FEBRUARY SESSION - American Bar...

Alaska, South Carolina, Wyoming, and Oklahoma

FEBRUARY SESSION

ambar.org/AssetProtection

February 10, 2015

Michael GordonGourdon, Fournaris, & Mammarella

Brandon CintulaAlaska Trust Company

Jonathan BlattmachrILS Management, LLC

Dan CollinsCollins & Collins PA

Jonathan Gopman (Moderator)Aketman Senterfitt

Robert H. LeonardPrehoda, Leonard & Edwards

David ShaftelShaftel Law Offices

Rod YancyRTY Law

http://www.americanbar.org/groups/real_property_trust_estate/events_cle/state_law_summaries.html

American Bar AssociationSection of Real Property, Trust and Estate Law

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http://www.americanbar.org/groups/real_property_trust_estate/events_cle.html 800.285.2221, select option 2

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The materials contained herein represent the opinions of the authors and editors and should notbe construed to be the action of the American Bar Association, Section of Real Property, Trustand Estate Law for Continuing Legal Education unless adopted pursuant to the bylaws of the

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Nothing contained in this book is to be considered as the rendering of legal advice for specificcases, and readers are responsible for obtaining such advice from their own legal counsel. Thisbook and any forms and agreements herein are intended for educational and informational

purposes only.

© 2015 American Bar Association. All rights reserved.

Alaska Self-Settled Trusts (and More)

by David G. Shaftel, Brandon J. Cintula & Jonathan G. Blattmachr

American Bar Association (February 2015) 1

Settlor Settlor’s spouse Children Further descendants

Often trust has a perpetual trust dispositive plan

Trustees: ____________

Beneficiaries:

Settlor forms:

Administrative Trustee: {Alaska resident, bank or trust company}

DAPT Domestic Asset Protection Trust

2

DAPT Purposes

• Rainy day asset protection

• Transfer tax planning

• Prenuptial planning

• Pre-immigration planning

3

4

DAPT Transfer Tax Planning

• Gifting

• GRATs

• Sales

• QPRTs

DAPT

and

donor, settlor, seller

can be a beneficiary

5

Exception Creditors (vary from state to state)

1. Child support: If settlor was 30 days ormore in default at time of transfer of assetsto trust. AS 34.40.110(b)(4).

2. Divorce: If assets transferred to trust duringmarriage or less than 30 days prior tomarriage. AS 34.40.110(l).

Alaska

6

Discretionary Interests Alaska Statute 34.40.113

• Not a property interest; an expectancy

• Creditor cannot force distribution

• Trustee can pay beneficiary’s expenses

• Creditor cannot maintain an action that interferes

with trustee’s payments

• Creditor cannot attach7

Structuring a Trust to be Alaskan • Structuring an Alaska Self Settled Trust:

• Structure the trust to look and smell "Alaskan“

• Control

• Contacts

• How to Accomplish That:

• Alaska Trustee(s)

• Alaska Trust Protector

• Alaska Beneficiaries

• Alaska Investments8

Structuring the Alaska for Flexibility

• Structure the trust to provide flexibility

• Trifurcate Trustee duties and responsibilities

• Empower Trust Protector to change trustee(s),governing law and situs

• Powers of appointment

• Always make perpetual/Do not mandate distributions(Watch out for State Constitution RAP)

• Allow Trustee/Trust Protector to terminate commonpot trust

• Grantor/Beneficiaries can waive certain duties9

Administration of an Alaska Self-Settled Trust

1. Best case scenario

2. Funding

3. Written requests

4. Distributions to Spouse

5. Importance of Independent Corporate Trustee

10

Practical Considerations of an Alaska Self Settled Trust

1. Affidavit of Solvency2. Fraudulent Conveyance Statute ofLimitation

i. In generalii. A unique statute

3. Only State to obtain PLR on Estate TaxExclusion--see PLR200944002 (not precedent) 4. Alaska has been in "business" longerthan any other state.

11

Some Global Comments on Trusts • Importance of Trusts in Estate and Financial Planning• Focus on the goals for creating the trust• Consider other options---qualified plans, IRAs, homestead• Beware of “dishonest” or “desperate” client• Potential lawyer liability for aiding in a fraud• In choosing a jurisdiction consider other laws that will

affect the trust (rule against perpetuities; liability of trustprotectors; accounting; decanting; directed trusts; statelaw modification statutes; more)

• Involving a local lawyer• Avoiding foreign trusts• Protection of non-settlor beneficiaries

12

Bonus for All Clients: A Non-Self Settled Trust • Definition of Self-Settled Trust • Trust for Others Is Not Self-Settled • While the Client Is Married • Arming Someone with a Non-Fiduciary Special

Power • Scope • Successor Power Holders • State Law Protection for Non-Settlor Beneficiaries

13

Summary and Conclusions

• Do No Harm to Yourself or Your Client • Ensure Adherence to the Highest Ethical Standards • Get Advice of Others with More Experience • Get the Solvency Affidavit (under Penalties of

Perjury) • Consider More Straight Forward Options

(Qualified Plans, IRA (most states), Prenuptial Agreements, Life Insurance (Annuities), Follow Sound Business Practices, Carry Liability Insurance At Least for Legal Costs)

14

ACTEC

COMPARISON OF THE

DOMESTIC ASSET PROTECTION TRUST STATUTES UPDATED THROUGH APRIL 2014

EDITED BY DAVID G. SHAFTEL Copyright © 2014, David G. Shaftel. All Rights Reserved.

This April 2014 version of the chart updates the prior June 2012 chart. Over the past two years, numerous DAPT law changes have occurred. This 2014 chart includes Ohio and Mississippi’s newly enacted statutes, substantial recent changes to the laws of Tennessee, Utah, and Wyoming, and additional changes to, or explanations of, the laws of Alaska, Delaware, Missouri, South Dakota, and Virginia.

The following ACTEC state editors generously contributed, reviewed and edited their state’s subjects for accuracy: David G. Shaftel (Alaska); Marc A. Chorney (Colorado); Richard G. Bacon (Delaware); Prof. Randall W. Roth (Hawaii); Leonard C. Martin (Mississippi); Steven B. Gorin (Missouri); Layne T. Rushforth (Nevada); Amy K. Kanyuk and William Zorn (New Hampshire); Bowen Loeffler, Michael J. Stegman, and Brian Layman (Ohio); Amy J. Sine (Oklahoma); John Harpootian (Rhode Island); Bryan Howard (Tennessee); Thomas Christensen, Jr. (Utah); Howard M. Zaritsky (Virginia); and Robert H. Leonard (Wyoming).

Similarly, the following attorneys generously reviewed and contributed to the preparation of this chart: John Roth (Hawaii) and John E. Sullivan III (South Dakota).

15

INTRODUCTION

A domestic asset protection trust (hereinafter referred to as a “DAPT”) is generally an irrevocable trust with an independent trustee who has absolute discretion to make distributions to a class of beneficiaries which includes the settlor. The primary goals of DAPTs are asset protection and, if so designed, transfer tax minimization.

Prior to 1997, two states had statutory provisions which appear to support the formation of DAPTs. In 1997, Alaska was the first state to enact a usable DAPT statute. In the seventeen years since, thirteen other states have followed suit. There are now sixteen states that allow for the formation of DAPTs.

Ohio’s new statute was adopted in 2013 and became effective March 27, 2013. Mississippi’s 2014 statute is the most recently enacted addition to our chart. This act is effective as of July 1, 2014.

Legislatures have taken different approaches. The original statutes are terse and only indicate a public policy (Missouri and Colorado). Some of the new statutes amend existing statutes, and others enact new “Acts”. Interest groups within the various states have influenced the extent of the asset protection provided by the statutes.

If implemented correctly, the DAPT approach may be used successfully by residents of states with DAPT statutes. An interesting issue remains whether nonresidents of DAPT states may form a DAPT under one of the DAPT state’s laws and obtain the desired asset protection and tax benefits. The analysis of this issue involves the conflict of laws. The most likely test is whether the nonresident’s domiciliary state has a “strong public policy” against DAPT asset protection. The fact that sixteen states now have DAPT statutes moves this approach from the eccentric anomaly category to an accepted asset protection and transfer tax minimization planning technique. As more and more states enact DAPT statutes, the conclusion that a non-DAPT state has a “strong public policy” against a DAPT trust seems less likely.

A number of states which have not enacted full DAPT statutes have “placed their toe in the water”. For example, states such as Arizona, Florida, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Oregon, New York, and Texas all have enacted statutes which protect the assets in an irrevocable grantor trust from a creditor claim even though an independent trustee, in such trustee’s discretion, may reimburse the settlor for income tax resulting from assets in the trust. Arizona and New Hampshire protect the assets in a supplemental needs trust from the settlor’s creditors. States such as Arizona, Florida, Kentucky, Michigan, and Maryland have all enacted statutes clarifying that the assets of an inter vivos QTIP trust cannot be reached by the creditors of a donor spouse after the death of the donee spouse. Enactment of protection for self-settled interests like these provides weight to the argument that those states do not have a “strong public INTRODUCTION—COMPARISON OF THE DOMESTIC ASSET PROTECTION TRUST STATUTES

16

policy” against self-settled trust asset protection, and therefore residents could form a DAPT under another state’s law. The same reasoning applies to residents of DAPT states who conclude their state’s DAPT statute is not as desirable as the statute of another DAPT state.

This 2014 version of the DAPT chart contains a new subject:

25. May a trustee pay income or principal directly to a third party, for the benefit of a beneficiary, even if the beneficiary has an outstanding creditor?

This new subject is the result of recent dialogue among asset protection planners about a creditor who obtains a continuing writ of attachment against a trustee with respect to distributions by the trustee to a debtor-beneficiary. May the trustee safely pay the expenses of the debtor-beneficiary, instead of making distributions directly to the debtor-beneficiary? Alaska, Delaware, Missouri, Ohio, South Dakota, Tennessee, and Wyoming all have enacted statutes which either expressly protect, or appear to protect, a trustee who pays expenses instead of making distributions.

Wyoming’s 2013 amendments create an additional DAPT approach which is not dependent on a spendthrift provision. This alternative approach is based upon distributions which are at the sole discretion of an independent trustee.

There have been two DAPT cases. Both involved Alaska DAPTs and both were in bankruptcy court: Battley v. Mortensen, 2011 WL 5025288 (Bankr. DC Alaska 2011), decided May 26, 2011, by the Alaska bankruptcy court; and Waldron v. Huber (In re Huber), 493 B.R. 798; 2013 Bankr. LEXIS 2038; 2013 WL 2154218, decided May 17, 2013, by the bankruptcy court for the Western District of Washington at Tacoma. At present, the editors are not aware of any federal transfer tax cases involving DAPTs.

The DAPT chart below is designed to give the reader an easy and quick comparison of the various DAPT statutes. A chart, by its very nature, is an oversimplification. The reader is urged to carefully analyze the provisions of a statute before implementing a DAPT.

The publication and dissemination of this Chart does not constitute the rendering of legal, accounting, or other professional advice. The editors disclaim any liability with respect to the use of this Chart.

INTRODUCTION—COMPARISON OF THE DOMESTIC ASSET PROTECTION TRUST STATUTES

17

NO. SUBJECT

ALASKA COLORADO DELAWARE

HAWAII Page No.

MISSISSIPPI MISSOURI NEVADA

NEW HAMPSHIRE Page No.

OHIO OKLAHOMA

RHODE ISLAND SOUTH DAKOTA

Page No.

TENNESSEE UTAH

VIRGINIA WYOMING Page No.

1. What requirements must trust meet to come within

protection of statute?

1 8 16 26

2. May a revocable trust be used for asset protection?

1 8 16 27

3. Has the state legislature consistently supported DAPTs and related estate planning by continued amendments?

1 8 17 27

4. What contacts with state are suggested or required to establish situs?

2 8 17 27

5. What interests in principal and income may settlor retain?

2 9 18 28

6. What is trustee's distribution authority?

2 9 18 28

7. What powers may settlor retain?

3 9 19 29

8. Who must serve as trustee to come within protection of statute?

3 10 19 29

9. May non-qualified trustees serve?

3 10 19 29

10. May trust have distribution advisor, investment advisor, or trust protector?

3 10 20 30

11. Are fraudulent transfers excepted from coverage?

4 10 20 30

12. Fraudulent transfer action: burden of proof and statute of limitations.

4 11 21 30

13. Does statute provide an exception (no asset protection) for a child support claim?

4 11 21 31

14. Does the statute provide an exception (no asset protection) for alimony?

4 11 21 31

QUESTIONS REFERENCE SHEET Page -i- of –iii-


HAWAII

MISSISSIPPI MISSOURI

NEVADA NEW HAMPSHIRE

OHIO OKLAHOMA


TENNESSEE UTAH

VIRGINIA WYOMING

18

NO. SUBJECT


HAWAII Page No.



OHIO OKLAHOMA


Page No.

TENNESSEE UTAH


15. Does statute provide an exception (no asset

protection) for property division upon divorce?

5 11 22 31

16. Does statute provide an exception (no asset protection) for tort claims?

5 11 22 31

17. Does statute provide other express exceptions (no asset protection)?

5 12 22 32

18. Does statute prohibit any claim for forced heirship, legitime or elective share

5 12 23 32

19. Are there provisions for moving trust to state and making it subject to statute?

5 12 23 33

20. Does statute provide that spendthrift clause is transfer restriction described in Section 541(c)(2) of the Bankruptcy Code?

5 12 23 33

21. Does statute provide that trustee automatically ceases to act if court has jurisdiction and determines that law of trust does not apply?

6 12 23 33

22. Does statute provide that express/implied understandings regarding distributions to settlor are invalid?

6 12 23 34

23. Does statute provide protection for attorneys, trustees, and others involved in creation and administration of trust?

6 13 23 34

24. Does statute authorize a beneficiary to use or occupy real property or intangible personal property owned by trust, if in accordance with trustee's discretion?

6 13 24 34

QUESTIONS REFERENCE SHEET Page -ii- of –iii-


HAWAII



OHIO OKLAHOMA


TENNESSEE UTAH

VIRGINIA WYOMING

19

NO. SUBJECT


HAWAII Page No.



OHIO OKLAHOMA


Page No.

TENNESSEE UTAH


25. May a trustee pay income or principal directly to a

third party, for the benefit of a beneficiary, even if the beneficiary has an outstanding creditor?

6 13 24 34

26. Is a non-settlor beneficiary's interest protected from property division at divorce?

6 13 24 34

27. Are due diligence procedures required by statute?

6 14 24 34

28. Is the trustee given a lien against trust assets for costs and fees incurred to defend the trust?

7 14 24 34

29. Is there statutory authority supporting a trust's non-contestability clause even if probable cause exists for contest?

7 14 24 34

30. Is the trustee given "decanting" authority to modify the trust?

7 14 25 35

31. What is allowable duration of trusts?

7 14 25 35

32. Does state assert income tax against DAPTs formed by non-resident settlors?

7 15 25 35

33. Have state limited partnership and LLC statutes been amended to provide maximum creditor protection?

7 15 25 35

34. What is the procedure and time period for a trustee to provide an accounting and be discharged from liability?

7 15 25 35

QUESTIONS REFERENCE SHEET Page -iii- of –iii-


HAWAII



OHIO OKLAHOMA


TENNESSEE UTAH

VIRGINIA WYOMING

20

SUBJECT ALASKA COLORADO* DELAWARE HAWAII Citation:

Alaska Stat. §§ 13.36.310, 34.40.110

Citation: Colo. Rev. Stat. §§ 38-10-111

Citation: Del. Code Ann. tit. 12, §§ 3570-3576

Citation: H.R.S. 554G

Effective Date: April 2,1997

Effective Date: 1861

Effective Date: July 1, 1997


URL: http://www legis.state.ak.us

URL: http://www.state.co.us

URL: http://www.delcode.state.de.us

URL: http://capitol hawaii.gov /hrscurrent

1. What requirements must

trust meet to come within protection of statute?

Trust instrument must: (1) be irrevocable; (2) expressly state AK law governs validity, construction, and administration of trust (unless trust is being transferred to AK trustee from non-AK trustee); (3) contain spendthrift clause. AS 34.40.110(a).

In trust, limited to future creditors.

Trust instrument must: (1) be irrevocable; (2) expressly state that DE law governs validity, construction, and administration of trust (unless trust is being transferred to DE trustee from non-DE trustee); (3) contain spendthrift clause.

Trust must be irrevocable and expressly incorporate HI law covering the validity, construction, and administration of the trust.


No. AS 13.36.368. No No No


Yes, amendments enacted in: 2014, 2013, 2010, 2008, 2006, 2004, 2003, 2001, 2000, and 1998.

No amendments Yes, amendments enacted in: 2014, 2013, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2003, 2002, 2001, 2000, and 1998.

Statute did not provide an attractive option when first enacted in 2010. As of July 2011, however, the statute is much stronger, reflecting consi-derable legislative support for DAPTs

* It is unclear whether Colorado’s statute qualifies as a DAPT statute and assertion of the statute as such is typically made only defensively. Compare In Re Baum, 22 F.3d 1014 (10th Cir. 1994), with In the Matter of Cohen, 8 P.3d 429 (Colo. 1999), In Re Gary Lee Bryan, 415 B.R. 454 (Bankr. D. Colo. 2009) and In re the Estate of Sheldon K. Beren, 2013 Colo. App. LEXIS 1874, P42 (Colo. Ct. App. 2013). See also, Rosen and Rothschild, 810 3rd T.M. Asset Protection Planning, VII A.2d and Nenno & Sullivan, 868 T.M. Domestic Asset Protection Trusts, I C. As to Subject 26, see Chorney, Interests in Trusts as Property in Dissolution of Marriage: Identification and Valuation, 40 Real Prop., Probate and Trust J. 1 (2005).

Page 1 21

SUBJECT ALASKA COLORADO DELAWARE HAWAII 4. What contacts with state are

suggested or required to establish situs?

