Delaware has long been one of the most desirable jurisdictions for personal trusts due to its well-developed, flexible trust and tax laws. Some of the many benefits afforded by a Delaware asset protection trust include:

• Generational Tax Benefits with Perpetual Trusts: Personal property can be held in trust indefinitely under Delaware law, and real property held in trust is not obligated to be distributed to beneficiaries until 110 years have passed. (The 110-year limitation for real property can be avoided with the use of an LLC designed to hold that property, which may be a good idea for other planning reasons as well.) These rules offer distinct tax-saving advantages. For instance, a generation-skipping trust, sometimes referred to as a dynasty trust or perpetual trust, can be established to facilitate the transfer of wealth across multiple generations without incurring transfer taxes. Furthermore, Delaware law provides additional tax-saving benefits. Trusts in Delaware are exempt from intangible personal property tax and state franchise tax, and there is no requirement for a business license tax.
• Income Tax Efficiency: Individuals residing in states with taxes on trust income and capital gains may find Delaware to be an attractive choice for establishing an irrevocable trust due to potential tax savings. When structured correctly, a Delaware asset protection trust can be managed without incurring Delaware income and capital gains taxes, provided that the irrevocable trust has solely nonresident remainder beneficiaries. Delaware does not levy income tax on accrued income or capital gains in cases where the irrevocable Delaware trust exclusively benefits nonresident remainder beneficiaries. Furthermore, Delaware imposes no income tax on mandated income distributions to beneficiaries who do not reside in Delaware.
• Optimized Planning: Delaware law provides for many other techniques in addition to asset protection to enable great planning, including separated or directed trusts, silent trusts, competitive life insurance premium tax rates and trust decanting.
• Strict Enforcement of Spendthrift Provisions: Delaware strictly enforces spendthrift trusts— trusts specifically created to protect beneficiaries from their own imprudence or incapacity—so that creditors of your beneficiaries cannot reach the trust assets.
• Safeguards to Protect Public Interest Related to Fraudulent Transfer and Exception Creditors: Delaware statutes include provisions aimed at safeguarding the public interest concerning fraudulent transfers and exception creditors. These provisions serve to prevent the misuse of these laws while strengthening the position of grantors who intend to use them legitimately for sound financial planning. Delaware has 4-year statute of limitation for pre-existing and future creditors or, if later, within one year after discovering or reasonably should have discovered the transfer to the trust. It is important to note that creditors have the burden of demonstrating by clear and convincing evidence that the transfer was fraudulent in order to bring a successful claim against the trust. For public policy considerations, two categories of exception creditors exist. First, spouses seeking alimony and children seeking support are exempted from these provisions. It is important to note that a spouse is only an exception creditor if the grantor was married to the spouse at the time of the transfer to the trust. Second, certain tort injuries are excluded if such injuries arose prior to the transfer.
• Confidential and Expedient Judicial Settlements: The Delaware Court of Chancery enjoys a national reputation for its expertise in corporate litigation, experience in fiduciary matters, and efficient handling of trust-related issues. If a court proceeding becomes necessary, it is widely recognized as an excellent choice.

 
Note: The information provided here is for general educational and informational purposes only. It is not legal advice and should not be interpreted as such. For a thorough understanding of these topics relevant to your specific circumstances, we recommend consulting a qualified estate planning attorney. Peak Trust Company cannot provide legal advice; however, we can serve as an informational resource and provide referrals to highly skilled attorneys who can offer legal and tax guidance tailored to your specific needs.