Welcome everyone and thank you for attending today's webinar. I'm David Shaw the publishing director for family business magazine. I continue to hope that you and your fellow family. Members are enjoying this summer time. Today during this webinar. We're going to be discussing for us. And what difference is there are for these vehicles depending upon the state where the trust is created? Specifically we'll be examining the options for trusts that are created in Delaware. Our speakers will discuss how trust can be highly effective vehicles for the transfer of well and can help business owners and their families meet Estate Planning and tax minimization goals. So choosing the right state to establish a family's trust can have a significant impact on the ongoing management of the crust and the tax savings that may be achieved over time. So with its favorable trust and tax laws Delaware offers a high degree of customization and flexibility in the design of trust and administration Trust. Before we get started some quick housekeeping details, as always we welcome your questions and your thoughts and comments throughout the session use the ask a question area. That's right under the video screen where I'm sitting we will go for no more than 60 minutes today probably less and we will get to as many of your questions and comments as we can. With that. I'm very pleased to welcome our guest speakers Linda mannfordonia and John McCabe from the glenmeade Trust Company. Showed them on the screen here. Glenn Meade is a privately held company that has been providing wealth and investment solutions to individuals and families of wealth family offices and private foundations for more than 65 years. Linda manfredonia is Delaware Regional director and president and CEO of the blind May Trust Company of Delaware, which offers specialized Administration tax advisory and consulting services for Delaware trusts. John McCain is Chief fiduciary Council serving as Glenn Meade Senior internal legal advisor on all trust State fiduciary matters. Both of my speakers have Decades of fiduciary experience and expertise and I think they're going to have a really wonderful conversation today. So I will turn this over to Linda for you to start the Q&A. Thank you. David on behalf of myself John and Glenn me Trust Company. I'd like to thank you and family business magazine for giving us this opportunity to talk with you about something. We are actually very passionate about trusts. Yes. We are trust nerds, but we really are passionate about spreading the word about what great Vehicles trust can be to help families achieve. Not only financial goals. But to help provide a sense of security and peace of mind literally for Generations. Now Delaware trust in particular provide some unique opportunities for planning both long and short-term goals. But before we delve too deeply into the unique aspects of Delaware and the opportunities there. Let's play some green groundwork and make sure we have a basic sort of fundamental framework within which to have this conversation. So John, I'd like to ask you can you tell us what is a trust and how do they work? Tour and and thanks Linda and David appreciate the opportunity to speak today to everyone. So, um in talking about a trust is good to start with sort of the basics and and kind of what is it and and how do they actually work? So the simplest way to think about a trust is that it's a form of property ownership. So a long time ago several centuries ago someone came up with the very clever idea of splitting legal title to property and beneficial ownership. This will have someone to get make a gift to someone but not fully make the gift and so not not allowed the recipient of the gift to do whatever they want with it. So a trustee holds legal title, but a beneficiary receives the benefits of those of that property. So trust involve a set lower or a grand tour. We'll use those those terms today. That's the person who sets up the trust that person gives property to the trustee to hold for the benefit of someone else and that someone else again is typically referred to as the beneficiary. Um, this transfer is usually accompanied by a legal document. That's the trust agreement or trust instrument and that document will spell out the powers and responsibilities of the trustee. So getting back to this concept of splitting legal title and beneficial ownership again, the trustee holds and controls the assets. But only the beneficiaries may receive the benefits of those assets such as for example, the distributions of income that's generated on the property now trust can be very simple or they can be very complex on the simple side. You might have a revocable trust that has very sort of basic provisions and Going to come and not a lot of people. on the Comfort side and then maybe what we cross out where they distrib many many years Well, John. Give us a couple of typical reasons for why someone might want to have a trust or established a trust. Sure, there's lots of different reasons why someone might create a trust, um the simple side again using the example of a revocable trust to trust that can be, you know created but then pull back at any time you might use that to avoid probate, you know. You when you when someone passes away their property is either governed by the terms of their will that involves filing something with the court and it's somewhat of a public process for privacy reasons, you might set up a vocal trust so that everything is disposed of under the under the under the terms of that trust rather than going through the probate court or if it's court or Surrogate Court, depending on what state you're in. On the complex side though. You might want to set up a trust that lasts for multiple generations and has very sort of unique Provisions for how property will be distributed many years to come and you might use these trusts for particularly for tax