Suggested: (1) some or all of trust assets deposited in state; (2) AK trustee whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns (can be non-exclusive); (3) part or all of the administra-tion occurs in state, including maintenance of records. AS 13.36.035(c).

Not addressed by statute. Required: (1) some or all of trust assets deposited in state; (2) DE trustee whose powers include (a) maintaining records (can be nonexclusive), (b) preparing or arranging for the preparation of income tax returns; (3) or, otherwise materially participates in the administration of the trust.

There must be at least one trustee who is a HI resident, or a bank or trust company that has HI as its principal place of business, and such trustee must materially participate in administering the trust.

5. What interests in principal and income may settlor retain?

Settlor may retain interests in: (1) CRT; (2) total-return trust; (3) GRAT or GRUT; (4) QPRT; (5) IRA; and (6) ability to be reim-bursed for income taxes attributable to trust. AS 34.40.110(b)(3).

Not addressed by statute. Settlor may retain interests in: (1) current income; (2) principal, if paid pursuant to trustee’s discretion, a standard or an advisor’s direction; (3)CRT; (4) up to 5% interest in total return trust; (5) GRAT or GRUT; (6) QPRT; (7) qualified annuity interest; (8) ability to be reimbursed for income taxes attributable to trust; and (9) the ability to have debts, expenses and taxes of the settlor’s estate paid from the trust.

Right to current income; up to 5% of principal annually; reimbursement for income taxes on trust income; ability to receive discretionary distributions in any amount. (Settlor may also serve as investment advisor.)


Discretion whether or not governed by a standard. AS 34.40.110(m)(1)

Not addressed by statute. (1) Discretion; (2) pursuant to a standard; or (3) pursuant to the direction of an advisor who in turn is acting pursuant to the advisor’s discretion or a standard.

Discretion to distribute any amount of principal to settlor if trust agreement so authorizes.

ALASKA COLORADO DELAWARE HAWAII Page 2 22

SUBJECT ALASKA COLORADO DELAWARE HAWAII 7. What powers may settlor

retain? Settlor may retain: (1) power to veto distribu-tions; (2) non-general lifetime and testamentary powers of appointment; (3) right to appoint and remove trustees, trust protector, and advisors; and (4) right to serve as a co-trustee or advisor. AS 34.40.110(b)(2) and (f).

Not addressed by statute. Settlor may retain: (1) power to veto distributions; (2) non-general testamentary power of appointment; and (3) power to replace trustee/ advisor.

Veto power over distri-butions; non-general testamentary power of appointment; power to remove and replace trustees and advisors; testamentary power of appointment for debts, administration expenses, and estate/ inheritance taxes.


Alaska trustee not required, but suggested to establish situs. Resident individual or trust company or bank that possesses trust powers and has principal place of business in Alaska. AS 13.36.390(3).

Not addressed by statute. Resident individual or corporation whose activities are subject to supervision by Delaware Bank Commissioner, FDIC, Comptroller of Currency, or Office of Thrift Supervision.

Individual HI resident(s), other than the transferor, and/or a bank or trust company that has HI as its principal place of business.


Yes. AS 34.40.110(f),(g).

Not addressed by statute. Yes, as a cotrustee. Yes, as long as there is a permitted trustee.


Yes. Trust may have trust protector and trustee advisor. Settlor may be advisor if does not have trustee power over discretionary distributions. AS 13.36.370, .375; AS 34.40.110(f),(g),(h).

Not addressed by statute. Yes. Trust may have one or more advisors (other than trustor) who may remove and appoint qualified trustees or trust advisors or who have authority to direct, consent to, or disapprove distributions from trust. Trust may have investment advisor, including trustor. The term “advisor” includes a protector.

Yes. Settlor may appoint one or more trust advisors or protectors, including advisors with power to (i) remove and appoint trustees, advisors, trust committee members, or protectors, (ii) direct, consent to, or disapprove of distributions from the trust, and (iii) serve as investment advisor.


SUBJECT ALASKA COLORADO DELAWARE HAWAII 11. Are fraudulent transfers

excepted from coverage? Yes. Alaska has not adopted Uniform Fraudulent Transfer Act. Alaska statute sets aside transfers made with intent to defraud. AS 34.40.110(b)(1).

Yes. Uniform Fraudulent Transfer Act applies and sets aside transfers with intent to hinder, delay or defraud, and transfers made with constructive fraudulent intent.

Yes, but as to creditors whose claims arise after the qualified disposition, only if an action is brought within four years of such qualified disposition and only if the qualified disposition was made with actual intent to defraud. UTFA applies to creditors whose claims exist at time of qualified disposition.

Creditors can set aside only transfers made with actual intent to hinder, delay, or defraud.


Clear and convincing evidence. Existing creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered, but future creditor must establish claim within four years after transfer. Future creditors: Four years after transfer. AS 34.40.110(b)(1); AS 34.40.110(d).

Clear and convincing evidence. Existing creditors and future creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud.

Clear and convincing evidence. Existing creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud. Future creditors: Four years after transfer.

Claims must arise before the transfer is made and be brought within two years. See #16 regarding certain tort victims. Creditor has burden to show actual fraudulent intent by preponderance of evidence (or clear and convincing evidence in limited circumstances).


Yes, if settlor was 30 days or more in default of making payment at time of transfer of assets to trust. AS 34.40.110(b)(4).

No Yes Yes. Protection is not available regarding family court-supervised agreement or order for child support.


No No Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust.

Yes. Protection is not available regarding family court-supervised agreement or order for support or alimony to the transferor’s spouse or former spouse.


SUBJECT ALASKA COLORADO DELAWARE HAWAII 15. Does statute provide an

exception (no asset protection) for property division upon divorce?

Yes, if assets were transferred to trust during or less than 30 days prior to marriage. Otherwise, assets are protected. AS 34.40.110(l).

No Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust. Otherwise, assets are protected.

Yes. Protection is not available regarding family court-supervised agreement or order for a division or distribution of property to the transferor’s spouse or former spouse.


No No Yes, but only for claims that arise as a result of death, personal injury, or property damage occurring before or on the date of transfer.

No. But statute does not provide asset protection if the plaintiff suffered death, personal injury, or property damage on or before date of permitted transfer.


No No No Yes, secured loans to the transferor based on express or implied representations that trust assets would be available as security in the event of default; also, the transferor’s tax liabilities to the State of Hawaii.

18. Does statute prohibit any claim for forced heirship, legitime or elective share?

Yes, assets excluded from augmented estate if transfer made more than 30 days before marriage or with spouse’s consent. AS 13.12.205(b).

No Yes Yes


Yes AS 13.36.035; AS 13.36.043.

No Yes Yes


Yes AS 34.40.110(a).

No Yes Yes


SUBJECT ALASKA COLORADO DELAWARE HAWAII 21. Does statute provide that

trustee automatically ceases to act if court has jurisdic-tion and determines that law of trust does not apply?

No No Yes Yes

22. Does statute provide that express/implied understand-ings regarding distributions to settlor are invalid?

Yes AS 34.40.110(i).

No Yes Yes


Yes, and also provides protection for funding limited partnerships and LLCs. AS 34.40.110(e).

No Yes Yes

24. Does statute authorize a beneficiary to use or occupy real property or tangible personal property owned by trust, if in accordance with trustee's discretion?

Yes AS 34.40.110(a).

No For a transferor benefi-ciary limited to a QPRT residence. For a non-transferor beneficiary, as provided under the terms of the governing instrument.

Yes


Yes AS 34.40.113.

No Yes. 12 Del. Code Ann. § 3536(a).

No


Yes, and may not be considered in property division. AS 34.40.110(l).

Increases in value of and income from separate property after marriage are marital property.

Yes, but may be considered in property division in certain instances.

Yes, but may be considered in property settlement.


Yes; affidavit required. AS 34.40.110(j).

No No No


SUBJECT ALASKA COLORADO DELAWARE HAWAII 28. Is the trustee given a lien

against trust assets for costs and fees incurred to defend the trust?

Yes AS 13.36.310(c).

No Yes Yes, if the trustee has not acted with intent to defraud, hinder, or delay the creditor.

29. Is there statutory authority supporting a trust’s non-contestability clause even if probable cause exists for contest?

Yes AS 13.36.330.

No Yes No

30. Is the trustee given “decanting” authority to modify the trust?

Yes AS 13.36.157, .158, .159.

No Yes No, but trustee of trust or holder of a non-conforming power of appointment may conform to the statute.


Up to 1,000 years. AS 34.27.051.

Up to 1,000 years No limit for personal property, including LLC and LP interests, even if LLC or LP owns real property; otherwise, 110 years for real property.

No limitation. Rule against perpetuities does not apply to qualifying trusts.


No

Yes No. However, does impose its income tax upon trusts that accumulate income for Delaware residents.

Trust is subject to HI income taxes generally, but not on income and capital gains accumulated for the benefit of non-residents.


Yes; charging order is only remedy. AS 10.50.380; AS 32.11.340.

Yes, charging order is only remedy.

Yes, charging order is only remedy. Del. Code Ann. tit. 6, § 18-703.

No


(1) Trustee petition and court discharge; or (2) six months after trustee provides report that adequately discloses claims. AS 13.36.100.

Six months after trustee provides report that adequately discloses claims, and shows termination of the trust relationship between the trustee and the beneficiary.

Trustee filing and court discharge. Discharge occurs two years after delivery of statement that discloses the facts giving rise to the claim. (Accountings do not have res judicata effect in DE except as to matters actually contested in the accounting proceeding.)

Trustee filing and court discharge.


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE Citation:

Miss. Code Ann. §§ 91-9-701—91-9-723

Citation: Mo. Rev. Stat. §§ 456.5-505

Citation: Nev. Rev. Stat. §§ 166.010-166.170

Citation: N.H. Rev. Stat. Ann. § 564-D:1-18


Effective Date: 1989

Effective Date: Oct. 1, 1999

Effective Date: Jan. 2, 2009

URL: http://www.lexisnexis.com/ hottopics/mscode

URL: http://www.moga.mo.gov URL:

http://www.leg.state.nv.us

URL: http://www.gencourt.state. nh.us



Trust instrument must: (1) be irrevocable; (2) expressly state MS law governs validity, construction and administration of the trust; (3) contain a spendthrift clause

Trust instrument must: (1) be irrevocable; (2) contain a spendthrift clause; (3) have more than the settlor as a beneficiary; (4) settlor’s interest must be discretionary.

Trust instrument must: (1) be irrevocable; (2) all or part of corpus of trust must be located in NV, domicile of settlor must be in NV, or trust instrument must appoint NV trustee; and (3) distributions to settlor must be approved by someone other than the settlor.

Trust instrument must: (1) be irrevocable; (2) expressly state that NH law governs validity, construction, and administration of trust (unless trust is being transferred to NH trustee from non-NH trustee); (3) contain spendthrift clause.


No No No No


No amendments. Amendments enacted in 2004 and 2009.

Yes. The Nevada Legislature approved amendments in 2007, 2009, and 2011.

Yes. Amendments enacted in 2011. Further amendments pending in 2014 (SB 289).


Required: (1) some or all of trust assets deposited in state; (2) MS trustee whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns; (3) or, otherwise materially participates in the administration of the trust.

Principal place of business or residence of trustee in designated jurisdiction, or presence of all or part of the administration in designated jurisdiction; statute includes procedure for transfer of principal place of business. RSMo § 456.1-108.

Required: (1) all or part of assets are in state; (2) NV trustee whose powers include: (a) maintaining records, (b) preparing income tax returns; (3) all or part of administration in state.

Required: (1) some or all of trust assets deposited in state; (2) NH trustee whose powers include (a) main-taining records (can be nonexclusive), (b) prepar-ing or arranging for the preparation of income tax returns; (3) or, otherwise materially participates in the administration of the trust.

MISSISSIPPI MISSOURI NEVADA NEW HAMSHIRE Page 8 28

SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 5. What interests in principal

and income may settlor retain?

Settlor may retain interests in: (1) current income; (2) CRT; (3) up to 5% interest in total-return trust; (4) QPRT; (5) ability to be reimbursed for income taxes attributable to trust, and (6) ability to have debts, expenses and taxes of the settlor’s estate paid from the trust.

Settlor may be one of a class of beneficiaries of a trust discretionary as to income or principal. RSMo § 456.5-505.3.

The settlor may retain any right except the power to make distributions to himself without the consent of another person. N.R.S. § 166.040(3). The settlor’s interest in a QPRT, GRAT, CRT, or a trusteed IRA are also protected. N.R.S. § 166.040(2)(c) through (f), added in 2011.

Settlor may retain interests in: (1) current income; (2) CRT; (3) up to five percent interest in total return trust; (4) QPRT; (5) GRAT or GRUT; (6) the ability to have debts, expenses and taxes of the settlor’s estate paid from the trust; (7) ability to be reim-bursed for income taxes attributable to trust.


(1) Absolute discretion; (2) pursuant to a standard.

(1) Discretion; or (2) pursuant to a standard. RSMo § 456.8-814. Creditor may not compel exercise of discretion. RSMo § 456.5-504.1.

As provided in the trust agreement, which may include absolute discretion or discretion limited by an ascertainable standard, and it may be subject to approval or veto powers retained by the settlor or given to the trust protector or other advisor.

(1) Discretion; or (2) pursuant to an ascertainable standard.

7. What powers may settlor retain?

Settlor may retain: (1) power to veto distributions; (2) non-general testamentary power of appointment; (3) power to replace trustee/ advisor with non-related/nonsub-ordinate party; and (4) serve as an investment advisor.

Settlor may retain a testamentary limited power of appointment. RSMo § 456.5-505.4. Settlor may serve as trustee without negating spendthrift protection. RSMo § 456.5-504.1.

Settlor may retain any power except the power to make distributions to himself without the consent of another person, including: (1) power to veto distributions; and (2) special testamentary power of appointment or other similar power.

Settlor may retain: (1) power to veto distribu-tions; (2) non-general testamentary power of appointment; (3) power to remove and replace trustee/advisor with nonrelated/nonsubor-dinate party; and (4) right to serve as trust advisor.


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 8. Who must serve as trustee

to come within protection of statute?

Resident individual, or is authorized by MS law to act as a trustee and whose activities are subject to supervision by the Mississippi Dept. of Banking and Consumer Finance, the FDIC, the Comptroller of the Currency, or the Office of Thrift Supervision, or any successor thereto.

Not addressed by statute. RSMo § 456.1-107 describes when MO law controls.

Resident individual or trust company or bank that maintains office in Nevada.

Resident individual or a state or federally chartered bank or trust company having a place of business in New Hampshire.


Yes Not addressed by statute. Yes Yes


Yes. Trust may have: (1) advisors who have authority to remove and appoint qualified trustees or trust advisors; (2) advisors who have authority to direct, consent to or disapprove distributions from the trust; and (3) investment advisors. The term "advisor" includes a trust protector.

Yes. RSMo § 456.8-808. A trust protector is a person other than the settlor, a trustee, or a beneficiary. The statute is flexible regarding powers.

Yes Yes. “Trust advisor” includes a trust protector or any other person who holds one or more trust powers. Trust advisor’s powers may be defined in the trust agreement and are not limited by the statute. If grantor serves as trust advisor, powers cannot include a general power of appointment.



Yes. Uniform Fraudulent Transfer Act applies and sets aside transfers with intent to hinder, delay or defraud, and transfers made with constructive fraudulent intent. RSMo § 456.5-505.3(1).

Yes. Uniform Fraudulent Transfer Act applies, and sets aside transfers with intent to hinder, delay or defraud, and transfers made with constructive fraudulent intent.

Yes. Uniform Fraudulent Transfer Act applies, and sets aside transfers with actual intent to hinder, delay or defraud, and constructively fraudulent transfers.


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 12. Fraudulent transfer action:

burden of proof and statute of limitations.

Clear and convincing evidence. Existing creditors: Two years after transfer, or six months after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Two years after transfer if claim based upon constructive fraud. Future creditors: Two years after transfer.

Clear and convincing evidence. Existing creditors and future creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud. RSMo ch. 428.

Clear and convincing evidence. Future creditors: Two years after transfer. Existing creditors: Two years after transfer, or, if longer, six months after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud (rather than constructive fraud). A transfer is deemed discovered when reflected in a public record.

Case law: Actual fraud must be proved by clear and convincing evidence; constructive fraud by a preponderance of the evidence. Existing creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud. Future creditors: Four years after transfer.


Yes Yes RSMo § 456.5-503.2

No Yes


Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust.

Yes RSMo § 456.5-503.2

No Yes, but only if ex-spouse was married to settlor before or on date of transfer of assets to trust.

15. Does statute provide an exception (no asset protection) for property division upon divorce?

Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust. Otherwise, assets are protected.

No No Yes, but only if ex-spouse was married to settlor before or on date of transfer of assets to trust. Otherwise, assets are protected.


Yes, for claims that arise as a result of death, personal injury, or property damage occurring before or on the date of transfer.

No No Yes, but only for claims that arise as a result of death, personal injury, or property damage occurring before or on the date of transfer.


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 17. Does statute provide other

express exceptions (no asset protection)?

Yes. Claim not extin-guished (1) if creditor is state of Mississippi or any political subdivision thereof, (2) for any creditor in an amount not to exceed $1,500,000 if the settlor failed to maintain a $1,000,000 general liability policy.

Yes, regarding governmental claims, if another governing law supersedes. RSMo § 456.5-503.3

No No


Yes No No, but Nevada law does not recognize such claims.

Yes, unless the transferor made the qualified disposition for the purpose of defeating the surviving spouse’s elective share rights.


Yes No Yes. NRS 166.180 (added in 2011).

Yes


Yes No No Yes


Yes No No No

22. Does statute provide that express/implied understandings regarding distributions to settlor are invalid?

Yes Irrelevant, if the trust complies with RSMo § 456.5-505.3

Yes. NRS 166.045 (added in 2011).

