Earlier this week, a pair of domestic asset protection candidates – Delaware and Nevada – debated to win your vote of support for their respective self-settled trust laws. Today, Alaska and Wyoming take the stage for a result the talking heads expect to be as close as the recent Joe Biden-Paul Ryan vice presidential debate.
Moderating this debate will be Martha Raddatz since our previous session drove asset protection expert Randy Fisher to the brink of his admittedly limited sanity. Jim Lehr was slated to moderate but two minutes in, Raddatz walked in to declare his time was up and, deaf to his protests, pushed the ancient news anchor out of the chair. Nobody really felt like challenging her after that so here you go.
Raddatz: “Ladies and gentlemen, I present to you two candidates for the office of Supreme Domestic Asset Protection Law. Feel free to comment below on the proceedings, we as always appreciate your feedback. Candidate Wyoming, would you care to open specifically by stating as specifically as possible your specific requirements for establishing, specifically, a self-settled spendthrift trust?”
WY: “Certainly, Martha. We specifically hold that a responsibly executed asset-protection trust instrument must (1) state that trust is a ‘qualified spendthrift trust’ under § 4-10-510 of Wyoming statutes; (2) be irrevocable; (3) expressly state Wyoming law governs the validity, construction, and administration of the trust; (4) contain a spendthrift clause; and, finally, (5) require the settlor to have personal liability insurance equal to lesser of $1,000,000 or value of trust assets. To require anything less would neglect the best interest of the trust-maker. Furthermore–“
AK: “Are you kidding me? To require anything less would be merciful! Nobody from outside the state wants to jump through all those hoops, not when there are states like me that make the process so convenient. Alaskan self-settled spendthrift trusts require three simple features. The trust must (1) be irrevocable; (2) expressly state that Alaska law governs the validity, construction, and administration of trust (unless the trust is being transferred to an Alaskan trustee from an outside trustee); and (3) contain a spendthrift clause. It doesn’t get more simple.”
WY: “Or ineffective. Creditors prey on trusts formed according to guidelines so vague. When brought to suit, the trust collapses and the assets are practically set out on the curb like evicted property.”
Raddatz: “I’m afraid Candidate Wyoming may have a point. Could you be more specific, Candidate Alaska? Where’s the math showing these requirements add up to a trust that can plausibly withstand judicial scrutiny?”
AK: “There is–“
Raddatz: “Time’s up. Moving on. Candidate Wyoming, talk about your how a trust-maker may establish situs? Specifically, what contacts in the state do you suggest or require establishing?”
WY: “That’s a great question, Martha. Our domestic asset protection trusts require a Wyoming trustee who (a) maintains custody of some or all of trust assets in-state; (b) maintains records (can be non-exclusive); (c) prepares or arranges for the preparation of income tax returns; or (d) otherwise materially participates in the administration of the trust. There are some creative things you can do with that kind of framework.”
Raddatz: “Would you care to be more specific about those things?”
WY: “Well, I’m afraid those details are classified but if you give Randy Fisher a call, he might arrange to discuss them.”
Raddatz: “Very well. Candidate Alaska, how should situs be established in your state?”
AK: “This is one point where myself and my friend here are in close agreement. Alaska recommends, though we doesn’t require, that: (1) some or all of trust assets be deposited in state; (2) the trust have an Alaska trustee whose powers include (a) maintaining records (can be non-exclusive), (b) preparing or arranging for the preparation of income tax returns (can be non-exclusive); and (3) that part or all of the administration occur in state, including maintenance of records. So we have that in common.
“The difference is that Alaska was the first state to make such a law, upon which the Wyoming law is modeled. But I won’t exploit, for political purposes, my opponent’s youth.”
WY: “Youth? My trust law has been here as long as the Cook Islands’ was when it was the choice asset protection haven.”
AK: “Wyoming, I knew the Cook Islands. I modeled my plan on the Cook Islands. Wyoming, you’re no Cook Islands! I can remember–”
Raddatz: “Enough. We are moving on. What interests in principal and income may the trust settlor retain in your state? Candidate Wyoming?”
