Some of these jurisdictions are up-and-comers and others are underrated. This article focuses on the “Other Four States”.
Most practitioners focus on Alaska, Delaware, Nevada and South Dakota as the Big Four States when it comes to selecting a trust situs. These four states collectively receive a substantial amount of the out-of-state trust business, in part because of their spectacular laws and in part because of their longevity as trust heavyweights.
However, there are other states that are more than respectable and worthy of praise. And in many aspects they are competitive with the Big Four States, while in other aspects they may not be as competitive. The Other Four States, in this author’s opinion, are New Hampshire, Ohio, Tennessee and Wyoming, listed in alphabetical order.
New Hampshire and Wyoming are perhaps better known to estate planning professionals as trust havens than are Ohio and Tennessee. But lack of longevity and a lesser degree of marketing done by local planners should not materially reduce a state’s desirability in relation to the actual laws on the books, so Ohio and Tennessee should receive more attention than they have received to this date in this author’s opinion.
While it is likely that Alaska, Delaware, Nevada and South Dakota will continue to receive the vast majority of the out-of-state business, these Other Four States do receive a portion of this business and are the subject of this article.
The Material Trust Situs Attributes
This article will evaluate the usability of these Other Four States. In order to be listed as a top trust jurisdiction, the state must not have a fiduciary income tax or must apply it only in limited circumstances, it must have leading Dynasty Trust laws, leading Domestic Asset Protection Trust laws and have very flexible Decanting laws.
- Fiduciary Income Tax: A leading trust jurisdiction will not subject a trust sitused in that jurisdiction to state income tax. Some jurisdictions tax a trust based on there being a local trustee or if the trust is administered in that jurisdiction. Although there are other reasons certain states will tax a trust, these are the primary attributes that will cause a jurisdiction to fail as a leading situs.
- Dynasty Trust Laws: A leading trust jurisdiction will allow the trust to continue either perpetually or for a very long number of years without any estate taxes. There is substantial competition among the domestic trust havens for Dynasty Trust business given the substantial estate tax savings involved over multiple jurisdictions.
- Domestic Asset Protection Trust Laws: A leading trust jurisdiction will have very protective self-settled asset protection trust laws which allow the trust settlor to potentially benefit from the trust assets while still protecting the assets from creditors.
- Decanting laws: A leading trust jurisdiction will have very flexible Decanting statutes allowing an irrevocable trust to be changed via the distribution trustee distributing the trust assets into a new irrevocable trust for the benefit of one of more beneficiaries of the prior trust, but with different terms which either fix or enhance the initial trust’s terms.
The Other Four States
Each of the Other Four States is usable from a fiduciary income tax standpoint. The 4th Annual Non-Grantor Trust State Income Tax Chart outlines the state-by-state rules used to tax a trust. Of particular note, none of the Other Four States taxes a trust based on the residency of a trustee or based on the administration taking place in that jurisdiction.
In the 7th Annual Dynasty Trust State Rankings Chart, New Hampshire is ranked in a tie for 10th, Ohio is ranked 7th, Tennessee is ranked 3rd and Wyoming is ranked 5th. Since only 12 states even made the Chart, these rankings are all excellent and make these states top Dynasty Trust states. Tennessee especially shines here, but the other three states are also excellent Dynasty Trust havens.
In the 9th Annual Domestic Asset Protection Trust State Rankings Chart, New Hampshire is ranked 9th, Ohio is ranked 3rd, Tennessee is ranked in a tie for 4th and Wyoming is ranked 10th. Ohio and Tennessee are the stand-outs here, but New Hampshire and Wyoming are also very usable. Ohio and Tennessee clearly deserve to be included with the heavyweights and are underrated in this author’s opinion.
In the 6th Annual Trust Decanting State Rankings Chart, New Hampshire is ranked in a tie for 4th, Ohio is ranked 6th, Tennessee is ranked 3rd and Wyoming is ranked 13th. New Hampshire and Tennessee should be included in anyone’s list of the best Decanting jurisdictions based on the methodology used in the State Rankings Chart. Ohio is excellent too. Wyoming is okay, but has more room for improvement than the other three states. Knowing Wyoming’s dedication to having strong trust laws, there is no doubt that we will see revisions made in the future to move Wyoming further up the rankings.
The Bottom Line
Alaska, Delaware, Nevada and South Dakota are far ahead of the Other Four States when it comes to trust business. However, the Other Four States should not be the “Forgotten Four States”. Each of these four states has significant trust laws which for many purposes are substantially similar to those of the Big Four States. This article notes their unofficial rankings in many attributes that are important when considering a trust jurisdiction. The good news is that there is so much trust business to be done that all of these states receive a part of it.
ABOUT THE AUTHOR
Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at firstname.lastname@example.org or at his firm’s website, www.oshins.com.