Yes


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 23. Does statute provide

protection for attorneys, trustees, and others involved in creation and administration of trust?

Yes No Yes. A trustee or an advisor of the settlor or trustee is liable only if it is established by clear and convincing evidence that damages directly resulted from the advisor’s violation of the law knowingly and in bad faith. N.R.S. §§ 166.170(5) and (6).

Yes


Yes No, but a creditor may not force a trustee to exercise discretion, and an interest in a trust does not constitute a property interest. RSMo § 456.5-504.1

Yes. N.R.S. § 166.040(2)(h), added in 2011.

Use of QPRT residence specifically authorized. Use and occupancy of other property not addressed in the statute.


No Yes RSMo § 456.5-504.1

Yes. N.R.S. § 166.120

No


Yes. The Act does not address, but if property is retained in a spendthrift trust for the beneficiary it is protected. Even if not retained in trust, property received by gift or inheri-tance is the beneficiary’s separate property; how-ever, trust income and assets can be considered a resource for purposes of determining alimony and child support.

Yes, but may be considered in property division.

Yes, if property is retained in a spendthrift trust for the beneficiary. Even if not retained in trust, property received by gift or inheritance is the beneficiary’s separate property; however, trust income and assets can be considered a resource for purposes of determining alimony and child support.

Yes. Under the NH Uniform Trust Code, if a beneficiary is eligible to receive distributions in the trustee’s discretion (regardless of whether there is a standard to guide the trustee), the beneficiary’s interest is neither a property interest nor an enforceable right but a mere expectancy. See RSA 564-B:8-814 and Goodlander v. Tamposi, 161 N.H. 490 (2011).


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 27. Are due diligence procedures

required by statute? Yes; affidavit required. No No No


Yes Yes RSMo § 456.7-709.

No Yes


No No N.R.S. 163.00195 requires a court to enforce a no-contest clause contained in a trust, but there is a statutory exception for a legal action challenging the validity of the trust document (or any trust-related document) where the “legal action is instituted in good faith and based on probable cause that would have led a reasonable person, properly informed and advised, to conclude that the trust, any document referenced in or affected by the trust, or other trust-related instrument is invalid.”

Yes. RSA 564-B:10-1014.

30. Is the trustee given "decanting" authority to modify the trust?

No Yes RSMo § 456.4-419

Yes. N.R.S. §§ 163.556 and 166.170(a).

Yes. RSA 564-B:4-418.


Rule against perpetuities. Abolished; generally applicable only after August 28, 2001. RSMo § 456.025.1

Up to 365 years Perpetual. New Hampshire abolished the rule against perpetuities in 2004. RSA 564:24.


SUBJECT MISSISSIPPI MISSOURI NEVADA NEW HAMPSHIRE 32. Does state assert income tax

against DAPTs formed by non-resident settlors?

No, if it is a grantor trust. Yes, but only if from real estate, business, etc., sources within MO. RSMo §§ 143.181, 143.331, 143.371, 143.391, focusing on RSMo §§ 143.181.2.

No. Nevada has no state income tax.

No. New Hampshire does not impose any income tax on trusts.


Charging order is only remedy.

Yes, charging order is only remedy, even as to one-member LLCs and small corporations.



One year after trustee provides report that adequately discloses claims.

N.R.S. 165.139 mandates an annual trustee’s account upon a benefi-ciary’s request, but N.R.S. 165.145 permits an account to be provided confidentially to a third-party “reviewer” where the trust directs or permits a trustee not to give an account to a beneficiary. Unless the trust instru-ment provides for a shorter period, a trustee’s account is deemed approved if no written objection is given within 120 days or when a petition for approval is granted by court order after notice and hearing.

Either: (1) one year after trustee provides report that adequately discloses the existence of a potential claim and informs the beneficiary of the time allowed for commencing a proceeding, or (2) three years after trustee provides report that adequately discloses the existence of a potential claim. Limitations period cannot be tolled except by agreement of trustee and beneficiaries or by court order. RSA 564-B:10-1005.


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA Citation:

Ohio Legacy Trust Act, Chapter 5816 of the Ohio Revised Code

Citation: Family Wealth Preservation Act (the “Act”). Okla. Stat. tit. 31 § 11, et seq.

Citation: R.I. Gen. Laws §§ 18-9.2-1 - 18-9.2-7

Citation: S.D. Cod. Laws §§ 55-16-1 - 55-16-17

Effective Date: March 27, 2013

Effective Date: June 9, 2004


Effective Date: March 2, 2005

URL: http://www legislature.state. oh.us/laws.cfm

URL: http://www.lsb.state.ok.us Statute at: //www.oscn net

URL: http://www.rilin.state.ri.us

URL: http://www.legis.state.sd.us



Trust instrument must: (1) be irrevocable; (2) expressly state that OH law wholly or partially governs validity, construction, and administration of trust; (3) contain spendthrift clause that includes the interest of the settlor; (4) appoint at least one qualified trustee. § 5816.02(K)

Trust instrument may be revocable or irrevocable. Trust instrument must: (1) expressly state OK law governs; (2) have at all times as a trustee or co-trustee an OK-based bank that maintains a trust department or an OK-based trust company; (3) have only qualified beneficiaries [ancestors or lineal descendants of grantor (including adopted lineal descendants if they were under age 18 when adopted), spouse of the grantor, charities, or trusts for such beneficiaries]; (4) recite that income subject to income tax laws of OK; (5) limited to $1,000,000 of assets plus growth.

Trust instrument must: (1) be irrevocable; (2) expressly state RI law governs validity, construc-tion, and administration of trust; (3) contain spendthrift clause.

Trust instrument must: (1) be irrevocable; (2) expressly state that SD law governs validity, construction, and administration of trust (unless trust is being transferred to SD trustee from non-SD trustee); (3) contain spendthrift clause; (4) must have a “qualified person” as a trustee. See SDCL §§ 55-16-1(6) (defining “qualified disposition”), 55-16-2 (defining “trust instrument”), 55-16-3 (defining “qualified person” by cross-reference to other statutes), and 55-16-4 (more regarding qualified persons).


No Yes. Settlor may revoke or amend trust and take back assets. No court or other judicial body may compel such revocation or amendment.

No No

OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA Page 16 36

SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 3. Has the state legislature

consistently supported DAPTs and related estate planning by continued amendments?

The vote on the Legacy Trust Act in the 129th Ohio General Assembly was unanimous in both houses, boding well for continued support.

Yes. Most sections of the Act were last amended and superseded effective June 8, 2005.

Yes, amendment enacted in 2007.

Yes. Amendments enacted in 2011, 2010, 2009, 2008, 2007, 2006, and 2012.


Required. OH qualified trustee who maintains or arranges for custody in OH of some or all of the trust estate and whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns; or (c) otherwise materially participates in the administration of the trust. § 5816.02(S)

Required: (1) OK-based trustee; (2) majority of value of assets comprised of OK assets defined at 31 O.S. § 11 to include real or tangible personal property or any interest therein having situs in OK and stocks, bonds, debentures, and obligations of the State, OK-based companies, and accounts in OK-based banks.

Required: (1) some or all of trust assets deposited in state; (2) RI trustee whose powers include: (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns; (3) or, otherwise materially participates in administration of the trust.

Suggested: (1) some or all of trust assets deposited in state; (2) SD trustee whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns; (3) or otherwise materially participates in the administration of the trust. See also SDCL § 55-3-39 (dealing with minimum contacts needed to justify choice of law).


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 5. What interests in principal


Settlor may retain any one or more of these beneficial interests: (1) current income; (2) CRAT or CRUT; (3) beneficiary of distributions of income and principal in discretion of trustee or advisor or according to a standard; (4) use of real or tangible personal property of trust, including QPRT; (5) a qualified interest under I.R.C. § 2702(b), including GRAT, GRUT, CRAT, CRUT or back-end of CLAT OR CLUT; (6) ability to be reimbursed for income tax attributable to trust; (7) ability to have debts, expenses and taxes of settlor’s estate paid from trust; and (8) pour-back to estate or trust. § 5816.05.

Irrevocable trusts: Not addressed by the Act. Revocable trusts: see Item 7. If settlor revokes or partially revokes the trust, the exemptions provided do not extend to assets received by settlor. The value of the property received by the settlor will increase the amount of future additions the settlor may make to the trust.

Settlor may retain interests in: (1) current income; (2) CRT; (3) up to five percent interest in total return trust; QPRT; ability to be reimbursed for income taxes attributable to trust.

Settlor may retain interests in: (1) current income; (2) CRT; (3) up to 5% interest annually; (4) GRAT or GRUT; (5) QPRT; and (6) pour back to estate or trust.


Except as provided in trust instrument, trustee or advisor has greatest discretion permitted by law. § 5816.05(G): distributions to settlor may be purely discretionary or according to a standard in the trust instrument (not limited to an ascertainable standard). § 5816.12.

Irrevocable trusts: Not addressed by the Act. Revocable trusts: see Item 5, above

Discretion, or pursuant to a standard.

(1) Absolute discretion; (2) pursuant to an ascertainable standard.


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 7. What powers may settlor

retain? Settlor may retain: (1) power to veto distribu-tions; (2) power to invade trust principal up to 5% annually; (3) non-general power of appointment (lifetime or testamentary); (4) power to remove and replace a trustee or advisor. § 5816.05

Irrevocable trusts: Not addressed by the Act. Revocable trusts: Settlor may revoke or amend, but otherwise powers not addressed by the Act. The Oklahoma Trust Act addresses trustee and co-trustee powers and liabilities. 60 O.S. § 175.1, et seq.

Settlor may retain: (1) power to veto distributions; and (2) special testamentary power of appointment.

Settlor may retain: (1) power to veto distributions; (2) non-general lifetime power of appointment (3) testamentary power of appointment (general or non-general); (4) power to replace trustee/advisor with anybody, except that a trustee must not be related or subordinate within the meaning of I.R.C. § 672(c); and (5) serve as investment trust advisor.


Qualified Trustee: resident individual or corpo-ration with trust powers under OH law and whose activities are subject to Ohio Superintendent of Banks, FDIC, Comptroller of Currency, or Office of Thrift Supervision. § 5816.02(S)

At all times, the trustee or co-trustee shall be an OK-based bank or an OK-based trust company chartered under OK law or nationally chartered), and having a place of business in OK

Resident individual (other than the transferor) or corporation whose active-ties are subject to super-vision by RI Dept. of Business Regulation, FDIC, Comptroller of Currency, or Office of Thrift Supervision.

Resident individual or corporation whose activities are subject to supervision by SD Division of Banking, FDIC, Comptroller of Currency, or Office of Thrift Supervision. SD trustee automatically ceases to serve if it fails to meet these requirements.


Yes, but must have at least one qualified trustee. § 5816.02(K)

Yes Yes Yes


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 10. May trust have distribution

advisor, investment advisor, or trust protector?

Yes. Trust may have one or more advisors who may remove and appoint trustees or who have authority to direct, consent to, or disapprove investments, distribu-tions, or other decisions. The term “advisor” includes a protector. Settlor may be advisor in connection with investments only. §§ 5816.02(A) & 5816.11

Not addressed by the Act. See Oklahoma Trust Act (60 O.S. § 175.1, et seq.) and Oklahoma Prudent Investor Act (60 O.S. § 175.60, et seq., esp. § 175.69, which specifi-cally permits investment advisors. Distribution advisors and trust protectors are permitted.

Yes. Trust may have one or more advisors (other than trustor) who may remove and appoint qualified trustees or trust advisors or who have authority to direct, consent to, or disapprove distributions from trust. Trust may have investment advisor, including trustor. The term “advisor” includes a protector.

Yes. Trust may have one or more advisors (other than trustor) who may remove and appoint qualified trustees or trust advisors or who have authority to direct, consent to, or disapprove distributions from trust. Trust may have investment advisor, including trustor.


Yes. Creditor may avoid a transfer made with the specific intent to avoid the specific creditor. Only the portion of the quali-fied disposition necessary to satisfy the creditor’s claim is avoided, and the avoided portion is subject to the fees and costs incurred by a trustee in defending the claim (so long as the trustee has not acted in bad faith). §§ 5816.07(A) & 5816.08



Yes. Sets aside transfers with intent to defraud specific creditor.


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 12. Fraudulent transfer action:

burden of proof and statute of limitations.

Clear and convincing evidence. Future creditors: 18 months after qualified disposition. Existing creditors: Later of 18 months after qualified disposition or 6 months after qualified disposition was or could have been discovered, with the limitation that the creditor must make demand on its claim within 3 years after the qualified disposition. The maximum combination of the 3-year demand limitation and the 6-month filing limitation provide an absolute 3.5 year bar. § 5816.07(B) & (C). Furthermore, Ohio Rev. Code § 1301.401 contains a personal property recording mechanism that serves as notice to the world.

Clear and convincing evidence. Existing creditors and future creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud.

Clear and convincing evidence. Existing creditors: Four years after transfer, or one year after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Four years after transfer if claim based upon constructive fraud. Future creditors: Four years after transfer.

Clear and convincing evidence. Existing creditors: Two years after transfer, or six months after transfer was or could reasonably have been discovered if creditor (1) asserted specific claim before transfer; or (2) if creditor files another action within two years that asserts claim before transfer. Future creditors: Two years after transfer.


Yes § 5816.03(C)

Yes Yes, if at the time of transfer a court order for child support existed.

Yes, but only “to the extent of the debt” existing “at the time of transfer.” See SDCL § 55-16-15.


Yes, if spouse was married to settlor on or before the date of the qualified disposition. §§ 5816.03(C) & 5816.02(U)

No Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust.

Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust, but the exception applies only “to the extent of the debt” existing “at the time of transfer.” See SDCL § 55-16-15.


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 15. Does statute provide an

exception (no asset protection) for property division upon divorce?

Yes, if spouse was married to settlor on or before the date of the qualified disposition. §§ 5816.03(C) & 5816.02(U)

No Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust. Otherwise, assets are protected.

Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust, but the exception applies only “to the extent of the debt” existing “at the time of transfer.” Further: (i) a settlor’s separate property is protected in a divorce, regardless of the date of marriage; and (ii) any marital property trans-ferred to an APT is also protected if the settlor’s spouse either receives a specified statutory notice, or provides written consent after having received the information required by the notice. See SDCL § 55-16-15.


No No Yes, for claims that arise as a result of death, personal injury, or property damage occurring before or on the date of transfer.

No


No Yes. “Except for any additional property contributed to the preservation trust by the grantor having an aggregate fair market value, determined as of the date of each contribution, minus liabilities to which the property is subject, in excess of One Million Dollars ($1,000,000).” 31 O.S. § 12.

No No


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 18. Does statute prohibit any

claim for forced heirship, legitime or elective share?

Yes § 5816.03(D)

No No Yes, for forced heirship and legitime. Silent with respect to elective share.


Yes § 5816.10(C)(D) & (E)

No No Yes


Yes § 5816.03(B)

Yes. 31 O.S. § 16.

Yes Yes


Yes. § 5816.09. Furthermore, to maxi-mum constitutional extent, Ohio court shall exercise jurisdiction over case brought before it and shall not decline adjudi-cation because a court of another state has acquired jurisdiction. § 5816.10(H)

No Yes DAPT statute does not have any such specific provision, but SDCL § 55-3-47 applies such a rule to all South Dakota trusts.

22. Does statute provide that express/implied understand-ings regarding distributions to settlor are invalid?

Yes § 5816.04

No Yes Yes


Yes, and also provides protection relating to forming and funding entities that become part of the trust estate. § 5816.07(D),(E)&(G)

No Yes Yes


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 24. Does statute authorize a

beneficiary to use or occupy real property or tangible personal property owned by trust, if in accordance with trustee's discretion?

Allowed as a reserved interest of the settlor (not in trustee’s discretion. § 5816.05(J)

No. Not addressed in the Act. Oklahoma Trust Act would allow trust agreements to authorize use and occupancy of property with trustee discretion. 60 O.S. § 175.1, et seq.

No, except for QPRT residence.

Yes


Yes. Ohio Rev. Code § 5815.24(D)

No No Yes. SDCL § 55-1-42 & SDCL § 55-1-43


Yes, a beneficiary does not have a property interest in the property of the trust. § 5816.13

Yes. The Act does not address, but if property is retained in a spendthrift trust for the beneficiary it is protected. Even if not retained in trust, property received by gift or inheritance is the beneficiary’s separate property; however, trust income and assets can be considered a resource for purposes of determining alimony and child support.

Yes, but may be considered in property division.

Nothing in DAPT statute. But see SDCL §§ 55-1-43 (discretionary interests are not property), 55-1-26 (powers of appoint-ment are not property), 55-1-27 (certain remainders not property), 55-1-30 (distribution and remainder interests irrelevant to divorce).


Yes, affidavit required. § 5816.06

No No No


Yes § 5816.08(A)(3)(a)

No Yes Yes


Case law, not statutory: Bradford v. Bradford, Ex’r, 19 Ohio St. 546 (1869); Irwin v. Jacques, 71 Ohio St. 395 (1905); Kirkbride v. Hickok (1951), 155 Ohio St. 293.

No No No, but see SDCL §§ 55-1-46, et seq.


SUBJECT OHIO OKLAHOMA RHODE ISLAND SOUTH DAKOTA 30. Is the trustee given

"decanting" authority to modify the trust?

Yes. Ohio Rev. Code § 5808.18

No No Yes


Allows opting out of the rule against perpetuities. Ohio Rev. Code § 2131.09

Rule against perpetuities. Abolished rule against perpetuities.

Abolished rule against perpetuities.


No, unless the settlor later becomes resident in Ohio and the trust has at least one beneficiary resident in Ohio. Ohio Rev. Code § 5747.01(I)(3)(a)(ii).

