By Steven J. Oshins, Esq., AEP (Distinguished)

It often makes sense to situs clients’ trusts in a trust jurisdiction where there is no state income tax, where the trust assets are protected from creditors and divorcing spouses, where estate taxes can be avoided forever or close to forever, and where there is flexibility to make changes to irrevocable trusts that are otherwise protected.

But which jurisdictions are best?

The First Tier

Two trust jurisdictions stand above the rest, Nevada and South Dakota.  Although one can argue for one or the other as #1, there is absolutely no believable argument that these two jurisdictions aren’t head and shoulders above the rest.  These two jurisdictions have no weaknesses.

Nevada is perhaps best known for being the leading jurisdiction for Domestic Asset Protection Trusts.  It has no exception creditors and a short two-year statute of limitations.  It’s also a leading Dynasty Trust jurisdiction since trusts utilizing Nevada law can continue for 365 years with no estate taxes and without creditors and divorcing spouses of the beneficiaries being able to access the trust assets.  It also has every bit of flexibility allowable in its decanting statute.

South Dakota is a hair behind Nevada for Domestic Asset Protection Trusts.  Its exception creditors only apply in very limited situations and it has a short two-year statute of limitations.  It’s the leading Dynasty Trust jurisdiction since trusts utilizing South Dakota law can continue perpetually with no estate taxes and without creditors and divorcing spouses of the beneficiaries being able to access the trust assets.  That puts it ahead of Nevada for those clients who want their trusts to continue for more than 365 years.  It also has every bit of flexibility allowable in its decanting statute.

The Second Tier

After Nevada and South Dakota, there is a bit of a drop-off, but not so far to make these jurisdictions unusable.  The second tier is made up of excellent trust jurisdictions that each have imperfections.

My opinion is that Tennessee is #3 and Delaware is #4.  My opinion is that Ohio and Alaska are #5 and #6, but it is arguable which is #5 and which is #6.  It depends upon how much weight is given to different attributes. There isn’t a huge gap among these four jurisdictions.  For example, I can make an argument that Delaware is #3 and I can make an argument that Delaware is #6.

Tennessee and Ohio have divorcing spouses, alimony and child support as exception creditors who can bust its Domestic Asset Protection Trusts, whereas Delaware has those same three exception creditors plus preexisting tort creditors as well.  Alaska has only divorcing spouses has its only exception creditor.

Delaware and Ohio seem to be below Tennessee and Alaska for Dynasty Trusts, mostly because of certain exception creditors that apply to their spendthrift protection if the trust is drafted as a health, education, maintenance and support trust.  Delaware has the famous Garretson v. Garretson case on its books whereas Ohio has statutes opening up these trusts to divorcing spouses and child support creditors.

Summary

This article highlights the leading trust jurisdictions.  It is imperative that estate planners know the key differences so that can properly situs their clients’ trusts for maximum tax savings, creditor and divorce protection and flexibility.

RELATED EDUCATION

If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:

• The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique
• Fear Factor: “Protecting Assets by Getting into the Creditor’s Head and Controlling His Mind”
• Fixing Old “B” Trusts
• Trust Situs After Kaestner: Saving State Income Taxes Using Non-Grantor Trusts
• The NING Trust: Saving Significant State Income Taxes for Your Clients in High State Income Tax Jurisdictions
• DINGs and NINGs: Technical and Planning Issues
• Steve’s FREE State Rankings Charts

ABOUT THE AUTHOR

Steve Oshins, AEP (Distinguished) ) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020, 2022 and 2024. He can be reached at 702-341-6000, ext. 2 or soshins@oshins.com.  His law firm’s website is www.oshins.com