savings. So trust our frequently used for estate tax savings and in particular generation skipping transfer tax savings, the generation skipping transfer tax isn't as well known attacks, but it is when it does apply. It generates a pretty significant hit as the tax rates tend to be Tend to be very high. So for someone who is intending to give a property in trust or to their say grandchildren or great-grandchildren using a trust is a very efficient way to do that. Does it really matter John where your trust is established? So the short answer is that sometimes it does and sometimes it doesn't so with my sort of revocable trust example there it generally isn't going to matter, you know the with when someone creates their own revocable trust we typically remain as the trustee and is the sole beneficiary and in those situations the law of their home state is going to apply to that trust. So with the revocable trust, there's not a ton that you can usually do in selecting a different state other than the one where you were where you reside but with an irrevocable trust. It can actually be very important. So with an irrevocable trust where you point someone other than yourself as trustee or even when you point yourself as a code trustee, sometimes you can select the law of another state to govern that trust and that might open up a lot of different interesting opportunities. For example, you might have the opportunity to save on state income tax. You might have an opportunity to design a very unique and and beneficial governance structure for the trust that deals with how trustees go about making decisions and what just what powers the trustee has particularly in the areas of say Investments or distributions from the trust. I'm different states have different laws on credit or protection and what opportunities might be available there. And then finally, there's this concept of beneficiary notice. This deals with the information that a trustee is required to provide to beneficiaries about the trust in terms of the assets and what the terms of the trusts are the law varies significantly among different states for that in some states have advantages of our others. John it. Looks like we may have lost Linda here. So until she comes back. Let me let me add a question here and I will note here, you know, you mentioned that Delaware as a state offers advantages. Can we talk a little bit about why Delaware? Yes, I'd be I'd be happy to so. So Delaware Delaware has long been known as the premier jurisdiction in the United States for business entities, and it's reputation for excellence is truly Global. The state is a favorite location for corporations limited liability companies and limited Partnerships among other business entity types. Um more than 60% of the Fortune 500 and over 1.5 million legal entities, including over a million LLCs alone call Delaware. They're illegal home. And now the factors that drive this Global reputation for excellence also applicable to trust and three factors really stand out. First Delaware has a world-renowned statutory law Delaware has long taken the lead among states in both the law. It's affecting business entities as well as its trust statutes and simply put the statute the Delaware trust that should provides a very sophisticated framework for the creation and administration of a trust. Our second the Delaware Chancery Court considered by many to be the premier State Court Forum in the United States for sophisticated illegal matters. The Chancery Court is a history of producing important legal precedent particularly in the area of trust law. Whereas handed down a number of opinions that really guide how trust or structured and administered. The third prong for in terms of Delaware's reputation is that it has a very strong legal and banking community. So the Delaware bar the lawyers in Delaware are known for offering specialists in the area of trust and business entity law and these lawyers frequently consult with other lawyers nationally and nationally on aspects of their clients State planning and business affairs. And likewise for the the Delaware banking Community. It's a very sort of extensive community that that serves the wealth management and Trust Administration needs of clients around the world and the legal in banking communities actually also works very closely with the legislative and executive branches of Delaware's government on an annual basis to to modify its trust statutes and make sure those statutes are kept really up to up to you know, in terms of maintaining it's it's status as a lead jurisdiction for these types of entities. Okay, what other things are unique about Delaware and for trust in terms of you know for family business owners. Yeah, so here we can talk about a couple factors. So first the Delaware trust statute offers a really high degree of customization and flexibility and the design and the administration of the trust. The ability to structure trust to meet a specific family's goals in the areas of governance. That is how the trust is managed can be very helpful. But before getting to that, I'll say a few words about the second big Advantage which is tax savings. So Delaware has a very favorable approach to State fiduciary income taxation. Specifically Delaware does not tax the income including both the dividends and capital gains of a trust that accumulates that income in trust for future distribution to non-delaware resident beneficiaries. It's a bit ironic. But if you're a Delaware resident you actually the trust will be taxed. But if you're not in Delaware resident, then that trust can can receive that income and not paste Delaware state income tax. Hi, I'm back John. Sorry I lost you there for a moment. That's okay. That's okay. What are some examples of the types of trust where it matters where the trust is located? Yeah, so we'll talk about really kind of four strategies on so then these four