Yes No No


Yes, charging order is only remedy. Ohio Rev. Code § 1705.19

Yes, charging order is only remedy. 18 O.S. § 2034.


Yes; charging order is only remedy. Other legal and equitable remedies expressly barred.


Discharge occurs 2 years after delivery of statement that discloses the facts giving rise to the claim. Ohio Rev. Code § 5810.05

Two years after trustee provides report that adequately discloses claims.

Trustee application and court discharge.

180 days after trustee provides accounting, or by order of court for supervised trusts.


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING Citation:

Tenn. Code Ann. § 35-16-101

Citation: Utah Code Ann. § 25-6-14 (repealed and re-enacted in 2013)

Citation: Va. Code §§ 64.2-745.1 and 64.2-745.2 (amended 2012)

Citation: Qualified Spendthrift Trust (QST): Wyo. Stat. §§ 4-10-502 and 4-10-510 – 523 Discretionary Asset Protection Trust (Discretionary APT): Wyo. Stat. §§ 4-10-504 and 4-10-506(c)


Prior Effective Date: December 31, 2003 New Effective Date: March 28, 2013


Effective Date: QST: July 1, 2007 Discretionary APT: July 1, 2013

URL: http://www.legislature.state.tn.us

URL: http://www.le.utah.gov

URL: http://lis.virginia.gov/cgi-bin/legp604.exe?ses=121&typ=bil&val=SB11&Submit2=Go

URL: http://legisweb.state.wy.us



Trust instrument must: (1) be irrevocable; (2) expressly state TN law governs validity, construction and administration of the trust; (3) contain a spendthrift clause; (4) must have at least one “qualified trustee”.

Trust instrument must: (1) be irrevocable; (2) contain spendthrift clause; (3) state that the trust is governed by Utah law; and (4) must require that at least one trustee be resident of Utah or Utah trust company.

(1) The trust is irrevocable; (2) There must be, at all times when distributions could be made to the settlor pursuant to the settlor's qualified interest, at least one beneficiary other than the settlor; (3) The trust must have at all times at least one qualified trustee, who may be, but need not be, an independent qualified trustee; (4) The trust instrument must expressly incorporate the laws of the Commonwealth to govern the validity, construction, and administration of the trust; (5) The trust instrument must include a spendthrift provision. Va. Code § 64.2-745.2.

QST: Trust instrument must: (1) state that trust is a "qualified spendthrift trust” under § 4-10-510 of Wyoming statutes; (2) be irrevocable; (3) expressly state Wyoming law governs validity, construction and administration of the trust; (4) contain a spendthrift clause; (5) settlor must have personal liability insurance equal to lesser of $1,000,000 or value of trust assets. Discretionary APT: Trust instrument must: (1) provide for discretionary distributions of trust income and/or principal to the settlor; (2) trust must be governed by Wyoming law.

TENNESSEE UTAH VIRGINIA WYOMING Page 26 46

SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 2. May a revocable trust be

used for asset protection?

No No No. Va. Code §§ 64.2-745.2(A) and 64.2-747(A)(1).

QST and Discretionary APT: No


Yes. Amendments enacted in 2008, 2010, and 2013.

Yes. Repealed and re-enacted in 2013.

This statute is the first enactment for broad approval of self-settled spendthrift trusts.

QST and Discretionary APT: Yes. Amendments enacted in 2005, 2007, 2008, 2011, and 2013.


Required: (1) some or all of trust assets deposited in state; (2) Tennessee trustee whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns; (3) or, otherwise materially participates in the administration of the trust.

Required: Utah resident or Utah trust company as trustee or co-trustee.

Required: The VA qualified trustee must (1) maintain or arrange for custody within the Commonwealth of some or all of the property that has been transferred to the trust by the settlor, (2) maintain records within the Commonwealth for the trust on an exclusive or non-exclusive basis, (3) prepare or arrange for the preparation within the Commonwealth of fiduciary income tax returns for the trust, or (4) otherwise materially participate within the Commonwealth in the administration of the trust. Va. Code § 64.2-745.2(A).

QST: Required: Wyoming trustee who: (a) maintains custody of some or all of trust assets in state; (b) maintains records (can be non-exclusive); (c) prepares or arranges for the preparation of income tax returns; (d) or, otherwise materially participates in the administration of the trust. Discretionary APT: Required: Wyoming regulated financial institution trustee which: (a) maintains custody of some or all of trust assets in state; (b) maintains records (can be non-exclusive); (c) prepares or arranges for the preparation of income tax returns; (d) or, otherwise materially participates in the administration of the trust.


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 5. What interests in principal


Settlor may retain interests in: (1) current income; (2) CRT; (3) up to 5% interest in total-return trust; (4) QPRT; (5) ability to be reimbursed for income taxes attributable to trust, and (6) ability to have debts, expenses and taxes of the settlor’s estate paid from the trust.

Settlor may retain interest in CRT, GRAT, GRUT, QPRT and use of real or personal property of trust.

Settlor may retain any interests in: (1) CRT; (2) up to 5% interest in total-return trust; (3) QPRT; (4) GRAT; (5) ability to have debts, expenses and taxes of the settlor’s estate paid from the trust; and (6) ability to be reimbursed for income taxes attributable to trust. Va. Code §§ 64.2-745.2(A) and 64.2-745.2(D).

QST: Settlor may retain interests in: (1) current income; (2) CRT; (3) up to 5% interest in total-return trust; (4) QPRT, (5) GRAT or GRUT; (6) principal distributions, (7) ability to be reimbursed for income taxes attributable to trust, (8) ability to have debts, expenses and taxes of the settlor’s estate paid from the trust. Discretionary APT: Settlor may retain ability to receive discretionary distributions of trust income and principal.


(1) Absolute discretion; (2) pursuant to a standard.

As provided in the trust agreement, which may include absolute discretion or discretion limited by an ascertainable standard, and it may be subject to approval or veto powers retained by the settlor or given to the trust protector or other advisor.

Absolute discretion. Va. Code § 64.2-745.2(A).

QST and Discretionary APT: (1) Absolute discretion; (2) pursuant to a standard.


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 7. What powers may settlor

retain? Settlor may retain: (1) power to veto distri-butions; (2) non-general power of appointment (lifetime or testamentary); (3) power to replace trustee/ advisor with non-related/nonsub-ordinate party; and (4) serve as an investment advisor.

Settlor may retain: (1) power to veto distribu-tions; (2) testamentary special power of appoint-ment; (3) power to appoint nonsubordinate advisors/ protectors; (4) right to serve as investment advisor; (5) right to receive principal of trust subject to ascertainable standard; and (6) use real or personal property of trust.

Settlor may retain: (1) A testamentary special power of appointment; (2) A right to remove a trustee and to appoint a new trustee. Note: The settlor may NOT have the right to disapprove distributions from the trust. Va. Code § 64.2-745.2(A), (D).

QST: Settlor may retain: (1) power to veto distribu-tions; (2) inter vivos or testamentary general or limited power of appointment; (3) power to add or remove a trustee, trust protector, or trust advisor; (4) serve as an investment advisor. Discretionary APT: Settlor may retain same powers as for QST, except power to veto distributions.


Resident individual, or is authorized by Tennessee law to act as a trustee and whose activities are subject to supervision by the Tennessee Dept. of Financial Institutions, the FDIC, the Comptroller of the Currency, or the Office of Thrift Supervision, or any successor thereto.

At least one trustee must be Utah resident or Utah trust company. Settlor can be co-trustee.

There must always be at least one “qualified trustee,” who must be a natural person residing within the Commonwealth or a legal entity authorized to engage in trust business within the Commonwealth. Va. Code § 64.2-745.2(A).

QST: Resident individual or a person authorized by Wyoming law to act as trustee or a regulated financial institution. Discretionary APT: Wyoming regulated financial institution.


Yes Yes. Yes. See Va. Code § 64.2-745.2(A) (using nonexclusive terminology for the requirement of a qualified trustee).

QST: Yes Discretionary APT: No


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 10. May trust have distribution

advisor, investment advisor, or trust protector?

Yes. Trust may have: (1) advisors who have authority to remove and appoint qualified trustees or trust advisors; (2) advisors who have authority to direct, consent to or disapprove distributions from the trust; and (3) investment advisors. The term "advisor" includes a trust protector.

Yes. Trust may have non-subordinate advisors/protectors who can remove or appoint trustees; direct, consent to, or disapprove distributions; or serve as investment directors. Settlor may be investment director.

Not addressed expressly, but it does state that the discretion of a qualified trustee cannot be subject to the direction of someone who, were that person a trustee, could not be a qualified trustee, and protects trust advisers and trust directors from liability. Va. Code § 64.2-745.2(A).

QST and Discretionary APT: Yes. Trust may have trust protector who can remove or appoint trustees; direct, consent to, or disapprove distributions; change governing law; change beneficiary’s interests; and grant or terminate powers of appointment. Trust may have advisors. Settlor may be an advisor.




Yes. Va. Code § 64.2-745.1(C).

QST and Discretionary APT: Yes. Uniform Fraudulent Transfer Act applies and sets aside transfers with intent to hinder, delay or defraud, and transfers made with constructive fraudulent intent.


Clear and convincing evidence. Existing creditors: Two years after transfer, or six months after transfer was or could reasonably have been discovered if claim based upon intent to hinder, delay or defraud. Two years after transfer if claim based upon constructive fraud. Future creditors: Two years after transfer.

Burden not addressed by statute. Existing creditors: (a) 120 days after notice to known or unknown creditors of settlor of transfer to trust; or (b) without notice then two years after transfer, or one year after transfer was or could reasonably have been discovered.

Clear and convincing evidence. Bruce v. Dean, 140 S.E. 277, 149 Va. 39 (1927); Mills v. Miller Harness Co., Inc., 326 S.E.2d 665, 229 Va. 155 (1985); In re Coleman, 285 B.R. 892 (2002). Suit must be brought within five years from recordation of transfer or, if not recorded, within five years from the time the same was or should have been discovered. Va. Code § 64.2-745.1(D).

QST: Clear and convincing evidence. Discretionary APT: Burden not addressed by statute.


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 13. Does statute provide an

exception (no asset protection) for a child support claim?

Yes No, but before distribution to settlor, trustee must give 30 days advance notice to child support creditor. However, even if notice not given, child support creditor cannot force distribution from trust or attach trust assets

Yes. Va. Code § 64.2-744(A) protecting rights of a beneficiary’s child who has a judgment or court order against the beneficiary for support or maintenance).



Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust

No No QST and Discretionary APT: No

15. Does statute provide an exception (no asset protection) for property division upon divorce?

Yes, if ex-spouse was married to settlor before or on date of transfer of assets to trust. Otherwise, assets are protected.

No No QST and Discretionary APT: No


No No No QST and Discretionary APT: No


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 17. Does statute provide other

express exceptions (no asset protection)?

No No Yes. No spendthrift protection against: (A) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust. Va. Code § 64.2-744(B). (B) the United States, the Commonwealth, any city, county, or town. Va. Code § 64.2-744(C). (C) claims under a statute or regulation of the United States or the Commonwealth that requires a beneficiary to reimburse the Commonwealth or any agency or instrumentality thereof, for public assistance. Va. Code § 64.2-745(A).

QST: Yes. (1) Financial institution with which the settlor has listed qualified trust property on the financial institution’s application or financial statement used to obtain or maintain credit from the financial institution other than for the benefit of the qualified spendthrift trust; (2) property of a qualified spendthrift trust that was transferred to the trust by a settlor who received the property by a fraudulent transfer. Discretionary APT: No


Yes No No QST and Discretionary APT: No, but in 2011 the Wyoming Supreme Court held that assets transferred to a trust are not subject to the elective share of a surviving spouse under the Wyoming Uniform Trust Code and Wyoming law does not provide for a forced heirship or legitime. (In re The Estate of Deanna Bess George, 2011 WY 157, 265 P.3d 222.)


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 19. Are there provisions for

moving trust to state and making it subject to statute?

Yes Yes, under provisions of the Utah Uniform Trust Code.

Yes. Va. Code § 64.2-745.1(G) states that “The movement to the Commonwealth of the administration of an existing trust, which, after such movement to the Commonwealth, meets for the first time all of the requirements of a qualified self-settled spendthrift trust, shall be treated, for purposes of this section, as a transfer to this trust by the settlor on the date of such movement of all of the assets previously transferred to the trust by the settlor.”

QST: Yes, permits transfer of trust property from trust created in another jurisdiction with similar creditor protection for settlor with creditor protection relating back to date of funding of trust created in other jurisdiction. Irrevocable trusts from other states may also elect to become qualified spendthrift trusts if they incorporate law of WY, obtain qualified trustee, and have spendthrift clause. Discretionary APT: Yes, if trust meets discretionary distributions standard and acquires a Wyoming regulated financial institution qualified trustee.


Yes Yes No QST: Yes Discretionary APT: No. Spendthrift clause is not required.

21. Does statute provide that trustee automatically ceases to act if court has jurisdic-tion and determines that law of trust does not apply?

Yes No No QST: Yes Discretionary APT: No


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 22. Does statute provide that

express/implied understand-ings regarding distributions to settlor are invalid?

Yes Yes No QST and Discretionary APT: No


Yes Yes Yes. Va. Code § 64.2-745.1(E).



Yes Yes No QST and Discretionary APT: No, except for QPRT residence.


Yes § 35-15-504

No No

QST and Discretionary APT: Yes Wyo. Stat. § 4-10-504(b)


Yes Yes, UCA § 75-7-502. Yes. Va. Code §§ 64.2-743 – 64.2-744.

QST and Discretionary APT: Yes, but may be considered in property division.


Yes; affidavit required. Yes, affidavit required. No QST: Yes; affidavit required. Discretionary APT: No


Yes No direct lien, but cost and fees may be paid from trust. See UCA § 75-7-1004.

No QST and Discretionary APT: Yes


No No No QST and Discretionary APT: No


SUBJECT TENNESSEE UTAH VIRGINIA WYOMING 30. Is the trustee given

"decanting" authority to modify the trust?

Yes No, but procedure for modifying trust available under Utah Uniform Trust Code and relatively easy to do if settlor is living.

Yes. See Va. Code § 64.2-778.1 (effec. July 1, 2012).

QST and Discretionary APT: Yes, if trustee has authority to make discre-tionary distributions of trust income and principal, trustee may distribute in further trust. Trust protector may also have power to decant or modify trust.


Up to 360 years. Up to 1,000 years. USRAP adopted. Va. Code §§ 55-12.1 to 55-12.6. Rule does not apply to personal property held in trust if the trust instrument, by its terms, provides that the rule shall not apply to such trust. Va. Code § 55-13.3(C).

QST and Discretionary APT: Up to 1,000 years, except for real property.


No, if the beneficiaries are non-residents. If the beneficiaries are residents, a tax is levied on dividends and interest.

No, except for Utah source income, such as rental income from Utah real property.

Yes. See VA Code Ann. § 58.1-302.

QST and Discretionary APT: No


Yes for LLCs; charging order is only remedy. No for LPs.


Yes. On LLC, see Va. Code § 13.1-1041.1(D). On Limited Partnership, see Va. Code § 50-73.46.1(D).

QST and Discretionary APT: Yes; charging order is exclusive remedy for all LPs and LLCs, including single member LLCs.


One year after trustee provides report that adequately discloses claims.

Six months after trustee provides report that adequately discloses claims.

Rules similar to Sections 411 to 414 of the Uniform Trust Code for termination of trust. See Va. Code §§ 64.2-729 to 64.2-733. No specific procedure for being discharged from liability on a trust.

QST and Discretionary APT: Two years after trustee provides report that adequately discloses claims.


16 Domestic Asset Protection Trust States

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cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

cfelts

Oval

ABA Real Property, Trust and Estate Law Section

Domestic Asset Protection Trust Planning: Jurisdiction Selection February 10, 2014 South Carolina

15 states permit the creation of full blown self-settled asset protection trusts. Besides the 15, at least 10 other states, including South Carolina, allow a form of a self-settled asset protection trusts following an inter vivos QTIP trust in which the settlor might be named or later appointed as a beneficiary of a remainder interest. The proliferation of domestic asset protection trusts in about a third of the states leaves attorneys inquiring about the laws in each asset protection state and the benefits of creating such a trust in one state versus another. Questions frequently asked are:

-What is an inter vivos QTIP trust and how can it help my clients?

-Will domestic self-settled asset protection trusts benefit my clients?

-Do the costs of creating a trust in one state for creditor protection or taxation benefits really outweigh the creation of such a trust in another?

-Is the trust really protected from creditors?

-Can the trust be used to avoid the income tax in the grantor's state of residence?

-Is using an offshore trust better?”

Effective January 1, 2014, South Carolina offers a previously unavailable (at least in South Carolina) alternative to asset protection planning for married persons. A settlor of an inter vivos MARITAL TRUST trust can be named or later appointed as a beneficiary of the remainder interest of the inter vivos Marital Trust. It is possible that transfers to an inter vivos MARITAL TRUST, which appear not to be “self-settled trust[s] or similar device[s],” are outside the scope of the ten year look-back of §548(e)(1) of the Bankruptcy Code.

