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 top-tier jurisdictions, including Alaska and Nevada. The grantor need not live in Alaska or Nevada to establish a trust in either state. By comparing the advantages of each, you can identify the jurisdiction best suited to your client’s unique needs.

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 its 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 and Nevada

• 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.

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

  A trustee has a general common law duty of disclosure to beneficiaries. Alaska and Nevada 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 a period determined by the grantor in the trust provisions. One common reason for limiting disclosure is the desire for a minor beneficiary to make wise decisions and lead a self-sufficient lifestyle, without the expectation of a large inheritance that could discourage 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.

• 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 and Nevada have excellent decanting statutes. Nevada’s decanting statutes are among the most flexible and provide 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 and Nevada both 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.

• Dynasty or Perpetual Trusts

  Alaska and Nevada provide strong opportunities for long-term trust planning that can help minimize transfer taxes by creating trusts designed to continue for multiple generations. Long-term trusts can significantly increase wealth passing from generation to generation by avoiding unnecessary estate, gift, and generation-skipping transfer 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.

   

   

• 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.

• Protective LLC and LP Statutes

  Alaska and Nevada both have strong 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.

• Self-Settled Trusts – Asset Protection and Fraudulent Conveyance 

  Alaska and Nevada are both leading jurisdictions for self-settled trusts. The statutes of each state have many similarities, but there are also distinct differences. Specific differences include the statute of limitations for a fraudulent conveyance and the treatment of certain creditor claims. While each state has safeguards against fraudulent conveyance, Alaska has a 4-year lookback for known creditors, while Nevada has a 2-year lookback for known creditors. This distinction may affect preference depending on the client’s planning goals and counsel’s view.

  • 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.

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

  While Alaska and Nevada 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 Private Letter Ruling 200944002, the IRS agreed that the grantor of a trust can be a trust beneficiary of an Alaska self-settled spendthrift trust and that the assets of the trust will not be included in the grantor’s estate.

• Spendthrift Provisions 

  Alaska and Nevada both provide for self-settled spendthrift trusts. Strong spendthrift statutes generally allow the grantor to set up an irrevocable trust, remain 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.

• State Income Tax 

  Neither Alaska nor Nevada has a state income tax. This can create opportunities to transfer income-earning assets into an Alaska or Nevada trust and potentially reduce state-level tax exposure, depending on the residence of the grantor and the structure of the trust. Under a series of private letter rulings, the IRS has held that trusts drafted with certain provisions may allow transfers to the trust to be considered incomplete for gift tax purposes and for the trust to be deemed a non-grantor trust. Both Alaska and Nevada are commonly discussed in connection with incomplete non-grantor trust planning, often 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.

• No-Contest Clause, Premortem Validation and Premortem Probate

  Alaska and Nevada each allow forms of pre-mortem validation for wills and trusts, and each has strong no-contest provisions. These provisions can provide an effective method to reduce challenges to trust provisions or beneficiary interests. A no-contest clause may penalize a beneficiary for taking certain action, such as contesting the trust, contesting the decedent’s will, or suing another family member. Although the statutes differ between states, Alaska and Nevada share a contest-model approach to pre-mortem validation, meaning that those seeking to challenge the will or trust are provided notice and have the right to challenge the document in court within a defined period after notice is given. Alaska and Nevada statutes have a filing process whereby the grantor may petition the appropriate court to determine the validity of the document in question as part of the pre-mortem validation process.

  • 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 no-contest clause is enforceable and must be construed to carry out the 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 enforceability, including expressly stating the ability of a beneficiary to enforce clear and unambiguous trust terms, enforce legal rights related to the trust, obtain a ruling with respect to the proper administration or legal effect of the trust, and enforce the fiduciary duties of the trustee. Nevada also permits premortem probate of wills for Nevada 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.