The Advantages of Delaware and Nevada Trusts
TRUSTS & ESTATES
With more than 250 years of history developing legal precedent in trust law, Delaware continues to lead the way in areas of multigenerational planning, asset protection and tax savings. More recently, Nevada has followed Delaware’s lead and shown a strong commitment to enacting progressive trust laws that offer many of the same advantages seen in Delaware.
These states operate under the premise that a grantor should have the legal right to control the investment, management and distribution decisions for their trust – and they offer a great deal of flexibility to a grantor in ensuring their wishes are followed.
Regardless of your state of residency, there are many compelling reasons to consider a Delaware or Nevada trust as part of your estate
Delaware irrevocable trusts are exempt from Delaware state income tax on accumulated earnings and capital gains if there are no remainder beneficiaries residing in Delaware. In most cases, no Delaware tax of any type will be assessed on these trusts. Nevada has no state or corporate income tax, so the accumulated earnings and capital gains of a Nevada trust are not taxed at the state level.
Delaware and Nevada courts are sensitive to a grantor’s right to confidentiality. They do not require court filings, which helps ensure a trust stays private rather than becoming a matter of public record.
In both states, grantors can even restrict beneficiary access to information under certain circumstances. This is especially useful for those who are not ready to disclose the existence or value of the trust to beneficiaries.
BALANCED BENEFICIARY NEEDS
Delaware and Nevada both permit the use of “total return trusts,” which better align the interests of income and remainder beneficiaries.
CONTINUITY AND CONTROL
In Delaware, “Dynasty Trusts” can generally last indefinitely. In Nevada, Dynasty Trusts can last for up to 365 years. These lengthy perpetuity periods help shelter trust assets from estate, generation-skipping, gift and inheritance taxes for many generations. This can result in significant tax savings and continued management and control of family wealth.
INVESTMENT AND DISTRIBUTION FLEXIBILITY
Through a Delaware or Nevada “Directed Trust,” a grantor can appoint a third-party “Investment Advisor” to manage the trust’s investments and a third-party “Distribution Advisor” to make discretionary decisions about trust distributions to beneficiaries. The Investment Advisor option is particularly useful for trusts with illiquid or concentrated positions that a trustee may feel obligated to diversify as part of their administrative duties, while the Distribution Advisor option is advantageous when a third party, such as a relative or trusted friend, is best positioned to understand and determine the unique needs or circumstances of trust beneficiaries.
PROTECTION FROM CREDITOR CLAIMS
It is well accepted that irrevocable trusts for third parties, if properly drafted with spendthrift provisions, can protect trust assets from claims of a beneficiary’s creditors.
Both Nevada and Delaware, however, permit self-settled “Asset Protection Trusts,” which can help shield a grantor’s assets from creditor claims. These strategies provide an attractive alternative to housing an account offshore.
ADAPTABILITY AND EFFICIENCY
Historically, irrevocable trusts were inflexible because their provisions were locked into place at inception. The laws of both Nevada and Delaware provide significant
flexibility that allow for the “refreshing” or modernization of trusts to address changes in law or other circumstances not anticipated at the creation of a trust:
- Nevada and Delaware both have statutes allowing for decanting a trust without court approval. In the decanting process, a new trust is created and the assets of the old trust are decanted (poured into) the new trust.
- Nevada and Delaware also both allow the appointment of a third-party “Trust Protector”with powers to modify the trust document to take advantage of changes in tax law as they occur and to make a variety of other decisions relating to the administration of the trust, all without the necessity of court approval.
- Finally, both states also permit the use of binding “nonjudicial settlement agreements ”for broad purposes, including resolution of disputes among interested persons, removal and appointment of fiduciaries, and amendment of the terms of the trust consistent with the grantor’s intent.
These tools can help to avoid the burden of court involvement in trust administration and can save the trust and beneficiaries significant time and expense.
Any products and services offered by City National Rochdale are non-deposit investment products, are not FDIC insured or bank guaranteed. Investments in such products or services are subject to the risk principal value.
The information presented does not involve the rendering of personalized investment, financial, legal or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.
Professional trustee services are offered to City National Rochdale clients by City National Bank which may serve as trustee.
City National Bank Member FDIC. City National Bank and City National Rochdale are subsidiaries of Royal Bank of Canada.
City National Bank and its affiliates and subsidiaries, as a matter of policy, do not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circumstances.
Past performance is no guarantee of future performance. As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money.