There is no South Carolina state income tax on (the non-South Carolina source income – annuities, interest, dividends and gain from sale of intangible personal property and not part of a SC business) of trusts benefitting only nonresident beneficiaries. A trust is being

DAN A. COLLINS 1

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administered outside South Carolina is not considered a resident trust merely because the trust instrument provides that the trust shall be governed by the laws of the State of South Carolina. This is particularly important to settlors who direct expressly in the trust instrument that the trust be construed and interpreted in accordance with the laws of the State of South Carolina. The South Carolina Trust Code provides that the law of the jurisdiction designated in the terms of the trust will give the meaning and effect to its terms.1 South Carolina has not repealed the Rule Against Perpetuities; however trusts that last longer than 90 years have their own problems, not the least of which is the potential exponential number of beneficiaries2. Query whether or not most clients who cursorily indicate they want a trust to last for 500 years have considered thoughtfully the “on the ground” real life administrative complexities of a trust for 500 years [Who was your grandfather in 1515?]. South Carolina has an excellent decanting statute3, a trust protector statute4, and a very helpful investment advisor statute5 allowing the use of directed trusts. EXECUTIVE SUMMARY The following is a summary of material considerations relevant when drafting in South Carolina a trust to protect assets. The discussion will cover (i) the inter vivos Marital Deduction QTIP trust, (ii) provisions for third-party created discretionary trusts, and (iii) techniques for asset-protected third-party created beneficiary controlled trusts. The summary will conclude with an analysis and a conclusion about whether or not a DAPT executed by a settlor domiciled in S.C., using the law of DAPT state (for example, Nevada), will be effective to protect the settlor against claims asserted against the settlor and the DAPT in a S.C. court:

1 § 62-7-107. Governing law. The meaning and effect of the terms of a trust are determined by:(1) the law of thejurisdiction designated in the terms of the trust; or(2) in the absence of a controlling designation in the terms of the trust, the law of the jurisdiction having the most significant relationship to the matter at issue. This is consistent with the provisions of the Uniform Trust Code. 2 “…What started out in 2011 as a couple with two children would, with normal fertility levels, have increased to 3.4 million beneficiaries in 500 years. After only 150 years, the trust would be expected to have around 2500 beneficiaries ; http://www.extension.iastate.edu/agdm/articles/harl/HarlJan12.html; Online article by Professor Charles F. Curtiss, Iowa State University. 3 § 62-7-816A. Authority to appoint the property of original trust to second trust. 4 § 62-7-818. Powers and discretions of a trust protector. 5 § 62-7-819. Powers of a trust investment advisor. DAN A. COLLINS 2

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FACTS The South Carolina Trust Code (“SCTC”) was enacted May 23, 20056. The SCTC is actually Article 7 of the South Carolina Probate Code and may be found in Title 627 of the South Carolina Code of Laws. The SCTC was adopted based on the Uniform Trust Code (“UTC”) as promulgated by the (then) National Commission on Uniform Laws, now called the Uniform Law Commission8. As enacted in South Carolina, numerous changes were made to the Uniform Trust Code promulgated by the Commissioners that are designed to accommodate the trust law as understood under prevailing SC case law. Troublesome provisions of the UTC were eliminated or modified, generally where the UTC drifts toward the Third Restatement of the Law of Trust and its hostility toward beneficiary controlled trusts and asset protection for beneficiaries. “The SCTC [South Carolina Trust Code] eliminates much, if not all, of the controversial UTC provisions—generally retaining, with some refinement, pre-SCTC South Carolina law”9. In particular, changes were made to increase the flexibility for third-party created trusts to provide near complete protection for trust beneficiaries, even in a beneficiary controlled trust where the familiar ascertainable standard limits the powers of the trustee-beneficiary. The only exception creditor in SC is a claimant for child-support. Significant revisions and additional provisions affecting trusts were added to the SC Probate Code and the SCTC, effective January 1, 2014, several of which will be noted in this Summary. In South Carolina, assets in the typical revocable living trust are subject to the settlor’s creditors during lifetime, and at death are subject to the settlor's debts and other charges (unless exempted).10 Although the assets of the Settlor's probate estate must normally first be exhausted before the assets of the revocable trust can be reached, the SCTC does not attempt to address the procedural issues raised by the need first to exhaust the decedent's probate estate before reaching the assets of the revocable trust. Nor does the SCTC address the priority of creditor claims or liability of the decedent's non-probate assets for the decedent's debts and other charges. Claims against a decedent must be filed with the Personal Representative within eight (8) months of Publication of Notice, if a probate estate is opened. There is no equivalent notice statute to toll claims against a Trust. As previously noted, the meaning and effect of the terms of a trust are determined by the law of the jurisdiction designated in the terms of the trust, thus allowing flexibility in choice of law. The terms of a trust designating the principal place of administration are valid and controlling if either a trustee's

6 2005 S.C. Acts 66, 2005 S.C. S.B. 422, 2005 S.C. R. 80; 7 62-7-101, et. seq. 8 “The Uniform Law Commission provides states with non-partisan, well conceived, and well drafted legislation that brings clarity and stability to critical areas of state statutory law.” So trumpets the website of The National Conference of Commissioners on Uniform State Laws. http://www.uniformlaws.org. 9 Kevin D. Millard,. Rights of a Trust Beneficiary’s Creditors Under the Uniform Trust Code, 34ACTEC Journal 58(2008), referring to S. Alan Medlin, The Impact of Significant Substantive Provisions of the South Carolina Trust Code, 57 S.C. LAW REV. 137, 177 (Autumn 2007). 10 SC Code Ann. 62-7-505 DAN A. COLLINS 3

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principal place of business is located in or a trustee is a resident of the designated jurisdiction or all or part of the administration occurs in the designated jurisdiction. The SCTC allows, but does not specify, other means to establish a connection or nexus to fix the principal place of administration. Choice of law and nexus are inextricably linked, and may be problematic when a South Carolina domiciliary chooses another state with which the settlor has no contact and the issue is taxation of the trust and not its construction (later, below)11. If a settlor is also the beneficiary of an irrevocable trust governed by South Carolina law, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created (S.C. Code Ann. § 62-7-505). The Palmetto State is a great State for trusts The Palmetto is the South Carolina State tree, famous for its effectiveness in providing for the defense of Fort Moultrie on Sullivan’s Island near Charleston during the Revolutionary War. The walls of Fort Moultrie were built using Palmetto tree logs, a very effective defense against British cannonballs. Why? Palmetto trees do not have rings, and as a result, the cannonballs did not break through the logs and instead sank into and became embedded in the soft but tough Palmetto wood12. (This arboreal metaphor is fitting for the effectiveness of a properly drafted trust under the SCTC). With a given objective of drafting a trust that protects assets from as yet unknown future claimants, here is a potpourri of trust strategies that, when implemented in S.C. will effectively deflect or harmlessly absorb the cannonades of predatory claimants (think lawyer television advertising). Even with the recent approval of the Inter Vivos Marital Deduction Trust described in this article, South Carolina has not adopted a domestic asset protection trust (the “DAPT”) of the type generally included in the States, beginning in Alaska and ending recently in Mississippi (15 or so total), with such a statute. In fact, we may infer from the Comments to § 62-7-505. Creditors' claims against settlor13, which Comments were adopted as a part of the SCTC, that the public policy of South Carolina prohibits, or at a minimum frowns on14, an irrevocable self-settled trust that shields the assets of the settlor from his

11 John McGown, Jr.,State Taxation Of Trusts And Their Beneficiaries When There Are Multiple State Contacts,., 39 ACTEC Journal 3 (2013). See also James Cundiff and L. Timothy Halleron, The Evolving Landscape Of State Income Taxation Of Trusts, Trusts & Estates, November 21, 2014, accessed online at http:// wealth management.com/asset protection/evolving landscape of state income taxation of trusts 12 http://www.palmettoshirts.com/palmetto-moon-history/). 13 § 62-7-505. Creditors' claims against settlor.(a) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:(1) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor's creditors.(2) With respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit...[emphasis added]. 14 Subsection (a)(2), which is based on Restatement (Third) of Trusts Section 58(2) and cmt. e (Tentative Draft No. 2, approved 1999), and Restatement (Second) of Trusts Section 156 (1959), follows traditional doctrine in providing that a settlor who is also a beneficiary may not use the trust as a shield against the settlor's creditors. The drafters of the Uniform Trust Code concluded that traditional doctrine reflects sound policy. Consequently, the drafters rejected the approach taken in States like Alaska and Delaware, both of which allow a settlor to retain a beneficial interest immune from creditor claims [cited Articles DAN A. COLLINS 4

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creditors while still affording a benefit to the settlor. As will be seen in this summary, this public policy may have been thwarted by other provisions of the SCTC. An important clarification to S.C. law was made to by the latest revision the SCTC. It is clear in South Carolina that neither the possession of nor the release of a power of withdrawal15 will cause the individual possessing or releasing the power to be treated as a settlor of the trust with respect to the assets subject to the power. It is equally clear that the property subject the power is not susceptible to the power holder’s creditors16. These provisions add certainty to planning with Crummey powers as well as inter vivos planning with beneficiary held general powers of withdrawals. Also these provisions are comforting in that the General Assembly has recognized a follow-up trust,17 with assets that can be traced back to the original donor/settlor, will not to be treated as self-settled. Now the Inter Vivos Marital Deduction Trust in South Carolina. First, as a cautionary note, not meant to disparage the progress of my fellow South Carolinians in our move to 21st Century18 trust law, the South Carolina statute lacks the flexibility and thus the planning opportunities afforded by the North Carolina statute. The limitations are explained below. Now to the Inter Vivos Marital Deduction Trust, created by the settlor-spouse for the donee- spouse, often when the likelihood is that the settlor-spouse will outlive the donee-spouse.

The 2013 amendment to the SCTC, effective January 1, 2014, added subsection (b)(2) to SCTC § 62-7-505 (relating by reference to Section 2523 of the Internal Revenue Code of 1986, defining the gift tax

omitted].The SCTC confirms this policy. Under the Code, whether the trust contains a spendthrift provision or not, a creditor of the settlor may reach the maximum amount that the trustee could have paid to the settlor-beneficiary. If the trustee has discretion to distribute the entire income and principal to the settlor, the effect of this subsection is to place the settlor's creditors in the same position as if the trust had not been created. For the definition of "settlor," see Section 62-7-103(14).[emphasis added]. 15 S.C. Code Ann. § 62-7-103 (10) Power of withdrawal" means a presently exercisable general power of appointment other than a power exercisable by a trustee which is limited by an ascertainable standard, or which is exercisable by another person only upon consent of the trustee or the person holding an adverse interest. 16S.C. Code Ann. § 62-7-103(14) "Settlor" means a person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person's contribution except to the extent another person has the power to revoke or withdraw that portion. Neither the possession of, nor the lapse, release, or waiver of a power of withdrawal shall cause a holder of the power to be deemed to be a settlor of the trust, and property subject to such power is not susceptible to the power holder's creditors.(Emphasis added). 17 “Follow-up trust is the term used to describe the sub trust of the Inter Vivos Marital trust for the surviving settlor spouse, created at the death of the donee spouse. 18 “If you see a dog playing checkers, you don’t criticize his game; you’re just glad he’s playing.” Quote attributed to Dr. Stephen Brown. Steve Brown (Asheville, North Carolina) is an American Christian author, a radio broadcaster, and a seminary professor at Reformed Theological Seminary in Orlando, Florida. http://en.wikipedia.org/wiki/Steve_Brown_%28author%29 DAN A. COLLINS 5

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marital deduction). This short addition to the SCTC is the statutory basis for the establishment of an irrevocable inter vivos marital deduction trust for a spouse (hence “marital deduction”), with a succeeding trust (the follow up trust) benefiting the settlor-spouse if he or she survives the donee spouse. By statute, the surviving settlor-spouse will not be treated as the settlor, even he or she was the original contributor of the assets. Thus, the succeeding trust is not tainted as “self-settled.”19

The subsection added to § 62-7-505(b) reads in its entirety

(2) the assets in a trust that are attributable to a contribution to an inter vivos marital deduction trust described in either Section 2523(e) [general power of appointment] or 2523(f) [a QTIP] of the Internal Revenue Code of 1986, after the death of the spouse of the settlor of the inter vivos marital deduction trust are deemed to have been contributed by the settlor's spouse and not by the settlor.

The SC statute allows only one type of Inter Vivos Marital Trust20 with a follow up trust that will accomplish all the objectives typically expected of an asset protected, self-settled “credit shelter” type trust, to wit: Grantor Trust status (see “supercharged℠ below as to the follow up trust) Income tax “free” growth (settlor-spouse pays the tax)21 Transfer tax free settlement (qualifies for marital deduction) Not includable in settlor’s taxable estate (IRC Sections 2036 and 2038 not applicable) Not susceptible to settlor’s creditors.(not self-settled)22 Opportunity to leverage assets transferred (appreciation exempted from tax) Opportunity to allocate GST exemption (with reverse QTIP election at creation)23 Opportunity to swap assets; higher basis for lower basis (Rev. Rul. 85-13, 1985-1, C.B. 182.)

The upshot is that the follow-up trust is essentially a credit shelter trust whose assets are included in the taxable estate of the Donee spouse at his or her death. The applicable exclusion of the donee spouse is used at the death of the donee spouse. • The Inter vivos Marital Deduction QTIP Trust with “follow up trust” for surviving settlor-

spouse

Here is what we know with (near) certainty about the Inter Vivos Marital Deduction QTIP Trust in SC:

19 Unfortunately, our statute in South Carolina lacks the clarity and precision of the analogous statute adopted in North Carolina (N.C.G.S. 36C-5-505(c)). The NC statute expressly protects trust assets for the surviving donor spouse in an inter vivos spousal trust that does not qualify for the federal gift tax marital deduction. Presumably, in N.C. , a SLAT, by design a non-marital trust, will not be treated as self settled by the surviving donor spouse. 20 The phrase “Inter Vivos Marital Deduction Trust” used throughout the discussion means a trust that the settlor-spouse has established and settled for the donee-spouse’s lifetime and which provides that the settlor-spouse will be the beneficiary of the follow-up trust if he or she survives the donee-spouse. 21 Rev. Rul. 2004-642004-2, C.B.7. Payment of income tax not a gift. 22 By subsection (b)(2) of SCTC § 62-7-505 23 IRC Section 2652(c)(3) DAN A. COLLINS 6

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The inter vivos trust must be a marital deduction trust. The benefit24 does not apply for any trust beneficiary other than a spouse. The donee-spouse must

be the sole beneficiary during her lifetime. The donee-spouse must be a US citizen. The benefit in SC does not apply for any trust that does not qualify for the federal gift tax marital

deduction. The trust must qualify for the marital deduction under IRC Section 2523(f) as a QTIP

marital trust; Section 2323(f) [gift tax] is the analogue to Section 2056(b)(7) [estate tax]; A Gift tax Return Form 709 is required. Failure to file timely a Gift Tax Return Form 709 for the

2523(f) QTIP is fatal – no marital deduction, resulting in an automatic application of the settlor-spouse’s applicable exclusion; inferentially, in SC this may cause the follow-up trust for the settlor-spouse to lose its “non-self-settled” protected status, treating the settlor-spouse as the settlor of the follow up trust, exposing trust assets to the surviving settlor-spouse’s creditors.

All of the trust income must be paid to the donee-spouse at least annually. Principal may be distributed to the donee-spouse pursuant to an ascertainable standard.

The Marital Deduction QTIP Trust is a grantor trust while both spouses are alive; Divorce will not cause the donee spouse to lose the income benefit of the trust. Inclusion in the donee spouse’s estate at death is under Section 2044.This is the critical aspect. Assets will be subject to a basis adjustment25 at the death of the donee-spouse. The settlor-spouse beneficiary may serve as sole trustee of the follow-up trust, provided his or her

right to principal is limited to an ascertainable standard: HEMS26. Assets of the follow-up trust should not be included in the estate of the settlor-spouse beneficiary

at death. Sections 2036 and 2038 are not applicable to the settlor-spouse beneficiary because the donee spouse is treated as the transferor.27 The follow-up trust is essentially a credit shelter trust.

The only exception creditor in SC is a judgment creditor for child support.28 There will be no basis adjustment for the assets in the follow up trust at the death of the settlor-

spouse.

You can Supercharge℠ the Inter vivos Marital Deduction QTIP Trust in South Carolina.

First, income and principal distributions are made discretionary pursuant to an ascertainable standard: HEMS.

The settlor spouse is the grantor of both the Marital Deduction QTIP Trust and the follow up trust.

24 The “benefit” being that the settlor can be the beneficiary of assets in the follow-up trust that he initially contributed, without the taint of self-settled treatment exposing the assets to the creditors of the settlor. 25 Section 1041 26 Section 2041(b)(1)(a); S.C. Code Ann. § 62-7-103 (20) "Ascertainable standard" means an ascertainable standard relating to a trustee's individual's health, education, support, or maintenance within the meaning of Section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code, as amended. 27 Reg §25.2523(f)-1(f), Example 11. Election with respect to life estate transferred to donee spouse. See also Gans, Blattmachr and Zeydel, Suprecharged℠ Credit Shelter Trust, Prob. & Prop., July/Aug 2007, and several other Articles by these authors. 28 S.C. Code Ann. § 62-7-503(b) Even if a trust contains a spendthrift provision, a beneficiary's child who has a judgment or court order against the beneficiary for support or maintenance may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. DAN A. COLLINS 7

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The “Supercharge” effect occurs as a result of the application of Reg. Section 1.671-2(e). The trust remains a grantor trust as to the settlor spouse who is now the beneficiary of the follow up trust29.

The Inter vivos Marital Deduction Trust power of appointment trust, with “follow up trust” for surviving settlor-spouse.

The inter vivos trust may qualify for the marital deduction under IRC Section 2523(e) as a general

power of appointment trust; Section 2323(e) [gift tax] is the analogue to Section 2056(b)(5) [estate tax];

Inclusion in the donee spouse’s estate is under Section 2041 (must be payable to spouse or his or her estate; just “creditors” is not sufficient); No “election” is necessary, but a Gift Tax Return 709 must be filed, correctly reporting the marital deduction transfer. A late filing is embarrassing, but not fatal.

A 2523(f) inter vivos general power of appointment30 marital deduction trust for a spouse domiciled in SC is a safe, asset protected trust from the spouse’s predatory claimants, even if the donee spouse is trustee, so long as the spouse/trustee is limited by an ascertainable standard31.

