Alaska’s state government continues to pass new statutes and bills each year. Alaska was the first state in the nation to adopt “new age” trust laws, which allowed for self-settled trusts and domestic asset-protection trusts. Since that time, we have continued to adopt cutting-edge trust statutes, allowing for unique planning. In addition, Alaska has the most comprehensive asset-preservation statutes in the country. At Peak Trust Company, we are committed to providing the finest services to our clients. With our unique philosophy of customizing solutions and internal and external expertise, we are able to “think outside the box” to provide strategies that will have a positive impact for our clients in meeting their financial, trust and estate-planning goals. The following reasons briefly illustrate the Alaska advantage
The Alaska Advantage
Self-Settled Spendthrift Trusts and PLR 200944002
Alaska was the first state to allow for self-settled spendthrift trusts and, arguably, has the best spendthrift statutes for both the grantor and other trust beneficiaries. Alaska provides 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. Also, the assets in such a trust may be excluded, if so desired, 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. Alaska is the only state that has received a favorable ruling from IRS regarding self-settled trusts.
With Alaska’s self-settled trust laws, there is no reason to go “offshore” (that is, to create a self-settled trust in a jurisdiction outside of the United States). Unlike the laws of other states, Alaska has no special “class” of creditors and creditors must prove actual fraud, rather than constructive fraud, before self-settled trust assets can be attached. Additionally, Alaska has a statutory provision that clarifies that a beneficiary does not have a property right in his or her beneficial interest of a discretionary trust but, rather, has a mere expectancy. Therefore, creditors of a beneficiary have no legal interest to attach. Furthermore, there is a provision that allows a trustee to directly pay the expenses of a beneficiary of a discretionary trust. The creditors cannot seek a court order to attach trust assets or distributions nor can they obtain a court order to compel the trustee to make a distribution to the creditor.
No State Income Tax
Trust beneficiaries can see the earnings in the trust compound-free from state and local income taxes, thereby providing extraordinary year-on-year returns. In addition, Alaska has no state gift or estate tax and no intangibles tax. Also, Alaska law allows you to perform 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 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 avoid making a taxable gift. These trusts are most commonly referred to as “DING trusts.”
Alaska Permits Perpetual (Dynasty) Trusts
Using perpetual trusts can significantly increase wealth passing from generation to generation by avoiding unnecessary estate, gift and generation-skipping transfer (GST) taxes. In Alaska, trusts can last forever; however, if a beneficiary exercises a special power of appointment, the trust is limited to 1000 years. An Alaska Perpetual Trust is an excellent vehicle to enhance the benefits of the federal exemption from the GST tax. If a family uses only $1 million of the GST exemption, after 120 years with an after-tax return of 6%, the trust would be worth over $1 billion. If a trust was not used, the value of the property would be only about $68 million.
Best Trust Decanting Statute
Alaska has the most flexible and effective way to move a trust to the state to reap the benefits provided by its laws. Alaska has the most powerful decanting law, which is the paying of trust assets from one trust to another. Alaska’s decanting statute is the broadest and most comprehensive of all decanting laws. Many times, the terms of a trust do not permit the trustee and beneficiaries to take advantage of planning opportunities. But the Alaska decanting provisions can be made to apply to a trust created outside of Alaska, which can be used to provide significant advantages to the trust beneficiaries. Additionally, Alaska’s decanting statute specifically allows for the ability to extend the duration of a trust, the ability to grant a lifetime power of appointment to a beneficiary and the ability to decant for purposes of protecting public-assistance benefits.
In addition to self-settled trusts, these advantages can be drafted into a variety of other trusts, including Dynasty Trusts, Charitable Remainder Trusts (CRT), Grantor Retained Annuity Trusts (GRAT), Grantor Retained Unitrust (GRUT) and Qualified Personal Residence Trusts (QPRT).
Opt–In Community Property Trusts
Alaska is the only state that allows couples to opt into community property for some or all of their assets, by using an Alaska Community Property Trust. Community property can provide unique income-tax and estate-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 trusts 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 income or capital gains tax.
Alaska Creditor-Protected IRAs
Alaska law has a provision that the trust laws of no other state has: it permits 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. The reason is that Alaska’s self-settled trust law applies to any IRA that is in the form of a trust that is governed by Alaska law.
Alaska’s Unique and Flexible Trust Provisions
Alaska has a variety of laws that provide opportunities to perform unique and flexible planning. Some of these advantages are listed below.
- Grantors and beneficiaries may increase or decrease trustee duties and responsibilities, providing for the most reliable ways to accomplish their goals.
- Alaska law permits a grantor to separate the trust’s investment duties, distribution duties and administrative duties by appointing different trustees for each area of responsibility. A trustee who has not been given a responsibility cannot be held liable under Alaska law for another trustee’s actions.
- Nonresidents of Alaska can have their wills probated under Alaska law.
- Trust Incontestability Clause. This provision provides that lifetime trust provisions that penalize (for example, disinherits) a beneficiary for taking certain action, such as contesting the trust or the decedent’s will or suing another family member, will be enforced even if probable cause exists for the beneficiary to have instituted the proceeding.