strategies are particularly popular. We have directed trusts Dynasty trusts asset protection trusts and what are called Silent trust or quiet. Sometimes they're called quiet trusts. I'm one thing. I'll say is that these drug strategies are actually not exclusive of one another and many trust creative for clients used utilize more than one strategy and given any you know, particular situation and given particular families goals. So I'll take these strategies in order. So we'll start with them with directed Trust. So traditionally a trustee was responsible for all the functions involved in managing the trust from investment decisions to decisions regarding distributions to beneficiaries and to other trust Administration matters such as signing documents on behalf of the trust principal and income accounting for receipts and disbursements from the trust and importantly tax return preparation. And in many cases in many states that still the case that that a trustee has all of these responsibilities and regardless of the terms of the trust the trustee is still ultimately responsible for those carrying out those duties, but in Delaware, however, it's possible to split the trusty responsibilities among multiple parties. And assigned specific functions to specific participants in the overall plan. The most common is to bifurcate investment management of the truss assets and and split that function from the trust Administration function. So under this scenario one person frequently known as the investment advisor for the trust makes decisions regarding the trust Investments and then directs the trustee to execute those investment decisions. So for an individual who wishes to fund a trust with a non-traditional asset such as a concentrated position in a closely held company separating the investment management decision making for that asset from the trust Administration can be very useful for both the set lower the mentor the person creating the trust as well as the trustee, you know in that situation. It might not be uncommon for the seller of the trust to one place authority over the when to sell that stock where the family member and let a corporate trustee or professional trustee handle everything else and likewise the corporate trustee or professional trustee might not want to take on that concentration risk of holding, you know, a large concentrated position and diversified portfolio. So this same approach for dividing up trust Administration function from other powers of the trust can actually also be used for distributions to the beneficiaries. No all trust include terms is to who gets what and when from the trust and with the Delaware trust you can you can split this up so that the Trust might provide that the specific family member or specific advisor determines who gets distributions from the trust and when they receive this distributions and that trustee carries out the other sort of day to day Administration function. Um, you know those Provisions often until terms that along the lines of making distributions for health education supports your maintenance and giving that distribute giving that power to someone who really knows the beneficiary and understands their lifestyle understands their needs can be very helpful variable aspect of the trust. So on the next trust next structure we'll discuss is a dynasty Trust. And Dynasty trust is occasionally something that it's described in the popular and financial press such as the Wall Street Journal or Bloomberg. I'm simply put a dynasty trust is the trust that could be set up for last perpetually. And what I mean by that is it has no sort of particular end date. As by way of background here historically trust in the United States were subject to something called the rule against perpetuity. This rule is given many thousands of bar examples over the years anxiety as to how it actually works, but it can basically basically be summed up by saying that there's a maximum length of time that a non-charitable trust can remain in existence. In Delaware, though. This rule has been repealed. And so what this means is that a trust created by someone today does not necessarily have to have an end date. And this allows the set lower to determine how long they want the trust to last. This structure actually can also provide very significant opportunity for transfer tax savings across multiple generations and mentioned earlier the the generation skipping tax without this rule, you know, you would have a trust that would last a certainly at the time then be subject to attacks and and so on but with the dynasty trust it's conceivable at least on the actual and state law that today to place those assets in the Trust In entirely exempt them from the transfer tax system indefinitely. On in addition to those three sort of big name categories another category that sort of depending a lot more attention. These days is asset protection Trust. So I you know, in addition to to avoiding creditors many of the individuals are interested in protecting the assets from unwarranted attacked by creditors and here again, Delaware offer something different from traditional trust structures. So to start as many know and in all 50 states, you can create a trust for the benefit of third person such as a child or a grandchild. Put those assets in trust and protect those assets from future creditors of the beneficiary such as ex-spouses or someone suing the beneficiary for an alleged towards such as medical or professional malpractice. However, prior to the creation of what are referred to as self-settled asset protection trusts. You cannot create a trust remain a beneficiary of those of that trust and keep the assets out of the hands of your creditors. To remedy this Delaware and a few other states have adopted legislation allowing individuals to attempt to do just that. Create a trust remain a beneficiary of the trust and seal those assets off from future