Choosing a Domestic Jurisdiction for a Long-Term Trust (Portfolio 867)

Description

Tax Management Portfolio, Choosing a Domestic Jurisdiction for a Long-Term Trust, No. 867, explores two important developments in trust law that emerged late in the 20th century. The first was the recognition of the tax and nontax benefits of creating long-term or “dynasty” trusts. The second was the recognition of the benefits that clients may achieve in many situations by creating trusts in states other than the state of residence.

After covering some preliminary matters, this Portfolio summarizes the federal income and transfer-tax attributes of long-term trusts. It next discusses a client’s freedom to choose a jurisdiction for a new trust, the ability of courts to disregard that selection, and factors for clients to consider in making such a choice. The Portfolio then addresses ethical and practical concerns, relocating existing trusts, and the use of dynasty trusts by nonresident aliens. The Worksheets contain illustrations, state law charts, and a sample trust form.

This Portfolio, with commentary, is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A., M&T Bank, and certain other affiliates, provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through Wilmington Trust Corporation’s international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC.

Wilmington Trust Company operates offices in Delaware only. Note that a few states, including Delaware, have special trust advantages that may not be available under the laws of your state of residence, including asset-protection trusts and directed trusts.

Table of Contents

I. Initial Considerations
II. Federal Tax Implications of Perpetual Dynasty Trusts
III. Client’s Ability to Choose a Jurisdiction For a Trust
IV. Beneficiaries’ Ability to Defeat Clients’ Selection of Trust States
V. Factors to Consider in Selecting a Trust State
VI. Ethical and Practical Concerns When Creating a Dynasty Trust in a Trust State
VII. Moving a Dynasty Trust to a More Favorable State