In SC, assets subject to the general power are not susceptible to the elective share (unless exercised in favor of the holder’s estate or living trust). In South Carolina creditors of the holders of a testamentary general power of appointment may not reach the assets subject to the power, thanks to the late Harvey W. Finn32. However, be extremely careful to avoid the circumstance where another state is the forum for determining the validity of the provisions of a trust drafted in accordance with the SCTC. In particular, using the inter vivos general power of appointment (withdrawal) as well as a testamentary (generally unexercised) general power of appointment in some states will cause the property subject to the power to be reached by the creditors of the beneficiary. These are states following the Restatement (Third) of Trusts whose public policy is said to be opposed to protecting assets over which a beneficiary has virtual free access. The planning pointer here is to avoid using the inter vivos general power of appointment or withdrawal if there is any reasonable likelihood that a beneficiary might be resident of the state other than South Carolina.

Use of the general power of appointment forfeits all control over the ultimate disposition of the property (spouse could appoint it to the pool boy or the casserole lady, as the case may be).

29 Again, the work of Blattmachr, Gans and Zydel, Suprecharged℠ Credit Shelter Trust, Prob. & Prop., July/Aug 2007; also, Blattmachr, Gans and Zydel, Suprecharged℠ Credit Shelter Trust versus Portability, Prob. & Prop., March/April, 2014, Vol 28, No.2. 30 In South Carolina, creditors of the holder of an inter vivos or testamentary general power of appointment (granted to the holder and not a retained power) are not able to reach the assets subject to the power. Adger v. Kirk, 116 S.C. 298, 108 S.E. 97 (1921), which holds that the remainder over which the donee exercised a power of appointment was not part of his estate, but passed under the will of the donor of the power, and that it could not, therefore, be used to satisfy the debts of the donee. 31 § 62-7-504(f). Discretionary trusts; effect of standard. An independent trustee can be given extended discretion. 32 Adger v. Kirk, 116 S.C. 298, 304, 108 S.E. 97, 99, 1921 S.C. LEXIS 102, 8 (S.C. 1921)”… There is nothing in the record to show that there are creditors of Harvey W. Flinn who should be protected. The remainder over which Harvey W. Flinn is given the [general] power of appointment is not a part of the estate of Harvey W. Flinn, but it passes under the will of the donor of the power. It could not, therefore, be held to respond to the debts of Harvey W. Flinn. DAN A. COLLINS 8

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THERE IS NO GUARANTEE THAT THE SETTLOR SPOUSE WILL BENEFIT FROM THE FOLLOW UP TRUST.

SC has expressly rejected the “augmented estate” concept in determining the spousal elective share, limiting the election to probate assets only.

Finally, creditors of the deceased spouse cannot reach the trust assets subject to the unexercised general testamentary power of appointment.

No opportunity to “Supercharge℠” the follow up trust because of the general power of appointment.

Conclusion If properly implemented and executed, the 2523(f) Inter Vivos Q-Tip Marital Deduction Trust with a follow up trust for the benefit of the settlor spouse who survives the donee spouse gives optimum protection, shielding the assets during the donee spouse's lifetime and assuring that the remaining trust assets will pass as the donor spouse directs, in this case to a follow up (maybe supercharged) credit shelter trust for the settlor spouse’s lifetime. The settlor spouse who survives the donee spouse may even possess a special limited testamentary power of appointment in the follow up trust, all the while benefitting just as if his follow up trust were a DAPT – the assets were originally contributed by the surviving spouse. In fact, such a follow up trust lacks the uncertainty of an out-of-state DAPT executed by a S.C settlor (but read on below). At the death of the donee spouse, assets in the Q-Tip Marital Deduction trust receive a basis adjustment, up or down, by virtue of inclusion in the donee spouse’s estate. The trust assets are not a part of the deceased donee spouse’s probate estate. The trust assets will not be susceptible to a statutory elective share in SC.

• Asset Protection for transfers to a SC Irrevocable Inter Vivos Trust for any beneficiary other

than the Settlor.

An Irrevocable Inter Vivos Trust established to receive gift transfers from a donor/settlor comes in a variety of forms, depending of course on the benefits sought by the donor/settlor for the trust beneficiaries who are objects of his or her bounty. Generally these inter vivos trusts are referred to by a descriptive name – frequently an acronym.

SLATS (spousal limited access trust - no follow up trust for settlor in SC) IDITS (Irrevocable Defective Income Trusts) IGITS (Same as an IDIT) ILITs Dynasty Trusts “Inheritor’s Trust”® (“BDIT”)® Beneficiary Defective Income Trust OBITs to obtain basis adjustments

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o None of these trusts in SC is self-settled; assets are contributed by the settlor/donor to benefit a third party beneficiary – typically a spouse or descendant. There is no reversion or follow up trust. The SCTC makes clear that the settlor of the trust is the individual who creates and settles the trust with a contribution to the trust (62-7-103(14).

o Contributions to an irrevocable trust almost always result in a taxable gift.33 o Distributions of income and principal from a discretionary trust with a spendthrift provision

may not be attached by the beneficiary’s creditors at the trust level. o Discretionary distributions of principal pursuant to an ascertainable standard do not cause

the trustee/beneficiary to be treated as the settlor of a revocable trust (62-7-505(b) (1)). o A creditor of a beneficiary who is also a trustee or cotrustee may not reach the trustee's

beneficial interest or otherwise compel a distribution if the trustee's discretion to make distributions for the trustee's own benefit is limited by an ascertainable standard.

o A "Power of withdrawal" means a presently exercisable general power of appointment, freely exercisable solely by an individual (S.C. Code Ann. § 62-7-103(10).

o The SCTC makes it clear that neither the possession of, nor the lapse, release, nor waiver of a power of withdrawal shall cause a holder of the power to be deemed to be a settlor of the trust, and property subject to such power is not susceptible to the power holder's creditors. (S.C. Code Ann. § 62-7-103(14).

It is hard to overstate the beneficial impact of these provisions for planning. Unlike many jurisdictions, the holder of a crummy demand right is not deemed to be a settlor of the trust in South Carolina. Further, creditors of the holder of the power may not reach the interest subject to the power, regardless of the value of the assets subject to the power. The DAPT34 in South Carolina: A Hypothetical Finally, how about a [true, irrevocable] DAPT, prepared by a S.C. lawyer and settled in S.C. by a South Carolina domiciliary Settlor to benefit himself and other adult family members. Assume at the time the trust is settled, Client, retired, is virtually debt free and there are “no clouds on the horizon.” All is clear and well. Client is “just cautious.” Assume that our S.C. client, based on our recommendation, agrees to Nevada35 as the State whose law is to govern the trust. Given the aforementioned “policy” in under S.C law against self-settled trusts, and the unsettled state of the law (everywhere) dealing with a DAPT36, the client and his S.C. lawyer must pay

33 Exceptions include “DINGs” : “Delaware Incomplete Gift Non-Grantor Trust.” 34 See Steve Leimberg's Asset Protection Planning Email Newsletter - Archive Message #268,Date: 10-Nov-14 Steve Oshins Releases 3rd Annual Dynasty Trust State Rankings Chart. http://leimbergservices.com/ ; Also search “DAPT” online at http://wealthmanagement.com/search/results/%22DAPT%22 for a plethora of Articles; also search “self settled” in the archives online at Leimburg Information Services Inc., http//leimburg services.com/search collection. 35 The number 1 state for a DAPT; http://www.oshins.com/images/Dynasty_Trust_Rankings.pdf 36 Not really that unsettled if Huber is good law on the conflicts issue: , (In re Huber), 493 B.R. 798 (Bankr. W.D.Wash., 2013); In re Huber however was a “bad facts” case; the Settlor had numerous known creditors and was virtually insolvent after settling the trust at issue. DAN A. COLLINS 10

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minimum obeisance to the uncertainties about settling the DAPT in S.C. and choosing Nevada law. In this life there are few “guarantees.”

The trust, a typical, irrevocable DAPT, is prepared and executed in South Carolina. The trust states that it is to be governed and interpreted in accordance with Nevada law, as allowed by the SCTC37.

Essentially, even critically, by naming the Nevada domiciled trustee, the trust designates Nevada as the principal place of administration, following up the designation by making certain that the trustee performs the administrative functions required by the trust and that the trust assets (movables) are sited in Nevada.

No doubt that a trust company organized under the laws of Nevada that maintains an office in Nevada will be named as sole trustee38. Our client does not know any individual in Nevada to serve as trustee (in fact has never been to Nevada). His long time CPA, a trusted advisor and friend, and S.C. domiciliary is the Trust Protector.

Assets transferred to the Nevada “spendthrift” trust the trust are: cash in account (opened in Nevada); 75% interest in a Wyoming Close, LLC, qualified in S.C., which owns an investment parcel of real property in S.C., and securities in an investment account managed by the S.C. advisor (a directed trust), but titled in the name of the Nevada Trustee. Total assets in trust are around $3 Million

Client’s personal residence is owned by his39 revocable living trust. Client retains liquid assets in another LLC owned by client and family. Client has IRA, insurance, etc., some of which are exempt in SC. Assets not in DAPT around $4 Million.

The place of administration is Nevada – provided the Trustee is actively involved in the administration of the trust (unlike the trustee in Huber). And the trust expressly designated Nevada as the place of administration.

The domicile of the beneficiaries (the settlor, spouse and one child) is S.C.

The situs of the intangible personal property (movables) transferred to the trust was S.C. at the time the trust is created.

For the situs of the movables to be Nevada after the trust is settled (funded), it seems clear that the Nevada Trustee must at least have physical possession at its Nevada location of the certificates and records for the LLC. The cash as well as having the assets in the brokerage account are physically sited in Nevada.

37 § 62-7-107. Governing law. The meaning and effect of the terms of a trust are determined by:(1) the law of the jurisdiction designated in the terms of the trust; 38 Nev. Rev. Stat. 166.015; requirement of trustee if settlor is beneficiary of trust. (Nevada Revised Statutes (2014 Edition)) If the settlor is a beneficiary of the trust, at least one trustee of a spendthrift trust must be:(b) A trust company that:(1) Is organized under federal law or under the laws of this State or another state; and(2) Maintains an office in this State for the transaction of business; 39 Our client, he is not fond of gender neutrality. DAN A. COLLINS 11

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Client has no “bad facts” affecting the creation or operation of his Nevada DAPT when, three years after settling the trust, Client, driving on a narrow 2 lane road, hits a bicycle built for two, ridden by two young neurosurgeons (ironically named Daisy and Michael), leaving both quadriplegics.

Under the S.C statute enacted to protect cyclists” 40 he is negligent (virtually per se). After the multi-million dollar judgment is entered and all liability insurance has paid and non-exempt assets have been attached and sold– client doesn’t even have a carriage left – he has only his Nevada DAPT to satisfy the balance of judgment. The DAPT is then attacked in a S.C. court.

What is the likely outcome?

A recent article in Trusts & Estates magazine presents an excellent summary of the potential attacks on a DAPT41 that could be made against the trust The six concerns or potential methods of attack, presented in the Trusts & Estates Article are:

• Sham DAPT • Improper Trust Situs • Discretionary Trusts • Constitutional Challenges • Exception Creditor

I refer you to the article for the discussion, and will comment only on the most troubling concern for the Client42: Choice of Law (Improper Trust Situs). Plaintiff creditors assert that the Nevada DAPT is not valid trust in South Carolina. The threshold consideration is the validity of the trust. If it is not a valid trust in South Carolina, the creditors can reach the assets: game, set, match. South Carolina does not recognize the validity of a self settled trust for the protection of the settlor's assets43. Nevada recognizes the self settled trust44. It is a Conflict of Laws question: Which State law is to be applied?

40 S.C. Code 56-5-3435. Driver to maintain safe operating distance between motor vehicle and bicycle A driver of a motor vehicle must at all times maintain a safe operating distance between the motor vehicle and a bicycle. 41 Al W. King III, Defend Against Attacks on DAPTs, Trusts & Estates (October 2014) at p. -. Accessed online at http://wealthmanagement.com/trusts-estates/2014-09-24 42 Client has clean hands (except for the wreck); no fraudulent transfer, no deliberate fraud, not insolvent after DAPT established; all “form” adhered to in administration of trust; Nevada trustee; assets presumably sited in Nevada and physically held by the Trustee. 43 § 62-7-505. Creditors' claims against settlor. (a) Whether or not the terms of a trust contain a spendthrift provision, the following rules apply:(1) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the Settlor’s creditors. 44 Nev. Rev. Stat. 166.010 DAN A. COLLINS 12

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The crux of the outcome in determining the validity of inter vivos trusts of movables turns on the distinction between choice of law for construction and interpretation of the trust and the choice of law for the validity of the trust. The rules governing the ultimate choice of applicable law in this instance are not the same. To complicate matters further, there is some ambiguity in the authoritative sources. Generally, at common law, if the trust designated the law of a state other than the default state (here, S.C), a court would ordinarily apply the law designated in the trust (here Nevada), unless to do so would violate a strong public policy of the default state, or unless the state whose laws have been designated has no substantial connection with the trust45.

This is in accord with the Restatement of Conflicts which provides that:

An inter vivos trust of interests in movables is valid if valid

(a) under the local law of the state designated by the settlor to govern the validity of the trust, provided that this state has a substantial relation to the trust and that the application of its law does not violate a strong public policy of the state with which, as to the matter at issue, the trust has its most significant relationship under the principles stated in § 646. [Emphasis added]47.

It is important to note that “…while the substantial connection requirement applies to the validity questions, it ordinarily does not apply to construction questions48.

The question then is whether or not the strong public policy of South Carolina would be the basis for the court refusing to honor the designation of Nevada as the law controlling the validity of the trust. However, given the provisions of the South Carolina Uniform Trust Code, the inquiry does not end here, nor is it definitively determined here. § 62-7-108 of the SCTC provides that:

(b) Without precluding other means for establishing a sufficient connection with the designated jurisdiction, terms of a trust designating the principal place of administration are valid and controlling if:

(1) A trustee's principal place of business is located in or a trustee is a resident of the designated jurisdiction; or

45 Loring and Rounds: A Trustee's Handbook - Rounds and Rounds,, §8.5 MiscellaneousTopics of General Interest; http://intelliconnect.cch.com accessed online. (hereafter Loring and Rounds). 46 Restat. 2d of Conflict of Laws, § 270 47Restat 2d of Conflict of Laws, § 6 Choice-Of-Law Principles (1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law. 48 Loring and Rounds: A Trustee's Handbook - Rounds and Rounds,, §8.5 MiscellaneousTopics of General Interest; http://intelliconnect.cch.com accessed online. DAN A. COLLINS 13

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(2) All or part of the administration occurs in the designated jurisdiction49. [Emphasis added].

The following excerpt from the Comments to Section 62-7-108 is especially helpful to Client

A settlor expecting to name a trustee or cotrustees with significant contacts in more than one state may eliminate possible uncertainty about the location of the trust's principal place of administration by specifying the jurisdiction in the terms of the trust. Under UTC subsection (a) and SCTC subsection (b), a designation in the terms of the trust is controlling if (1) a trustee is a resident of or has its principal place of business in the designated jurisdiction, or (2) all or part of the administration occurs in the designated jurisdiction. Designating the principal place of administration should be distinguished from designating the law to determine the meaning and effect of the trust's terms, as authorized by Section 62-7-107. A settlor is free to designate one jurisdiction as the principal place of administration and another to govern the meaning and effect of the trust's provisions. [Emphasis added].

Finally, § 62-7-403 of the SCTC provides that a trust not created by will [an inter vivos irrevocable trust like our DAPT] is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed, or the law of the jurisdiction in which, at the time of creation:

(1) the settlor was domiciled, had a place of abode, or was a national;

(2) a trustee was domiciled or had a place of business; or

(3) any trust property was located50.

The following excerpt from the Comments to Section 62-7-403 is helpful as well to Client Furthermore, if the trust has contacts with two or more states, one of which would validate the trust’s creation and the other of which would deny the trust’s validity, the tendency is to select the law upholding the validity of the trust. See 5A Austin Wakeman Scott &.William Franklin Fratcher, The Law of Trusts 600 (4th ed. 1987). Section 62-7-403 extends the common law rule by validating a trust if its creation complies with the law of any of a variety of states in which the settlor or trustee had significant contacts. Pursuant to Section 62-7-403, a trust not created by will is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed, or the law of the jurisdiction in which, at the time of creation the settlor was domiciled, had a place of abode, or was a national; the trustee was domiciled or had a place of business; or any trust property was located. Section 62-7-107. A settlor is free to designate one jurisdiction as the principal place of administration and another to govern the meaning and effect of the trust's provisions.

49 § 62-7-108. Principal place of administration. 50 62-7-403. Trusts created in other jurisdictions.

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The upshot of this analysis is that a South Carolina domiciliary settlor should be able to establish a DAPT in one of the states whose law recognizes a self settled trust. The ultimate validity of a DAPT with a South Carolina domiciliary as settlor/beneficiary and South Carolina beneficiaries will likely turn on the meticulousness of the settlor in meeting the requirements of the South Carolina Trust Code.

Bad facts and incompetent implementation (In Re Huber) inevitably lead to bad results. The principal place of administration designated in the trust must be in the state where the trustee is domiciled and where movable assets will be physically sited. Reserving sufficient assets outside the DAPT to satisfy reasonable claims of (future) creditors is another important element to a successful asset protection strategy51. It is reasonably safe to conclude that a DAPT, properly implemented in S.C. and administered in the state whose law is the basis for the self-settled protection, is a reasonable asset protection strategy in S.C.

51 Duncan Osborne, Esq has coined the term and explained in numerous articles the “nest egg” approach to funding an asset protected trust. DAN A. COLLINS 15

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Section 62-7-107. A settlor is free to designate one jurisdiction as the principal place of administration and another to govern the meaning and effect of the trust's provisions.

.