creditors. So these trusts might be appealing to someone who based on their personal circumstances fear that they might in the future be dragged into frivolous litigation. Um before we move on I'll hit one other advantage and one other sort of type of trust that is is becoming more popular these days. This is what we'll call silent trust or quiet trust. And again, I'll start with the traditional rule. So the traditional requires a trustee to inform the beneficiaries of the existence of the trust that has been set up for their benefit and to provide that beneficiary with certain information such as account statements detailing the assets of the trust and the values importantly the values of those assets as well. This duty to inform the beneficiaries generally not discretionary and the trustee is required by law to provide this information. Even if the result is not helpful to the family's goals such as a desire to maintain a sense of initiative on the part of the beneficiary. For many years and in many circumstances. There's simply no easy solution to the tension between these conflicting desires and responsibilities. But enter Delaware and the concept of a silent Trust. So a few years ago, the Delaware trust statue was amended to clarify that a creator of a trust can under the terms of the trust restrict the right of a beneficiary to be informed of the existence of the trust for a period of time. So for example, if the seller did not want the beneficiary to be informed about the trust until they reached a certain age the trust agreement can be written a state that the trustee will not inform the beneficiary about the trust until the beneficiary reaches that age. Importantly for the trustee though during that time that the trust is silent the trustee will provide reports about the trust activities to what's called a designated representative. That is someone other than the beneficiary who can represent that beneficiaries interest during the time that the trust is silent. Well, John another reason you touched on about why to establish and a trust in Delaware has to do with taking advantage of the state's favorable tax laws. Can you give us an example of how that might work in practice? Yeah, so I'll I'll give an example of this how this might work. So let's say a business owner lives in a state that taxes the income of the trust based on the residents of the trustee. Different states tax trust in different ways in some tax based on on where the trustee resides and so if a trustee resides in that state that state will tax the income of the trust the most prominent example is, probably, California. And then let's further suppose that this business owner has a very low basis stock that they want to contribute to a trust for the benefit of their child or grandchild. And they're also interested in diversifying this position in the near future. So if they sell the stock before contributing to the trust that individual will of course pay their home States income tax. If they contribute the stock to a trust with the trustee who resides in their home state and sells the stock the trust will pay that State's tax. But if they contributed to a Delaware trust and the Delaware trust sells the stock There's an opportunity to actually completely avoid any state income tax. Now the question of state income taxation of a trust is based on a number of factors and determining whether a Delaware trust will permit the individual individual to avoid state income tax is something that requires a very detailed analysis, but situations that meet all the requirements for those situations Delaware can offer very significant tax savings particularly over the life of a trust. So if you have a trust that's that's set up to last for multiple generations and it's set up in a way that is going to avoid state income tax on that annual tax savings can really compound over time and provide a very large Financial benefit. When I jump in with a question from the audience, so hey John as you've reviewed these four types of trust structures. And you set up a trust that combines all or most of the particulars of all of these four trusts. Yeah, that's a great question. You can you can you can actually set up a trust that. Is geared towards achieving multiple benefits. So you could you know, conceivably create a directed trust that's also a dynasty trust that also provides asset protection opportunities and that also has Provisions that restrict when the beneficiary will be informed about the existence of the trust these documents tend to be somewhat complex. You know, you you definitely want, you know, you're trust in a state lawyer to draft that up and frequently we work with when we do these we work frequently with counsel in Delaware as well. To have Delaware Council provide, you know kind of a review and and and bless the structure but but yes it is. It is possible to do these trustworthy where you're going to achieve multiple benefits at the same time. Okay, and then when just quick question and I'll turn it back over to Linda is there much of a difference between a dynasty trust in Delaware versus Florida or Nevada or other sites? Yeah, that's that's a great. That's a great point. So a lot of states have followed Delaware's lead here in repealing the rule against perpetuities and every state has slightly different trust laws. I I don't know of any state that has completely identical trust law across the board. So when you look at sort of one particular aspect of it say the dynasty trust the ability to create the trust for multiple Generations. That particular aspect is generally going to be the same. You know, if the state is repealed their their rule against perpetuities the benefits of one State or the other that might not be the deciding factor. You might you might want to look to other other particular factors beyond that. But yeah that that's a good point. You can now do these in addition