For several decades, Delaware has been the jurisdiction of choice for creating a trust due to its ironclad asset protection. However, a 2014 court decision, Kloiber v. Kloiber, has put Delaware’s trust shields to the test. The case involved a Delaware Dynasty Trust (DDT) in the matter of a couple’s divorce. The husband’s father originally set up the DDT for the benefit of his son, his son’s spouse, and their descendants. Throughout the years, the trust accumulated hundreds of millions of dollars in assets. At the time of their divorce, the trust’s assets totaled around $310 million. The settlement forced the trust to be severed, creating a separate trust for the wife, which was funded with some of the original DDT assets. The original protection of the assets was rendered useless when the now ex-wife received assets intended solely for the son, his spouse, and his descendants.
This case has led some investors to consider creating trusts in Nevada over Delaware. Nevada does not allow for claims from “exception creditors,” which includes claims for alimony and spousal support from an ex-spouse. Accordingly, when considering where to create your dynasty trust, it is important to measure the pros and cons of each jurisdiction because asset protection in Delaware can be quite risky.
See Jeffrey M. Verdon, Delaware Trust? You May Want to Consider Nevada Instead, Kiplinger, March 2017.