WY: “I feel strongly that the settlor deserves to retain interests in their (1) current income, (2) charitable remainder trust, (3) up to 5% interest in total-return trust, and (4) qualified personal residence trust.”
Raddatz: “Candidate Alaska?”
AK: “Our trust settlors are able to may retain plenty of interests, such as that in (1) charitable remainder trust, (2) total-return trust, (3) grantor retained annuity trust or grantor retained unitrust, (4) qualified personal residence trust, (5) IRA, and (6) the ability to be reimbursed for income taxes attributable to trust. Again, you see how our Alaskan self-settled spendthrift trust law allows the flexibility for–“
Raddatz: “I can tell this is going away from this line of thought on the settlor but I think we should stick with it. Beyond interests retained, what actual powers may the settlor retain over the trust, Candidate Wyoming?”
WY: “In our great state, the settlor may retain four key authorities: (1) the power to veto distributions; (2) inter vivos or testamentary general or limited power of appointment; (3) the power to add or remove a trustee, trust protector, or trust advisor; and (4) to serve as an investment advisor. Now pay close attention to what my opponent is about to say–“
AK: “Is it my turn yet?”
WY: “–because thus far, my opponent has failed to demonstrate that his trust requirements are sufficient to protect anyone’s assets. My opponent has failed to demonstrate that the settlor retains greater overall interests in an Alaskan trust than a Wyomian trust. And now my opponent is going to fail to demonstrate that an Alaskan settlor retains greater control than his Wyomian equivalent. Why? Because he can’t. Because–“
AK: “Am I going to get time to respond? I haven’t even–“
Raddatz: “Don’t interrupt, Candidate.”
WY: “–because your facts don’t add up, that’s why.”
AK: “My turn? Really? You may sound great here in print, Wyoming, but if the readers could see you right now, they’d know who’s winning this debate. Now, the settlor of an asset-protection trust in Alaska may retain: (1) the power to veto distributions; (2) the non-general testamentary power of appointment; and (3) the right to appoint and remove trustees, trust protector, and advisors. And that’s before we even get into the trump card–“
Raddatz: “The Candidate’s time has expired. Candidate Wyoming, who must serve as trustee to come within protection of your self-settled spendthrift trust statute? Remember to be specific, please.”
WY: “Any resident individual or a person authorized by Wyoming law to act as trustee or a regulated financial institution.”
Raddatz: “Very good. Candidate Alaska? I remind you to be specific.”
AK: “You call that specific? Sheesh. Well, in Alaska an in-state trustee is not required for protection but it is suggested to establish situs. That trustee may be any resident individual or trust company or bank that possesses trust powers and has principal place of business in Alaska.”
Raddatz: “That brings us to our final question of the debate. In a worst case scenario where fraudulent transfer action is alleged, what is the burden of proof for conviction and what is the statute of limitations? Candidate Wyoming?”
WY: “The burden is not addressed by statute but is left to the discretion of the judiciary. For existing creditors and future creditors, the statute of limitations endures for four years after the transfer, or one year after transfer was or could reasonably have been discovered if the claim based upon intent to hinder, delay or defraud. If the claim based upon constructive fraud, the statute endures for four years. Those are the facts. Don’t be deceived by my opponent’s vague assurances. You know the best place for your domestic asset protection trust: the great state of Wyoming!”
AK: “Like my opponent, the time for action is limited for existing creditors to four years after the transfer, or one year after the transfer was or could reasonably have been discovered, but a future creditor must establish claim within four years after the transfer. The difference is that while Wyoming offers no burden of proof guideline, effectively allowing the judge to rule based on a mere preponderance of evidence, Alaskan law dictates that a guilty verdict may only be reached by virtue of clear and convincing evidence. It’s an easy choice, America. Alaskan trust law clearly protects your assets better.”
Raddatz: “Well that’s for you to decide on election day. For now, let us know what you think in the comments and the poll!”
Good luck and good hunting.
Miss the previous post in this week’s series on domestic asset protection? Check out Wednesday’s debate: Delaware v. Nevada.
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