to Delaware. You can do a dynasty trust in a number of states. Excellent. Okay. Thank you. All Linda back over to you. Thank you, John. Can you give us an example of how some of these different types of trusts that you've already discussed with us could be used specifically by business owners to benefit their families. Yeah, I'll give a review of a couple different situations that are common where I'm individuals who might find themselves in these situations really want to further explore whether a Delaware trust or a state like like the states that did mentioned might be might be worthwhile. So the first is we see a lot of individuals in high income tax states explore Delaware trusts. Um, that's one of the biggest draws if you're if you're in the state that has a high income tax on and you've got low basis assets and you know that you're going to sell them getting back to my example, you know looking at a Delaware Trust might be very appealing and the other the other aspect of this even if you're not looking to sell if it's an asset that generates a lot of income in the form of dividends then at Delaware trust can also be It might also might also be beneficial. The second category is is category. Whereas a family situation where the family has a mix of traditional and closely held assets frequently. Someone transferring a responsibilities of investment responsibilities to a trustee might be fine handing over responsibility for the liquid assets or the traditional stocks and bonds and and handing that over to an investment advisor, but they don't want to hand over control over the closely held asset their family business. And they want to separate that out from the the party that controls the stocks and bonds and the liquid portfolio a Delaware trust getting back to my example around directed trust. You can actually make a trust that's partially directed partially not directed and have the the close the old stock in the directed portion and the liquid assets and the non-directed portion that can be very appealing structure. On the third category would be individuals who for one reason or another are interested in asset protection opportunities as a protection trusts are they can be very complicated that's is another area where you really need to go to a lawyer who has a very good command of how these these Trust might work on but for individuals interest in asset protection Delaware's in a place that that's he's a lot of sort of inflow of these types of trusts and then finally again talking about this concept of Silent trust or quiet trust, you know, of course, we were Linda you and I work with a lot of families that I don't want their say their children and their grandchildren is necessarily know the details of a trust particularly when those those children or grandchildren are young they'd rather wait till they're you know, 35 40, 45 50 years old before they have a full understanding of that. And with the Delaware trust you can you can build in that structure and and that that tends to be very popular. Okay, how about somebody that's already set up a trust maybe in their home state who wants to take advantage of some of the benefits of Delaware or they have a trust that was set up a long time ago that you know circumstances have changed. Is there an opportunity? For someone in those scenarios to take advantage of utilizing Delaware trust and what would the steps be in order to take advantage of those opportunities? Yeah, that's a great question. So I spent a lot of time sort of talking so far about you know, planning a new trust and sort of creating a new trust from scratch. And you know when you're doing that when you haven't created the trust when you're at the drafting stage, you're working with your counsel, you're working with a potential trustee. You've got a lot of flexibility. You can make all these decisions and customize it and design it in a way that sort of checks off all these different goals that you might have. But if you have a trust already if you've already set up a trust say in your home state, they're actually opportunities there as well. So one of the things that we've seen a very large Trend that we've seen particularly in recent years, I'd say increasingly more so in the past, you know five to ten years. Is this concept of trust Mobility or changing the citus of the trust and by citus of the trust, we mean the place where it's administered just changing the status of the trust alone might offer some benefits. So for example, if you set up a trust in your home state and you have a trustee located in that home state, but you're interested in in say getting access to the Delaware Chancery Court or some other aspect of of Delaware law where you don't have to build that into a provision of the trust. You can simply name a Delaware trustee and in most cases Delaware law will apply to that trust and you'd have you you'd be under the jurisdiction of the Chancery Court that requires that you actually up a point at Delaware trustee. So you've got it you've got to go to Delaware and find it trustee. Um, but this this sort of just changing the sightus of the trust alone can frequently provide a lot of benefits. Now if you've got to trust and their you know, you don't have say silent trust Provisions or you don't have you know, directed trust provisions and you want to sort of explore whether that might be feasible. Another thing another sort of aspect of all this that we've seen in terms of Trends is is trust modifications. So we see a lot of scenarios where for one reason or another the provisions of the trust are outdated or there's just an opportunity to to improve the overall governance structure of the trust. Depending on the trust terms as they exist today and depending on the law of the state that currently governs the trust there might be opportunities to modify that trust. This would be in the form of say an amendment or you know exercise