DAN A. COLLINS 16

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http://advance.lexis.com/api/document?collection=statutes-legislation&id=urn:contentItem:5BJR-VTG0-01F8-213S-00000-00&context=1000516

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There’s No Place Like Home - Domestic Self-Settled Asset Protection Trusts and Inter Vivos QTIP Trusts: Why Do Them and Where To Go When You Do

Domestic Asset Protection Trust Planning: Jurisdiction Selection Series

Insert States Here Tuesday, Month day, 2014 | 1:00 PM Eastern

Sponsored by The ABA Section of Real Property, Trust & Estate Law

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The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association, Section of Real Property, Trust and Estate Law for Continuing Legal Education unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only. © 2014 American Bar Association. All rights reserved.

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Trusts in South Carolina: Overview

• Effective January 1, 2014, South Carolina offers a previously unavailable (at least in South Carolina) opportunity for asset protection planning for married persons.

• The settlor of an Inter Vivos Marital Trust can be named or later appointed as a beneficiary of the remainder interest following the death of the donee spouse.

• In addition, South Carolina now has: • An excellent decanting statute,

– § 62-7-816A. Authority to appoint the property of original trust to second trust. • A trust protector statute,

– § 62-7-818. Powers and discretions of a trust protector. • And a very helpful investment advisor statute allowing the use of directed trusts.

– § 62-7-819. Powers of a trust investment advisor. • Rounding out, South Carolina has several other modern provisions in its trust statute:

– The Uniform Principal and Income Act; – Power to convert an income trust to a total return unitrust, reconvert a total

return unitrust to an income trust, or change the percentage used to calculate the unitrust amount;

– Protection from creditors of the holders of powers of withdrawal.

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South Carolina Trust Law Particulars • South Carolina has not repealed the Rule Against Perpetuities; but so what?

– After only 150 years, a trust would be expected to have around 2500 beneficiaries”.

• The South Carolina Trust Code (“SCTC”) was enacted May 23, 2005. • The SCTC is actually Article 7 of the South Carolina Probate Code and may be found in Title 62

of the South Carolina Code of Laws; 62-7-101, et. seq.

• As enacted in South Carolina, numerous changes were made to the Uniform Trust Code promulgated by the Commissioners

– Troublesome provisions of the UTC were eliminated or modified, generally where the UTC drifts toward the Third Restatement of the Law of Trust and its hostility toward beneficiary controlled trusts and asset protection for beneficiaries.

– Changes were made to increase the flexibility for third-party created discretionary trusts to provide near complete protection for trust beneficiaries.

– Trust assets are protected even in a beneficiary controlled trust where the familiar ascertainable standard limits the powers of the trustee-beneficiary.

– The only exception creditor in SC is a judgment claimant for child-support. • In South Carolina, assets in the typical revocable living trust are subject to the settlor’s creditors

during lifetime, and at death are subject to the settlor's debts and other charges (unless exempted). SC Code Ann. 62-7-505

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South Carolina Trust Law Particulars South Carolina has not adopted a domestic asset protection trust (the “DAPT”) of the

type adopted by a number of states, beginning in Alaska and ending recently in Mississippi (15 or so total).

Presently in South Carolina, if a settlor is also the beneficiary of an irrevocable trust governed by South Carolina law, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit – generally the rule in every jurisdiction, except the DAPT states.

We may reasonably infer from the Comments adopted as a part of the SCTC that the public policy of South Carolina prohibits, or at a minimum frowns on, an irrevocable self-settled trust that shields the assets of the settlor from his creditors while still affording a benefit to the settlor.

Even so, South Carolina now protects the assets of a follow up trust for the benefit of a settlor spouse who establishes an inter vivos marital deduction trust for his or her donee spouse.

The terms of a trust designating the principal place of administration are valid and controlling if: either a trustee's principal place of business is located in or a trustee is a resident of the designated jurisdiction or all or part of the administration occurs in the designated jurisdiction.

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§ 62-7-505(b) (2) – The New Planning Opportunity in South Carolina

• § 62-7-505(b) (2) which recognizes the “self settled” follow up trust reads in its entirety – the assets in a trust that are attributable to a contribution to an inter vivos marital deduction

trust described in either Section 2523(e) [general power of appointment] or 2523(f) [a QTIP] of the Internal Revenue Code of 1986, after the death of the spouse of the settlor of the inter vivos marital deduction trust are deemed to have been contributed by the settlor's spouse and not by the settlor. (emphasis added)

The technique has two elements: First: creation and funding of an inter vivos marital deduction QTIP trust. Each spouse may establish a trust for the other, subject to avoiding the reciprocal trust rules. The inter vivos QTIP Marital Trust : Established tax-free; failure to file 709 timely is FATAL

Is a Grantor Trust while spouses are alive; Reverse QTIP election for GST allocation possible; Is asset protected, even if the donee spouse is trustee (with HEMS); May not terminate in event of divorce (at least income may not); Settlor spouse directs ultimate disposition at inception (includes the “follow up” trust); Included in donee spouse’s taxable estate under Section 2044 at death; Covered by donee spouse’s applicable exclusion; Not susceptible to elective share claim in SC; Basis adjustment at donee spouse’s death; Not subject to probate claims filed against donee spouse.

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The Follow up Trust

Second: on the death of the donee spouse (the second element). • The upshot is that the follow-up trust is essentially a credit shelter trust whose

assets are included in the taxable estate of the Donee spouse at his or her death. The applicable exclusion of the donee spouse is used at the death of the donee spouse to cover the tax. The settlor spouse is the lifetime beneficiary of the follow up trust.

• The follow up trust should result in: – Grantor Trust status; the Supercharged℠ element; – Discretionary income and principal; Income tax “free” growth (settlor-spouse pays the tax); – Not includable in settlor’s taxable estate (IRC Sections 2036 and 2038 not applicable); – Not susceptible to settlor’s creditors.(not self-settled; ascertainable standard); – Opportunity to leverage assets transferred (appreciation exempted from tax); – Opportunity to continue GST exemption (with reverse QTIP election at creation); – No second basis adjustment at death; – Opportunity to swap assets; higher basis for lower basis (Rev. Rul. 85-13, 1985-1,C.B. 182.); – Settlor spouse beneficiary can have special testamentary power of appointment.

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Beneficiary Controlled Trust in South Carolina

• A Beneficiary Controlled Trust is an irrevocable trust which the beneficiary did not create. The Grantor of the trust, however, has conferred certain rights and powers on the Beneficiary.

• A beneficiary of a trust in SC may hold and exercise the following powers:

Power Creditor Risk Tax Risk (Consequence)

Sole Trustee: HEMS None None To Withdraw Assets None 678 and 2041

Limited Power to Appoint None None Test. General Power of

Appointment (unexercised) None 2041

“5 and 5” power None None This is a trust administered in

SC

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Beneficiary Defective, Asset Protected Marital Trust in SC

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DAPT for South Carolina Resident

Favorable Factors Negative Factors §62-7-107 : Designate State Law of DAPT for construction

Section §62-7-505 & Public policy

§62-7-108 : Designate State law Of DAPT for place of administration

Rest. 2d Conflict of Laws, §270

DAPT Trustee domiciled in State designated as place of jurisdiction §62-7-403: Trust valid if created under law of jurisdiction where DAPT Trustee domiciled at creation.

Bad facts; individual co-trustee(s) in settlor’s domicile; failure to site property in place of administration; poor record keeping; abuse of trust; improper choice of law provisions.

Trust property (movables) sited in DAPT State Nest egg approach; no bad facts; Settlor solvent after creation and funding The conclusion is that a properly drafted and implemented DAPT should be effective for SC settlor

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OKLAHOMA LAW

A. The state of Oklahoma passed the Family Wealth Preservation Trust Act (the “FWPTA”) that became effective on November 1, 2004. See Okla. Stat. tit. 31 § 10. & H.R. 2135, 49th Leg., 2d Reg. Sess. § 8 (Okla. 2004). The FWPTA sought to provide significant wealth protection benefits to grantors by allowing them to establish Oklahoma preservation trusts. However, the FWPTA, when enacted, presented issues and left questions unanswered which presented problems to asset protection practitioners, for example:

1. Would the potential to protect only $1,000,000 be attractive to grantors?

2. Could non-residents create a preservation trust under the FWPTA?

3. Could a preservation trust have a co-trustee and if so who could serve as the co-trustee?

4. Would include capital gain of amounts contributed to the trust be protected?

5. What qualified as “Oklahoma assets,” since only Oklahoma assets would be

protected in a preservation trust?

6. What constituted a “physical location,” of an Oklahoma company? In April, 2014 the Governor of Oklahoma signed into law SB 1904, which became effective November 1, 2014. SB 1904 amends the FWPTA. As amended, the FWPTA answers some of these questions, and modifies previous features of an Oklahoma preservation trust that will make it more attractive to Oklahomans and non-resident grantors alike.

B. The FWPTA, as amended, provides signification wealth preservation benefits. See Okla. Stat. tit. 31 § 12. According to the FWPTA, the income and corpus of a preservation trust will be exempt from the claims of creditors of a grantor, excluding claims made based on child support judgments. Id. Unlike the previous Act, the amended FWPTA places no cap on the amount of assets that can be contributed to an Oklahoma preservation trust. Id. Furthermore, in addition to “incremental growth derived from income retained by the trustee” the amended FWPTA specifically protects “an increase in value of the corpus.” Id. “Grantor” is now defined to specifically allow non-residents to create preservation trusts. Okla. Stat. tit. 31 § 11. Of extraordinary interest, the amended FWPTA allows the preservation trust to be revocable, partially revocable, and amendable, by the grantor, however, the exemption provided by the act would not be applicable to any property received by the Grantor through a revocation, partial revocation, or amendment Okla. Stat. tit. 31 § 13.

C. For a trust to qualify as a preservation trust it must be established by the grantor

under Oklahoma law. Okla. Stat. tit. 31 § 11(5)(a). The FWPTA, as amended, allows for co-trustees, saying a preservation trust must at all times must have an Oklahoma-based bank that maintains a trust department or an Oklahoma-based trust company serving “as a trustee or co-

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trustee.” Okla. Stat. tit. 31 § 11(5)(b). The preservation trust can designate only certain individuals and charities as beneficiaries who are referred to as “qualified beneficiaries.” Okla. Stat. tit. 31 § 11(5)(c). Additionally, the corpus of the trust must only have a majority of its assets comprised of “Oklahoma assets,” and the terms of the trust must provide that the income produced by its corpus is subject to tax under the income tax laws of Oklahoma. Okla. Stat. tit. 31,§ 11(5)(d) and (e).

D. The FWPTA, as amended, further loosens the restrictions on the trustee requirements and now an Oklahoma-based bank or trust company is defined as a bank or a trust company chartered under Oklahoma law or a nationally chartered bank or trust company that has a place of business in Oklahoma. Okla. Stat. tit. 31 § 11.3. The place of business must be a physical location in Oklahoma. Id.

E. According to the amended FWPTA, a grantor is an individual “establishing or creating” a preservation trust, and that specifically includes an individual, “weather or not a resident” of Oklahoma. Okla. Stat. tit. 31 § 11.1. The amended the FWPTA further loosens the restrictions on the corpus of the trust funds and “Oklahoma assets” are stocks, bonds, or debentures, membership interests, or partnership interest “without reference to the assets owned by the Oklahoma-based company” issued by an Oklahoma-based company Okla. Stat. tit. 31 § 11(2). Presumably, this allows a practitioner to form an Oklahoma limited liability company to hold any asset and to transfer the membership interest(s) of the limited liability company into a preservation trust to have the assets qualify as Oklahoma assets. Id. Further defined are bonds or other obligations issued by the state of Oklahoma or subdivisions of the state, bonds or other obligations issued by a county or municipal government located in Oklahoma, accounts at Oklahoma-based banks or trust companies, mineral interests, mutual funds, and real property in Oklahoma. Id.

F. An Oklahoma-based company is a corporation, limited liability company, limited partnership, or limited liability partnership formed or domesticated in Oklahoma. Okla. Stat. tit. 31 § 11.4. Furthermore, the Oklahoma based company must have its principal place of business in Oklahoma. Id. The principal place of business must be a physical location in Oklahoma. Id.

G. In the amended FWPTA qualified beneficiaries include the lineal ancestors and lineal descendants of the grantor or the grantor's spouse, including adopted lineal descendants if they were under the age of eighteen (18) at the time of the adoption. Okla. Stat. tit. 31 § 11(6)(a). A spouse of the grantor can also be a qualified beneficiary as well as a nonprofit organization within the meaning of § 501(c)(3) of the Code. Okla. Stat. tit. 31 § 11(6)(b) and (c). The grantor is not included in the class of individuals who can qualify as a qualified beneficiary. Okla. Stat. tit. 31 § 11(6). It has been suggested that the drafters of the FWPTA stipulated this provision in an effort to keep transfers to a preservation trust from being avoidable under the United States Bankruptcy Code even if said transfers were made within in the ten-year look-back period. 11 USC § 549(e). Further, the grantor could exercise the grantor’s power to revoke the trust in the grantor’s favor, which would allow the grantor access to trust principle. Okla. Stat. tit. 31 § 13.

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H. The FWPTA also provides that no judicial body will have the authority to compel a person holding the power to revoke a preservation trust to exercise that power. Okla. Stat. tit. 31 § 16.

I. Interestingly, the FWPTA refers to the protection afforded to the assets held in the preservation trust as an “exemption.” Okla. Stat. tit. 31 §§ 12 and 14. Note that this appears fundamentally different from the self-settled asset protection trust acts in states such as Alaska, Delaware, Nevada, Rhode Island and Utah.

J. All in all, the amended FWPTA addresses previous limitations and answers many previous interpretation questions that caused uncertainty among those in the asset protection bar and kept practitioners from unitizing preservation trusts. For example:

1. Individuals who are not residents of Oklahoma can now create preservation trusts under the FWPTA with confidence, since they have been specifically defined and contemplated to be grantors. Okla. Stat. tit. 31 § 11(1).

2. A preservation trust can now name a co-trustee along with a bank that maintains a trust department or trust company that has a physical location in Oklahoma. Okla. Stat. tit. 31 § 11(5)(b).

3. The FWPTA now protects “any incremental growth derived from income or an increase in value of the corpus of a preservation trust. Okla. Stat. tit. 31 §12.

4. There is now no limit on the amount of assets that can be contributed to and protected by an Oklahoma preservation trust. Id.

K. The FWPTA still does not permit the creation of a classic self-settled asset protection trust as the laws in states such as Alaska, Delaware, Nevada, Rhode Island and Utah permit. See e.g., 1997 Alaska Sess. Laws, Ch. 6 (H.B. 101), Alaska Stat. §§ 13.12.205(2), 13.36.035, 13.36.310, 13.36.390, 34.40.010, 34.40.110(a), 34.40.110 (Michie 2003); Col. Rev. Stat. § 38-10-111 (2003); The Qualified Dispositions in Trust Act, Del. Code Ann. tit. 12, §§ 3570-3576 (2003); Mo. Rev. Stat. §§ 428.005-428.059, 456.020, 456.080 (2003); Nev. Rev. Stat. 166.040 (2003); The Qualified Dispositions in Trust Act, R.I. Gen. Laws § 18-9.2 (2003); 2003 Utah Laws Ch. 301 (H.B. 299), Utah Code Ann. § 25-6-14(1)(a) (2003). To the contrary, other than the power to revoke the trust (presumably in the grantor’s favor), the grantor apparently is not permitted to retain a discretionary interest in a preservation trust. See Okla. Stat. tit. 31 § 11.6. Although the power to revoke or maintain ultimate control over the wealth in this type of trust is superior in many respects to some of the powers or interests permitted by the acts of states such as Alaska and Delaware, the FWPTA clearly states that the exemption is forfeited immediately upon the exercise of such power. Okla. Stat. tit. 31 § 13. Not permitting the grantor to be a discretionary beneficiary requires practitioners to counsel clients accordingly. However, this aspect of the FWPTA apparently provides the preservation trust with super protection under the United States Bankruptcy Code. 11 USC § 548(e). However, at least three offshore jurisdictions expressly allow a settlor to retain the power to revoke a trust and remain a discretionary beneficiary of both income and principal. See, e.g., Nevis International Exempt Trust Ordinance, 1994, § 47(a), (b) (Nevis); International Trusts Act 1984, § 13C(a), (c) (Cook

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Is.); Trusts Act, § 43(1) (Belize). From a practical planning perspective, such a power should rarely be used because it can undermine the protection that a settlor is seeking to achieve. Assuming an asset protection trust established in states such as Delaware or Alaska can accomplish its objectives of protecting the wealth held in the trust, the terms of such a trust can give the trustee the authority to use the trust assets for the benefit of the grantor at any time. See Alaska Stat. § 34.40.110 (Michie 2003); Col. Rev. Stat. § 38-10-111 (2003); Del. Code Ann. tit. 12, § 3570(10) (2003); Mo. Rev. Stat. § 456.040(2) (2003); Nev. Rev. Stat. 166.040 (2003); R.I. Gen. Laws § 18-9.2-2 (2003); Utah Code Ann. § 25-6-14(1)(a) (2003). A preservation trust may be much more limiting. Consider the following practical examples:

Example 1: DD creates a preservation trust in Oklahoma retaining the power to revoke the trust at any time for any reason. The Oklahoma trust company sole trustee is given the power to distribute income and principal to any one or more of the grantor’s children and grandchildren. DD cannot be included in the class of beneficiaries eligible to receive a distribution from the trust. Okla. Stat. tit. 31, § 11.6. DD commits an act of malpractice in his professional practice some time following the creation of the trust and his client obtains a $2,000,000 judgment against him. DD has no assets that this creditor can attach or other liquid wealth except the assets in the preservation trust. If DD exercises his power to revoke the trust to access such wealth his creditor can attach that wealth. FWPTA § 13. Nonetheless, the trustee has no authority to distribute any part of the assets in the trust to DD. FWPTA § 11.6. This situation can create serious problems for DD if he needs to access such wealth for his daily subsistence. Of course, DD’s spouse, if any, can be a designated beneficiary of such trust perhaps building in some additional flexibility. FWPTA § 11.6.b.

