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Delaware Trusts: An Alternative to Offshore Asset Protection


Delaware Trusts: An Alternative to Offshore Asset Protection


By Herb White, MBA, CFP


For individuals interested in asset protection and multigenerational wealth transfer, staying stateside may be a better alternative to going offshore. While a number of states offer asset protection that rivals offshore, this article examines how the state of Delaware provides this service.


Delaware’s favorable trust laws offer a way to protect assets and transfer wealth to future generations while also minimizing taxes. This personal trust management arrangement can eliminate state income taxes as well as provide confidentiality, which sometimes is lacking when dealing with courts related to such issues as drawing up trusts.


Moreover, from a financial and estate planning point of view, Delaware’s favorable and money-saving trust laws can provide an optimal planning tool for financial and estate planning purposes.


Why consider Delaware Trusts? Professionals, business owners and wealthy individuals will find that these trusts have multiple benefits.


To protect your assets. An individual can create an irrevocable trust from which he or she may receive income and principal distributions while also maintaining an amount of control. For example, divorce settlements these days can often mean the loss of significant assets. Being sued for professional negligence, personal injury or property damage also is becoming more commonplace and can be devastating, involving huge sums of money. A Delaware Trust—an irrevocable trust—can provide protection in these circumstances. Additionally, protection from seizure from most future creditors, unless fraud is involved, also is provided.


To avoid significant taxes involved in multigenerational transfers of wealth. Most individuals want to pass along their wealth to future generations in a way that avoids extensive taxes—such as tax on personal property and real property held through a corporation, limited partnership or limited liability company. With a Delaware Trust, expensive transfer taxes at each transfer from generation to generation are eliminated.


To manage taxes. Individuals who set up trusts for beneficiaries who are not residents of Delaware can minimize or eliminate state income taxes on dividend or interest income accumulated as well as capital gains earned by the trust. Another advantage is that taxes, such as sales, use or intangible personal property taxes, are not imposed on property that is held in the trust. Before setting up a Delaware Trust, however, individuals should check into the laws of their state of residence, since some states  tax a Delaware Trust.


To reduce court costs and maintain confidentiality. With their streamlined trust administration, Delaware inter vivos or living trusts do not have to be filed with a court, cutting down on court costs. With court involvement reduced, confidentiality is increased as well. The proceedings for establishing a trust can be prompt and efficient. Other areas that are streamlined with these trusts include the fact that there are no requirements that the trust agreement be in English, no specific format or phraseology, and no requirement to submit the document to any authority in Delaware for approval. The drafters of the trust have complete authority to devise the relationship of the trustee and the beneficial owners as they desire. However, at least one trustee must be a resident of Delaware or else a Delaware trust company may be named or a Delaware corporation formed to act as the trustee.


Why Delaware? Delaware Trusts are set up a bit differently than trusts offered in most other states. The Delaware Statutory Trust (DST) is a statutory entity, created by filing a Certificate of Trust with the Delaware Division of Corporations, governed by Chapter 38, Part V, Title 12 of the Delaware Code annotated. Most other states still rely on common law trusts. These states’ trusts may contain rules that are outdated, potentially creating issues of legality with the trusts. Delaware has taken the step to modernize the common law and has created a judicially secure entity.


While Delaware Trusts are relatively simple to set up, individuals should consult with a professional who has expertise in estate and wealth planning. 


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Provided by courtesy of Herb White, MBA, CFP©, a CERTIFIED FINANCIAL PLANNER™ with Life Certain Wealth Strategies, 8400 E Prentice Ave, #715 Greenwood Village, Colorado, www.lifecertain.com, (303) 793-3999. Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Life Certain Wealth Strategies and Woodbury Financial Services are not affiliated entities.






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