of a powerful appointment. There's there's a couple different ways that where you might be able to sort of take your existing trust and have it modified into a trust with more updated provisions. One way to do this another term that you might see in the popular press we've seen this a little bit more over the past couple years is this idea of decanting? So with the decanting actually the lawyers who came up with this actually drew the the term from the the world of wine where they we have take a bottle of wine and to can't it into a decanter. And and and now you sort of changed it. This is the concept that that they've that lawyers have incorporated into the world of trust to basically take a an existing trust and pour the assets of that trust into a new trust with new terms. So under this concept a trustee say who has the power to make distributions of principal and income. To the beneficiaries might instead of Distributing that principle or income to the beneficiaries pour that those assets into a new trust that is created at this time. So would be a brand new trust instrument. You would take that since the trusty pour it into that trust and from then on the terms of the new trust would govern how the trust is administered and the old trust would essentially go away. So that is another way that again depending on your the law that governs the trust today. You might be able to move it into Delaware into Canton and and some other states have adopted to canning statutes as well. So just depending on where where you live and and and what law currently governs the trust. I do can't think might be an option as well. Very interesting. Thank you, John. You've given I think our attendees an awful lot to think about. In terms of both the use of trust and the value of considering, Delaware. as a venue for trust I think I'd like to turn it back over to David now to give our participants a chance to ask questions and explore these topics further David. Certainly. Thank you Linda. There are a number of questions. So I'll try to organize these a little bit but one of the first ones that kind of left out was when a Delaware trust makes a distribution to a beneficiary and another state because the beneficiary pay the tax that was escaped in Delaware or how does that work? Yeah, that's that's a very good question. So the short answer is that it depends on what sort of the taxability that depends on when that income was received by the trust and also on the tax law that is it that governs the residents tax on the state where the beneficiary resides so for example, like let's say you had getting back to my example you sell the trust and you pay capital gains tax in say Year One. Well, if you don't make any distributions in year one to that beneficiary and then the next year the trust income tax is saved very low because you had a large gains the prior year but there's a lot of income tax that you're a lot of income that year. When you pass that out that money out to the beneficiary based on timing you may be able to avoid the beneficiary being taxed on say that big capital gain. However, if there's that whatever dividends and interest you have from that year that will be pulled out to the beneficiary and be taxed in their home state if their state taxes them on on income. So not every state does Florida you can you you wouldn't have to worry about this but in other states, you might So it's sort of a to kind of give the short answer. It's sort of a factor of timing and what are the what are the what's the tax law of the beneficiaries home state? Um sort of a starter question this came in early on that. I think it's a good one. Is there a dollar amount where a trust makes sense? I'm sorry, I couldn't quite hear that David. Could you repeat that? I'm sorry. This is there a dollar amount where a trust makes sense versus not using a trust. Is there a guideline there? Yeah, that's that's a really good question. There's no sort of hard and fast rule, um, you know with these types of structures, you're generally going to have some attorneys fees up front and then you're gonna have that the you know, the trustee fees throughout the life. So there is a certain dollar amount of below which it probably doesn't make sense in in those cases. It might be better to use a simple trust structure if you want to use a trust or just making that right gift, so it's hard to pick a specific number, you know, but we see a lot of trust that are saying, you know, a million and up, you know below that value, you know, say 500 to a million you might want to go with a more simplified under 500,000 though. I'd say it's probably The the you have to do that sort of cost benefit analysis to whether the costs are would be worth it for the size of the trust. Yeah, here's another technical question. You were talking about Dick panting trust. Can you decant and irrevocable trust? The answer is yes in most in most circumstances. There are some exceptions again with with the world of trust because each one is written uniquely. There can be sort of always exceptions to the to the general rules, but the decanting rules do apply to irrevocable trust infects that that's where we see. This most often done is um with irrevocable trusts on you know, just based on for whatever reason that the terms of those Trust might not be meeting the families goals at that time, and there's a desire to sort of Get rid of that trust and pour the assets into the new trust, but it is it is a case-by-case analysis as to whether it could work and how it would work. That have two related questions here that are very creative. It looks like you know and can so can you can a trust own stock in a private company basically and can I put a spat into a Delaware trust does it work with just any asset with just about any asset right? That's a very good question. The you you typically can put any asset into one of these trusts. I mean this back