08 Apr

Alaska and Delaware Now Offer Domestic Asset Protection Trusts

In Alaska Trusts,Asset Protection by admin / April 8, 2013 / 0 Comments

Estate Planner Mar-Apr 1998

When you think about an asset protection trust, an offshore trust probably comes to mind. With the recently enacted Alaska and Delaware statutes, however, you may not need to leave the country for an asset protection trust. The Alaska and Delaware Trust Acts offer additional domestic asset protection and estate planning opportunities.
Generally, when you retain an interest in a trust you create, the trust is subject to your creditors’ claims to the extent of the interest you have retained, and perhaps to the full extent of trust assets. Also, because creditors have access to the trust assets, transfers you make to a trust in which you retain an interest — even if the trust is irrevocable — are not completed gifts for estate tax purposes and will be included in your estate at death.

The most reliable way to protect assets from future creditors and keep them out of your estate at death is to not retain any rights to the trust assets or income, including any right to control who receives trust assets. You may not, however, be inclined to give it all away with no strings attached or interests retained. Thus, you may have considered establishing trusts in certain foreign jurisdictions that provide for creditor protection even if the grantor holds a retained interest.

The New Domestic Alternative

Recognizing that trust asset protection is a sound and legitimate financial planning tool, some state legislatures have begun enacting statues that provide similar protection onshore. The Alaska Trust Act and the Delaware Trust Act were changed in 1997 to allow a grantor to create a trust that is protected from his or her future creditors even though the grantor has retained the right to receive discretionary distributions of income or principal.

This is because Alaska and Delaware trusts may prohibit a grantor who holds a beneficial interest in the trust from assigning, either voluntarily or involuntarily, his or her interest in the trust prior to the distribution of the interest to the grantor. This prohibition may also apply to the grantor’s current creditors as long as the transfer into the trust is not a fraudulent conveyance.

How the Trusts Work

Joe transfers $500,000 to a trust he has created outside of Alaska or Delaware. The trustee has the discretion to make distributions of income from the trust to Joe during his life. On Joe’s death, the trust assets will be distributed to Joe’s daughter.

If Joe then incurs a debt he is obligated to pay, the creditor can reach trust assets to the extent of Joe’s income interest. On Joe’s death, the entire value of the trust will be includable in his estate for estate tax purposes.

This would not be the result if the trust were now formed in Alaska or Delaware. Under these states’ statutes, the trust assets would not be available to Joe’s creditors, even though he has retained the right to receive trust income.

In addition, some would say that the trust assets should not be included in Joe’s estate at his death. Why? Because, they would argue, if the trust was formed in a state where the trust assets could not be reached by a grantor’s creditors, the transfers into the trust should be deemed completed gifts and, therefore, not includable in Joe’s estate.

Can Creditors Reach the Assets?

Although Alaska and Delaware offer greater creditor protection than most states, creditors may still be able to reach these trusts. The U.S. Constitution requires any state to enforce the judgments of any other state. Thus, a creditor can obtain judgment against the grantor outside Alaska or Delaware. Enforcement of the judgment, however, would also have to involve an Alaska or Delaware court, making it a lengthy process. Additionally, U.S. bankruptcy law extends to virtually all persons in the United States, so if bankruptcy law could void the transfer to the trust, Alaska or Delaware laws would not protect the assets.

Also, keep in mind that these new laws will not protect the trust assets if any transfer into the trust was intended to defraud creditors or avoid a judgment order for child support.

Weigh the Advantages of Domestic vs. Foreign Trusts

A trust in a foreign country with debtor-friendly laws offers the greatest possible creditor protection. Remember, however, that U.S. reporting requirements relating to creating a foreign trust tend to be onerous and, therefore, make a foreign trust less appealing. Alaska and Delaware offer an attractive alternative for those who want additional creditor protection while keeping assets in the United States. Please contact us if you would like additional information on using asset protection trusts. We’d be pleased to help.

08 Apr

Hunting for Lost Treasures — You May Be the Heir to Abandoned Assets

In Abandoned Assets by admin / April 8, 2013 / 0 Comments

Estate Planner Jul-Aug 1997

Over the years, U.S. residents have abandoned tangible and intangible property valued at billions of dollars. State unclaimed-property laws, traditionally called “escheat,” empower states (or other governmental units) to take title to, or claim custody of, property that has remained unclaimed or dormant for a period of time and, therefore, is presumed abandoned. As an heir, you may be entitled to lost treasures you don’t know about.

Finding the Treasure Map

Generally the burden is on the holder or custodian of property to report its abandonment and meet corresponding notice and publication requirements. Newspapers regularly publish such lists, so it may be worthwhile to review lists that appear in states where your relatives have resided. Look for your own last name, your or your spouse’s maiden name, your mother’s maiden name and your spouse’s mother’s maiden name to determine if the state is holding property to which you may have a claim. You also may learn of escheated property when the executor of a relative’s estate discovers evidence of escheated property, such as old uncashed dividend checks or unclaimed redemption proceeds, and contacts you.

Recovering the Treasure Chest

If you believe you have a claim to property that may have escheated to the state, contact the state treasurer to determine what recovery procedures are available. In general, the law provides a procedure to make a claim to retrieve the property.
However, the first hurdle often is determining to just what state the property escheated. Several states may claim custody of unclaimed property based on jurisdiction over the corporate issuer or holder of the property.

For example, if unclaimed intangible property, such as corporate stock, is abandoned, the stock might be covered under the law of the state where the company was incorporated, the state where the corporate headquarters was located or a state doing significant business with the corporation. Under the federal Uniform Unclaimed Property Act, and several state statutes, unclaimed intangible property is payable to the state of the last known address of the owner. Thus, that is the first place to look. If the owner has moved often, it may be necessary to check several states.

Don’t Make Your Heirs Go on a Treasure Hunt

Finding and retrieving escheated property to which you have a claim can be exciting, but wouldn’t you rather have had the property sooner? Make sure that your heirs don’t have to go through the escheat property reclamation process. Keep close tabs on all of your property and write a will or create a living trust to ensure that your estate is passed to your heirs as you wish.


What Is Abandonment?

At what point an asset escheats to the government varies by state and may depend on the type of property that has been abandoned. Under the federal Uniform Unclaimed Property Act, abandonment is presumed in many situations, such as when:

  • Money has been held in a savings account with no activity for five years,
  • Travelers checks have been unused for 15 years,
  • Intangible assets from the dissolution of a business association have not been claimed by the owner within one year after the final distribution date,
  • An employer holds funds for an employee’s benefit that the employee fails to claim when he or she leaves the job, and
  • An individual dies intestate and those around him or her know of no heirs.