable cause exists for a proceeding brought about by a challenging beneficiary. This provision will be enforced even if probable cause exists for the beneficiary to have instituted the proceeding. Alaska is also one of the few states that allows for both residents and non-residents of Alaska to go through the premortem probate process for their wills.
  • Nevada statutes stipulate that a non-contest clause is enforceable and must be construed to carry out grantor’s intent without regard to the presence or absence of probable cause or the good faith or bad faith of the beneficiary in bringing the action. Nevada statutes contain clarifications to the enforceability of a no-contest provision including expressly stating the ability of a beneficiary to (1) enforce the clear and unambiguous terms of the trust, transfer of property to the trust, or any document referenced in or affected by the trust and any trust-related instrument; (2) enforce the beneficiary’s legal rights related to the trust, a transfer of property to the trust; any document referenced in or affected by the trust; or any other trust-related instrument; (3) obtain a ruling with respect to the proper administration, construction or legal effect of the trust or; (4) enforce the fiduciary duties of the trustee. Nevada also permits premortem probate of wills for Nevada residents.
  • In Delaware, a trustee may provide notice to the beneficiaries as to the existence of the trust, trustee’s name and address, beneficiary’s interest in the trust. Upon receipt of this notice, the beneficiary must commence any action to contest the validity of the trust within 120 days of receiving the notice (the notice must include a statement regarding time limitation for claim). Once the notice requirement has been met, Delaware statutes provide for the enforcement of no-contest provisions for claims brought against the trust as pertains to any beneficiary who initiates or participates in an action to contest the validity of the trust or to set aside or vary the terms of the trust. A no-contest clause can only be enforced for a beneficiary to whom sufficient notice has been given and the time limitation of 120 days after receipt of the notice has been met. Delaware also allows for premortem probate of wills for Delaware residents.

Peak Trust Company serves as trustee of trusts nationwide, specializing in administration for trusts pursuant to Alaska and Nevada law.

“Peak Trust Company” is the brand for a group of affiliated state chartered professional trust companies headquartered in Anchorage, Alaska. Separate state charters are maintained for operations in Alaska and Nevada as Peak Trust Company-AK and Peak Trust Company-NV.