if it's you know publicly traded security then that is fair game and and you have to you have to find the trustee could be willing to take it because it can be some risk with that and some volatility with that kind of asset. But again, that might be a great situation where a directed trust would fit the belt because you know, if you if you hand off sort of a very volatile asset to a professional trustee, they might be uncomfortable. Holding that but if you have another Direction advisor is willing to direct it direct the trustee, then you could do that. So yeah, there's there's lots of different types of assets. We see, you know, all different interesting things from time to time in terms of what what folks want to put into these types of trusts. Interesting interesting question. Definitely. This is a little far a field that is there any non-us trust from other common law jurisdictions that work as well with similar benefits for us residents. Are there outer outside the US trust. Yeah, so that that's um, that's another area that that receives attention in the Press from time to time in terms of the concept of offshore trusts. And there are a number of jurisdictions that have you know, just to one degree or another marketed themselves as offshore trust jurisdictions for both, you know us persons and non-us persons. You know you have you know places like like Jersey currency, you know, Bermuda came in on Nevis. There's different places that have actually do have you know to one degree or another a trust industry and offer trust services for for folks who are looking to use a trust for one reason or another. you know the question is to whether as a United States citizen you want to use a united states-based trust or an offshore-based trust that is a you know, a very personal question and and you know our viewers we always sort of recommend talk to your lawyer about that as to whether you think in offshore trust would would fit the bill, but we do see that from time to time that nearly as common as as using one of the states that are sort of within the us that are that are sort of the traditional venues for trust, but we do see it from time to time. Well speaking of those other states what what are some of the other states in the US that offered those kinds of Delaware advantages? Sure sure that it's some that we've seen a trend among states particularly over the past call it, you know, I'd say 15 years. Where you know I think I think to a certain extent alive States looked at what Delaware was doing and and looked at what some other states were doing the area of their own trust law and saw that those places those States created very favorable laws for to place your trust and started to modify their statutes to make their state attractive as well some names that come to mind are, Nevada, New Hampshire, Alaska, Wyoming. Um these states, you know, they've got Quality Trust statutes as well. And and you know, South Dakota is another name that that comes to mind. I You know in each state is slightly different and now they've crafted their trust loss and so for an individual who's considering using a state outside of their home state. I spent a lot of time here talking about the benefits of Delaware. I think those States would would come in and talk about the benefits of their states as well. And and so I think an individual now who's considering a trust as a lot of good options, honestly, and and so it's in it's an interesting time to be doing these things. Will you mentioned it an interesting time? So let me ask about you know, we hear a lot about potential tax changes coming. How do how could those affect planning? You know, if you're evaluating looking at a trust or looking at the camping trusts or your scientists or right? Yeah, I think I think the the biggest sort of attacks thing that comes to mind these days is what is going to happen with the estate tax the federal state tax and the what are the currently very large exemption amounts historically speaking. So right now the federal estate tax exemption amount is about 11.5 million dollars per person which allows an individual who has you know, substantial estate to make a very large gift to a trust without paying gift tax or estate tax. We know that those laws change though over time and actually as of today the current law is scheduled to essentially expire at the end of 2025. And so in 2026, the state tax exemption is going to go back down to to what it was previously under the prior law which is five million dollars. I think it'll be on an inflation adjusted basis, but you know right off the bat it's gonna practically cut in half that's if this law survives until 2026 the law, you know any Congress and President can come in and to the extent they can get on the same page work together to modify the law. And you know, there is a lot of talk about the digital modifications to to that estate tax exemption amount and whether it should come down or whether it should go away entirely. It's a very difficult to predict these things. But but knowing that a state tax changes could be on the horizon for someone with a very substantial State who knows that based on current law or even anticipated law. They're a state would be looking at a very large estate tax at some point in the future funding and Trust now before the state tax changes can be a very appealing strategy to pursue. So here's a here's another legislative question for you. How has the secure act changed the timing and ages that the assets need. Yeah, or how they're taxed or is that had an impact there? It has it has I'm not a ton on on Delaware trust because Delaware trust we see the IRAs in in trusts from time to time but not particularly with regard to Delaware trust. But with with the secure act in IRAs, generally, so now the period of time in which you know, you can sort of hold off before you start taking requirement and distributions has been