Example 2: MM creates a preservation trust in Oklahoma retaining the power to revoke the trust at any time for any reason. The Oklahoma trust company sole trustee is given the power to distribute income and principal to any one or more of the grantor’s children and grandchildren. MM cannot be included in the class of beneficiaries eligible to receive a distribution from the trust. FWPTA § 11.6. MM is declared incompetent by a state court, therefore, he can no longer exercise his power to revoke the trust and access the wealth for his personal consumption. Unless the revocation power can be exercised by MM’s guardian or for some other reason under state law, the wealth in the trust cannot be used for MM’s benefit. However, the wealth could be distributed to the grantor’s children and they would be able to use it for MM’s benefit.

L. Finally, potentially subjecting assets in the preservation trust to a state income tax that might not otherwise be subject to the tax may not seem prudent. This could be an open-ended invitation for abusive taxation. Is the tradeoff for the wealth protection worth incurring the future tax liability - whatever that may be? Also, the “physical location” requirements to qualify as an Oklahoma-based company seem problematic. What constitutes a “physical location?” Mere formation of an entity in Oklahoma or qualifying a foreign entity to do business in the state will not be enough for the company to qualify as an Oklahoma-based company. What type of physical location will qualify under the statute? From a practical perspective these two requirements may prove too onerous, especially after considering annual trustee’s fees and

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expenses. Furthermore, there is no significant benefit available to a grantor who creates an irrevocable trust under the Act that is not available in any other common law jurisdiction, aside from removing the contributed assets from the grantor’s estate.

Now that many of the previous issues have been resolved by the amended FWPTA, “Sooner Trusts” or “Cowboy Trusts” may become an attractive wealth protection option. In appropriate circumstances and understanding the present limitations of the Act, Oklahoma residents should certainly take advantage of this legislation. If non-residents are comfortable with the potential for Oklahoma income tax to be levied on the income of the trust, then the fact that the legislation allows a preservation trust to be revocable may make the Oklahoma wealth preservation trust an attractive asset protection tool.

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Oklahoma Family Wealth Preservation Trust

Presented by Attorney Rod Yancy RTY Law P.C.

Tulsa and Oklahoma City

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Family Wealth Preservation Trust Act

31 O.S. § 10 et seq Effective November 1, 2004

Amended November 1, 2014

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Previous Issues

• Contributions capped at $1,000,000 and only one trust allowed

• Question as to whether growth of principle was protected

• Non-resident grantors were not specifically allowed

• Required Oklahoma corporate trustee and silent on availability of co-trustee

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Previous Issues

• Restricted beneficiaries to qualified beneficiaries

• Sought to restrict the nature of assets contributed to the trust requiring them to be “Oklahoma Assets”

• Required income of trust to be subject to tax laws of Oklahoma

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Did the amendment solve the issues?

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No cap on contributions.

31 O.S. § 12

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All growth of corpus is protected.

31 O.S. § 12

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Non-resident grantors are specifically allowed.

31 O.S. § 11(1)

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Co-trustees are allowed.

31 O.S. § 11(5)(b)

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Qualified beneficiaries are further defined.

31 O.S. § 11(6) a. lineal ancestors and descendants b. spouses

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Contributable assets were expanded and clarified.

31 O.S. § 11(2) Only need a majority of Oklahoma Assets. All mutual funds held by an Oklahoma bank or trust company are Oklahoma assets.

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Still subject to Oklahoma income tax laws.

31 O.S. § 11(5)(e)

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Is this an attractive asset protection tool?

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Attractive Features

• It can be revocable • The grantor can act as a co-trustee? • Overcomes bankruptcy 10-year claw-back 11

USC § 549 (e) (grantor can not be beneficiary) • Provides jurisdictional clarity, since majority

Oklahoma assets, Oklahoma corporate trustee, and Oklahoma situs, overcoming In re Huber 493 B.R. 798

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Is this an attractive asset protection tool?

You tell me.

Thank you – Rod Yancy, attorney RTY Law P.C.

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WYOMING SELF-SETTLED ASSET PROTECTION TRUSTS

I. Trusts that are not considered self-settled under Wyoming law.A. Withdrawal right and power of appointment trusts.

1. Holder of unexercised power of withdrawal or power of appointment overtrust property is not treated as a trust settlor, regardless of whether powerremains exercisable or has lapsed WS §4-10-506(e).

2. Trust property that holder of power of appointment is authorized toappoint may not be reached or attached by creditor or assignee of powerholder except if WS §4-10-505.1(a):a. Power holder has general power of appointment, andb. Power holder exercises the power of appointment in favor of

himself, his creditors, his estate, or the creditors of his estate. 3. Trust property that may be withdrawn by a person holding a power to

withdraw from the trust may not be reached or attached by creditors orassignees unless and until the power holder withdraws the property fromthe trust WS §4-10-505.1(b).

B. Lifetime QTIP trusts after death of spouse WS §4-10-506(f). 1. Trust created under IRC §2523(e) and election made under §2523(f).2. Person who created the trust for his or her spouse shall not be treated as

trust settlor as of and after death of the spouse.

II. Two Wyoming self-settled asset protection trusts (APT). Qualified spendthrift trust(QST) §§4-10-510 – 523; Effective July 1, 2007, amended 2008, 2011, and 2013. Self-settled discretionary asset protection trust WS §4-10- 506(c). Effective July 1, 2013.A. Requirements under statute for protection – discretionary asset protection trust.

1. Trustee may only make discretionary distributions to settlor.2. Trust must be irrevocable.3. Trust must have a Wyoming regulated financial institution qualified

trustee. 4. Property transferred to the trust must not violate Wyoming Uniform

Fraudulent Transfers Act. No standard of proof specified. Claim period 4years after transfer made.

5. No spendthrift provision required. 6. Protection same as third party discretionary trusts provided under WS §4-

10-504(b). B. Requirements under statute for protection – QST.

1. Trust instrument must state trust is a qualified spendthrift trust under WS§4-10-510;

2. Trust must incorporate law of Wyoming for validity, construction, andadministration;

3. Trust must provide Settlor’s interest in trust income or principal, or both

Page 1Robert H. Leonard, Prehoda, Leonard & Edwards, LLC, [email protected], 307-742-7896

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mailto:[email protected],

are held subject to spendthrift provision under WS §4-10-502 and thespendthrift provision shall be deemed a restriction on the transfer of thesettlor’s beneficial interest in the trust that is enforceable under applicablenonbankruptcy law within the meaning of §541(c)(2) of the BankruptcyCode; and

4. Trust must be irrevocable - 14 exceptions to irrevocable. 5. Property transfers to QST must not violate Wyoming Uniform Fraudulent

Transfers Act. a. Clear and convincing evidence standard of proof. Claim period 4

years after transfer made.b. Applies to creditor, assignee or agent.c. Proof meeting standard by one creditor does not constitute proof

for another creditor. 6. Settlor must have personal liability insurance equal to lesser of $1,000,000

or value of property transferred to trust. 7. Settlor must create a qualified transfer affidavit WS §4-10-523.

C. Definition of Settlor WS §4-10-103(a)(xviii). 1. A person, including a testator, grantor or trust maker, who creates,

transfers, or contributes property to a trust.2. Settlor does not have to be a resident of Wyoming.3. A person may be an individual, corporation, business trust, estate, trust,

partnership, limited liability company, association, joint venture,government, governmental subdivision, agency or instrumentality, publiccorporation, or any other legal or commercial entity WS §4-10-103(a)(xii).

4. Applies to both QST and discretionary trusts. D. Required contacts with Wyoming.

1. QST must have Wyoming qualified trustee WS §4-10-103(a)(xxxv).a. A natural person who is a resident of Wyoming, orb. A person authorized by Wyoming to act as a trustee or a regulated

financial institution. 2. Discretionary trust must have a regulated financial institution qualified

trustee. 3. Settlor may not act as trustee of a QST or a discretionary trust.4. Qualified Trustee must:

a. Maintain custody of some or all of trust assets in Wyoming;b. Maintain trust records on an exclusive or nonexclusive basis;c. Prepare or arrange for the preparation of the fiduciary income tax

returns for the trust; or d. Otherwise materially participate in the administration of the trust.

E. Interests in principal and income settlor may retain. 1. Discretionary trust – settlor may retain ability to receive discretionary

distributions of trust income and principal.2. QST Trust settlor may retain:


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a. Right to trust income; b. Rights to income or principal from a charitable remainder unitrust

or charitable remainder annuity trust;c. Right to an annuity or unitrust amount not to exceed 5%; d. Right to trust principal at trustee’s discretion or at direction of trust

advisor; e. Right to use real property held under a qualified personal residence

trust;f. Right to receive each year income or principal from a GRAT or a

GRUT allowed under IRC §2702;g. Ability to be reimbursed, in whole or in part, for income taxes due

in trust income attributed to settlor; andh. Ability to have, all or any part of the debts, expenses, and taxes of

settlor’s estate paid from the trust. F. Trustee’s distribution authority.

1. Discretionary trust trustee may distribute income and principal in absolutediscretion or pursuant to a standard WS §4-10-506(c).

2. QST trustee may also distribute in absolute discretion or pursuant to astandard WS §4-10-510(a)(iv)(D) & (F).

G. Powers and other special provisions settlor may include in trust:1. QST Trust WS §4-10-510(a)(iv):

a. Power to veto a trust distribution; b. Inter vivos or testamentary general or limited power of

appointment;c. Right to add or remove a trustee, trust protector, or trust advisor,

and to appoint a new qualified trustee, trust protector, or trustadvisor, other than the settlor;

d. A trust protector having the power to add trust beneficiaries whoare not the trust protector, the estate of the trust protector, thecreditors of the trust protector, or the heirs of the trust protector;

e. Right to serve as an investment advisor to the trust; andf. The court’s right to revoke a trust created by a conservator for a

ward. 2. Discretionary trust – same powers and provisions except:

a. Settlor may not have power to veto distribution; andb. Settlor’s power to appoint a new trustee is limited to a qualified

trustee regulated financial institution. H. Exception creditors.

1. QST Trust WS §4-10-520.a. Child support order when settlor is default by 30 days or more. b. Financial institution when settlor has listed trust property on the

financial institution’s application or financial statement to obtain ormaintain credit with the financial institution.


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2. Discretionary Trust has no exception creditors WS §4-10-504.I. May existing trusts elect to be Wyoming APTs?

1. Wyoming Uniform Trust Code permits existing trusts to opt into the UTCprovisions (WS §4-10-1103(c). a. If settlor alive, requires settlor and qualified beneficiaries consent.b. If settlor not alive, requires qualified beneficiaries’ consent.

2. After trust has opted into Wyoming UTC, trust may be modified bynonjudicial settlement to change place of trust administration and elect fortrust to be a QST WS §§4-10-111(d). Will require:a. Incorporating law of Wyoming;b. Obtaining qualified trustee;c. Adding spendthrift clause – QST only; andd. Adding statement to trust that it is a QST under WS §4-10-510 –

QST only. 3. WS §4-10-516 provides creditor protection will relate back to date of

election to become QST if:a. Trust is modified nonjudicially to conform to WS §4-10-510

within one year of the election, orb. Petition is filed to judicially modify the trust to conform to WS §4-

10-510 within 30 days of the election. 4. The creditor protection of a QST may relate back to transfer of property to

the trust when the trust was created in another jurisdiction with similarcreditor protection provisions WS §4-10-515(b).

J. Trustee may also decant to modify a QST or discretionary asset protection trust; orto modify an existing trust into a QST or discretionary asset protection trust.1. Decanting permitted if existing trust provides trustee authority to make

discretionary distributions of trust income and principal. WS §4-10-816(a)(xxviii).

2. Trust protector may also have power to decant. WS §4-10-710.K. Trustee of QST ceases to act if court rules Wyoming law does not apply to

determine effect of spendthrift provision. WS §4-10-522.L. Creditor’s claims against trustee, trust protector, trust advisor, or any person

involved in counseling, drafting, administration, preparation, execution, orfunding of trust limited to: WS §4-10-517.1. Fraudulent transfer proved by clear and convincing evidence; and2. Filing of claim within the time provided in Wyoming Uniform Fraudulent

Transfers Act.

III. Pending amendments to Wyoming Discretionary asset protection trust in 2015 session.A. WS §4-10- 504(c) Adding that no property interest is created in a beneficiary of a

discretionary trust. B. WS §4-10-506(c):

1. Apply clear and convincing evidence standard of proof to fraudulent


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transfer to trust.2. Provide only one trustee of trust must be a qualified trustee.3. Provide trustee with authority to make discretionary distributions must not

be related to settlor under IRC §672(c).

IV. Wyoming Rule Against Perpetuities WS §34-1-139A. Allows trusts to continue for 1,000 years.B. Trust must apply Wyoming law, with trustee who administers trust in Wyoming

or is a Wyoming resident. C. Does not apply to trust holding real property – real property may be held in LLC,

corporation, or business trust; with entity owned by trust.

V. Wyoming Close Limited Liability Company WS §§17-25-101 – 17-25-111A. Default provisions favor increased discounts for lack of control and lack of

marketability:1. No ability to withdraw without consent of all members.2. No ability to force a dissolution for failure to return capital contribution.3. No transfer of a close LLC interest permitted without consent of all

members.B. May be perpetual entities.C. Charging order exclusive creditor remedy for Wyoming LLCs WS §17-29-503.

1. No judicial foreclosure remedy.2. Applies to multiple and single member LLCs.

VI. No Income or Estate Tax and Wyoming Financial Health.

A. No Wyoming state income, capital gains, or intangibles taxes on individuals,corporations, or trusts; Wyoming Constitution contains strong restrictions onincome tax – Full credit against tax for all sales, use, and ad valorem taxes.

B. No state estate or inheritance taxes.C. Wyoming’s financial health – ability to continue trust and tax advantaged laws.

1. Budget shortfalls low, quick recovery from recession, and return to budgetsurplus.

2. Rainy day accounts healthy, second only to Alaska.3. Unemployment low compared to national average.4. Rated highly among top trust situs states as Best-Run State and Most

Favorable for Businesses by Wall Street Journal, Tax Foundation, andBloomberg.


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www.ambar.org/rpte

There’s No Place Like Home - Domestic Self-Settled Asset Protection Trusts Why Do Them and Where To Go When You Do

Domestic Asset Protection Trust Planning: Jurisdiction Selection Series

Wyoming Tuesday, February 10, 2015 | 1:00 PM Eastern

Sponsored by The ABA Section of Real Property, Trust & Estate Law

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Trusts With Beneficiary Not Considered Settlor

• NCCUSL UTC beneficiary becomes settlor with: – Withdrawal rights, or – Lifetime general power of appointment

• Wyoming UTC – Holder of power to withdraw not settlor – Holder of lifetime general power not settlor

• Lifetime QTIP trusts donor spouse not settlor after death of donee spouse

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Wyoming Discretionary APT

• Irrevocable trust • Discretionary principal and income distributions

to settlor • Wyoming regulated financial institution trustee • Transfer to trust not in violation of Fraudulent

Transfer Act • No spendthrift provision required • Creditor protection until distribution received

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Qualified Spendthrift Trust (QST)

• Irrevocable trust with QST statement • Spendthrift provision • Transfer to trust not in violation of Fraudulent

Transfer Act • Wyoming qualified trustee • Qualified transfer affidavit • Liability insurance requirement

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Settlor and Trustee Requirements

• Settlor may be individual, estate, trust or business entity

• Settlor creates, transfers or contributes to trust • QST Trustee must be qualified trustee • Discretionary APT trustee must be Wyoming

regulated financial institution • Trustee must have contacts with Wyoming • Settlor may not be trustee

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Permitted Retained Interests of Settlor

• Discretionary APT - discretionary distributions of income and principal

• Qualified Spendthrift Trust – Right to trust income – Discretionary principal distributions – Annuity or unitrust amount, including from

CRUT, CRAT, GRAT, or GRUT – Reimbursement for income taxes – Payment of debts, taxes, expenses of estate

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Settlor’s Powers

• Qualified Spendthrift – Veto trust distributions – Inter vivos or testamentary power to appoint – Remove or add trustee or trust advisor – Serve as trust investment advisor – Appoint trust protector with broad powers

• Discretionary APT – Same powers except no trust distribution veto

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Exception Creditors

• Discretionary APT – no exception creditors • Qualified Spendthrift Trust

– Child support 30 days or more in default – Financial institution where settlor obtained

credit listing trust assets

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Existing Trusts Electing Wyoming APT

• Opt into Wyoming UTC • Modify trust with nonjudicial settlement or court

– Incorporate law of Wyoming – Add spendthrift clause (QST only) – Add statement trust is QST (QST only)

• Appoint Wyoming qualified trustee or Wyoming regulated financial institution trustee

• Trusts from other APT jurisdictions protection will relate back

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Other Provisions

• Trustee with discretionary distribution authority may decant to QST or discretionary APT

• Trustee ceases to act if court finds Wyoming law does not apply for creditor protection

• Creditor’s claims barred for settlor barred for trustee, trust protector, trust advisor, attorney

• Fraudulent transfer proof by clear and convincing evidence

• Claim period for fraudulent transfer 4 years

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Wyoming 2015 Legislation

• Discretionary beneficiary no property interest • Discretionary APT changes

– Clear and convincing fraudulent transfer proof – Trustee not limited to regulated financial

institution – Distribution trustee must be independent

• Principal and Income Act – Annual decision capital gain is trust income – Annual decision principal distributions in DNI

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Other Wyoming Benefits

• 1,000 year rule against perpetuities • Wyoming Limited Liability Company

– Close LLC provisions discount friendly – Charging order exclusive remedy for single

and multiple member LLCs • No income or intangibles taxes • State financial health excellent

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Date post:	29-Jul-2018
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