“Dynasty Trusts” have grown as significant estate planning tools in the last few years. A Dynasty Trust is basically a multi generational trust designed to avoid transfer taxes across generations. The Alaskan trust offers another tool for use with this new planning approach. However, because of its geographic isolation and the requirements to be treated as an Alaskan trust, other states which have also revoked the Rule Against Perpetuities may offer better jurisdiction for Dynasty Trusts. Delaware, Idaho, Illinois, South Dakota and Wisconsin allow trusts to be created in perpetuity.
ALASKAN TRUSTS. Alaska has recently enacted one of the most protective asset protection trust laws in the United States. The provisions include:
Asset Protection. The “spendthrift” provisions in the Alaskan statute make it the only state in which a grantor can place assets in a trust, retain benefits from the trust at trustee’s discretion and still have the trust assets protected from creditor claims. Alaska has no state income tax on the trust.
- Among the requirements to obtain protection are:
- The grantor cannot be in default on child support payments,
- The trust is irrevocable, and
- The grantor can be the only discretionary beneficiary of the trust.
- The statute allows the grantor to veto trust distributions and exercise a special power of appointment over trust assets.
- The act makes it clear that no protection is allowed if the transfer is made to defraud creditors. In such case, creditors have 4 years to file a claim.
Rule Against Perpetuities. The Rule Against Perpetuities was designed to provide that a trust could not exist forever it had to terminate at the end “of a life in being plus 21 years.” Like a number of 5 other states, Alaska has eliminated the Rule. Thus, trusts created under Alaskan law, can exist in perpetuity.
Treatment as an Alaskan Trust.
- The statutes require that to be treated as an Alaskan trust:
- One of the trustees must be an Alaskan individual, trust company or bank.
- The Alaskan trustee must include maintenance records and prepared income tax returns, which duties may be shared with other non resident Trustees.
- At least part of the trust administration must occur in Alaska, including the physical location of trust records.
- The trust instrument must provide that the trust is governed by Alaskan law.
At least some of the trust’s assets must be held in a fiduciary account in Alaska.
While the new trust offers some new benefits, its aid as an asset protection device is still not as good as foreign trusts, which under applicable law may ignore United States based judgments. In addition, on a public policy basis, courts in other states may refuse to recognize the restrictions in the Alaskan trust and allow seizure of non Alaskan based assets contributed by a debtor/grantor. In order to get the assets out of the grantor’s taxable estate, the grantor cannot retain any control over the trust, including veto rights or powers of appointment.