Article on Wyoming as a Leading Trust Situs Jurisdiction
The modern rules governing trusts allow for opportunities only dreamed of by the beneficiaries of Dickens’ Jarndyce and Jarndyce. Over the last several decades, as the world has “become flat,” U.S. states have adopted increasingly-varied trust laws and, more recently, as the federal Hiring Incentives to Restore Employment (HIRE) Act attempts to close a number of so-called offshore trust loopholes, wealth management professionals and their clients have more closely scrutinized onshore trust jurisdictions for the best possible situs. This attention has prompted new trust legislation in a number of states and much discussion between experts as to the relative merits of various jurisdictions.
Modern trust statutes, along with a number of other factors including low or non-existent state income taxes, the abolishment or expansion of the Rule Against Perpetuities, and the passage of asset protection laws, have launched a handful of states to the top of the list of beneficial trust situs jurisdictions. Alaska, Delaware, Nevada, New Hampshire, and South Dakota join Wyoming as leading trust situs jurisdictions. Given its strong asset protection laws, lack of income taxes, and recently revised Limited Liability Company (LLC) statutes, Wyoming is quickly outpacing other top trust situs states in terms of attracting new business. This article compares Wyoming to other popular jurisdictions and addresses the reasons advisors and their clients looking to create or resettle an onshore trust, as well as those considering migrating offshore holdings, should put Wyoming at the top of their list of trust-friendly jurisdictions.
At its most elemental level, a trust is a conveyance of property in which legal title is given to a trustee and equitable title to a beneficiary. The trustee, or legal title holder, is under an obligation to maintain or distribute trust property for the benefit of the beneficiary as per the terms of the trust. Such a division of title can serve a number of purposes: it can protect a beneficiary’s assets from the beneficiary’s own poor judgment or from the beneficiary’s creditors by vesting control of distributions in another person or entity; it serves as a vehicle to minimize estate and generation-skipping transfer taxes; it is a way of providing for family members with special needs or for pets long after their now-living caregivers are gone; and it can act as a vehicle to safeguard and grow assets for generations to come. Trusts have historically been employed by the very wealthy; however, as they have grown in popularity over the last few decades, their use as an estate planning tool has expanded among the middle and upper-middle classes. As the jurisdiction in which a trust is created establishes the governing law relative to it, situs is an important matter for anyone considering establishing a trust or migrating one that already exists.
The Uniform Trust Code (UTC), approved in 2000 by the National Conference of Commissioners on Uniform State Laws, is the first comprehensive act on trusts in the United States. A general need for guidance in an era of increased interest in trust creation and only minimal statutory authority in most states prompted its drafting. While the UTC has been adopted, at least in part, by most jurisdictions, a number have enacted statutes that go further in terms of added creditor protection, increased flexibility with respect to self-settled trusts, and provisions for trust protectors. Wyoming has adopted the UTC but has made over 100 substantive changes–resulting in an especially settlor-friendly code.