increased. I think it went from around 70 to age 72 Gives you more time to keep those assets in the ira before you have to start pulling it out and and realizing and paying income tax on on the income flowing out of the IRA. Um, but the this correct also shortened the length of time that assets could remain basically held up in in a inherited IRA before they have to be distributed. There's some very complicated trust planning that individuals can pursue to sort of figure out how to handle that sort of required and pay out date but also keep the assets in trust and and you know, there's a lot of planning being done with that. I mean I think folks are the correct is a couple years old right now, but folks are still sort of Absorbing that and and figuring out what the best ways to plan for that are and so, you know the best thing to do there is look at your IRA beneficiary designations, see how their title today. And work with your financial advisor and your your lawyer to make sure that they're they're it's the optimal structure under the current law. Okay. Well, I think I understand this question. I'm gonna try to say so if you have really real property that's owned in the trust who owns the property then does that cause you to lose any homestead exemption benefits of having the property under a name as opposed to right? Yeah, so really good question about real estate. I haven't really spent any time. yet on real estate most of the the When I was talking about like trust and asset trust and investment decisions most of that I was referring to it situations where you've got say intangible property, you know stocks bonds close Yale stock real estate is slightly different real estate. When you have say a trust that owns real estate in a different state, sometimes the law of that state will govern the how that property is administered. And so you can't sort of get the benefits of like, you know a Nevada, South Dakota, Delaware. If the real estate is is located in a different state though. There are some different theories about about whether how that might work in practice. But for all these speaking the way we deal with that. To a sort of avoid those complications is most of the real estate almost all the real estate. We see in Delaware trusts is actually held within say an LLC. So you create an LLC you see you have the trust that owns an LLC and then the LLC owns the real estate and that way decisions around how the real estate is managed are all they made by the manager of the LLC. rather than than the trustee and into in terms of homestead exemption like you'd have to you know, I know that's sort of a Florida concept, you know, you'd want to work with your Florida lawyer to make sure that owning the property in that LLC wouldn't disrupt that. I'm not a let's have that. I'm not an expert in the Florida homestead. Um such and I always consult my colleagues in Florida when we've got we've got issues relating to that kind of thing. But our general approach is trustee is to have the real estate held in and LLC rather than on directly by the trust. Excellent, okay. Here's a liability question. Can I trustee be held liable for legal actions against a business if the business asset is majority owned by the Legacy trust, for example Yeah, I think the the short answer is is it depends? You know, if you've got a well structured trust and you've got a you know. A corporation where the corporate formalities have been honored and they you can't pierce the corporate veil the trustee should be protected the trustee, you know generally should not take on that kind of liability for the debts of the corporation and the creditors the corporation. That being said if there are things have sort of gone wrong and you haven't sort of dotted your eyes and cross your t's and there's and and the Creditor is seeking to pierce that corporate veil. Then the assets of the Trust might be subject to the other assets of the Trust might be subject to attachment by the creditors the trustee even in that example, though, I think assuming the trustee hasn't done anything wrong himself. They should be okay, but that is a that's another sort of very facts and circumstances this type of question and where you want to really kind of go through all the facts with with the lawyer to see whether whether the trustee would have any exposure in that situation. John that made a lot of our questions here are very very detailed. So it's you know, some of these are you know, unique situations and in fact the ones that I have left or sort of those as well and I will go ahead and share those with both John and Linda for follow-up afterwards if you have limited on that before I close any final comments and John. I'll just say for myself. I really appreciate the opportunity to talk to everyone today and You know if anyone has has followed questions, I'm always I'm around all you know, and and working remotely most days but in the office other days like today and so having it happy to take any questions from anyone at any time. Yeah, I reiterate that. Thank you all for giving us this opportunity. We very much appreciate it. Excellent. Well, you know Linda you you described both of both you and John is trust nerds and I loved that phraseology because he's questions were very detailed and the answers were very detailed as well. So I thank you both for your expertise and your time and lend it. We're glad we got you back on screen. There's always a technical snafu somewhere that it didn't it didn't interfere with the great content here. So thank you both again. And I thank everyone out there for attending this webinar really appreciate your questions and your positive commentary that's coming in right now with that. I will say wish you all a good rest of your week a good rest of your July and summer and we'll see you at the next webinar. goodby
Benefits of a Delaware Trust
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