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Setting up the trusts that best meet the needs and values of your clients and protect the interests of their beneficiaries involves not only developing the most advantageous trust plans, but also choosing the most favorable trust jurisdiction. Ultimately the decision rests on the grantor’s goals for the trust and the client and attorney’s preferences.
Peak Trust Company can help you establish and administer trusts in two top-tier jurisdictions, Alaska and Nevada. (Note: The grantor need not live in either Alaska or Nevada to set up trusts in these states.) By comparing the advantages of both, you can find the one best suited to your clients’ unique needs.
Note: Peak Trust Company cannot provide legal advice. Jurisdiction-specific law should be discussed with appropriate skilled legal counsel. The differences we discuss here are general statements and do not cover the many complexities of the subject. Both Alaska and Nevada frequently propose and pass updates and clarifications to their respective statutes. Please consult legal counsel and official state sources for the most up-to-date information on jurisdiction-specific law. Peak Trust Company makes no guarantees as to the completeness or relevance of these statements.
Community property can provide unique income-tax savings. For example, upon the death of one spouse, the entire community-property asset is “stepped-up” in basis, unlike with other types of property ownership in which just the half of the asset included in the gross estate of the spouse who dies first is stepped up. This could allow the surviving spouse to sell the asset for little or no capital gains tax.
Alaska law allows an individual whose IRA is not protected from creditor claims under the law of his or her own state (such as California) to use Alaska law to provide that protection.
Both Alaska and Nevada have excellent decanting statutes.
Alaska and Nevada allow for directed trusts and trusts with separated trustee roles.
Both Alaska and Nevada have no rule against perpetuities, which provides the ability to minimize transfer taxes by creating a trust that can continue for many generations. Using perpetual trusts can significantly increase wealth passing from generation to generation by avoiding unnecessary estate, gift and generation-skipping transfer (GST) taxes.
Alaska permits both residents and non-residents to have their wills probated under Alaska law.
Both Alaska and Nevada allow for premortem probate, where the probate process can occur for an individual who is still alive. This option is sometimes chosen by those who expect their will to be contested and want to have the opportunity themselves to clarify their intent and ensure their estate plan will conclude in accordance with their wishes and avoid the risk of costly litigation spending down their estates after their passing.
While both Alaska and Nevada have superb limited partnership and limited liability statutes, Nevada has some of the best and most flexible LLC and LP statutes.
Both Alaska and Nevada are top jurisdictions for self-settled trusts. There is a difference in the statute of limitations for a fraudulent conveyance in each state. While both states have safeguards against fraudulent conveyance (attempting to establish a self-settled trust to intentionally defraud existing or known creditors), Alaska has a slightly higher hurdle of a 4-year lookback, versus Nevada’s 2-year lookback for known creditors. It is a matter of preference for many attorneys. Some prefer Nevada’s shorter time window, while others prefer Alaska’s more stringent hurdle and longer history with examples of case law handling fraudulent transfer attempts.
Both states have no exception creditors for self-settled trusts, however in Alaska a resident person who is married or will be married within 30 days must obtain spousal consent.
Alaska is the only state that has a definition in its statutes of a so-called “pre-existing creditor” and in Alaska a fraudulent conveyance can only be set aside if the creditor can prove actual fraud as to that specific creditor. Under Nevada statutes, a fraudulent transfer can be set aside based upon constructive fraud as to any creditor.
Alaska is the only state that has received a favorable ruling from the IRS regarding self-settled trusts. Assets placed in self-settled trusts may be excluded from the grantor’s taxable estate even though the grantor is a trust beneficiary. In PLR 200944002, the IRS agreed that the Grantor of a trust can be a Trust Beneficiary of an Alaska Self-Settled Spendthrift Trust and the assets of the trust will not be included in the Grantor’s Estate.
Both states have excellent spendthrift protections. Both Alaska and Nevada provide for self-settled spendthrift trusts, which allows the grantor to set up an irrevocable trust, be a discretionary beneficiary and avoid having the assets be subject to creditor claims of either the grantor or any other beneficiary.
Neither Alaska or Nevada has a state income tax. This provides the opportunity to potentially transfer income earning assets into an Alaska or Nevada trust and eliminate local or state taxes that would otherwise be paid, based upon the residence of the grantor. Both Alaska and Nevada law allows for incomplete non-grantor trusts. Under a series of private letter rulings, the IRS has held that trusts drafted with certain provisions allow for transfers to the trust to be incomplete for gift tax purposes and for the trust to be deemed a non-grantor trust. Under this structure, the trust is able to avoid state income tax, provided the trust is created in a state without an income tax and avoids making a taxable gift. These trusts are most commonly referred to as “ING trusts.”
Both states have a no-contest clause provision, providing an effective method to eliminate challenges to trust provisions or beneficiary interests. This provision provides for lifetime trust provisions that penalize (for example, disinherits) a beneficiary for taking certain action, such as contesting the trust, the decedent’s will or for suing another family member. This provision will be enforced even if probable cause exists for the beneficiary to have instituted the proceeding.