The Delaware Advantage

Top Ten Reasons to Have Your Wealth Managed in Delaware Delaware has earned national renown because of its trust and tax law advantages and its innovative estate planning vehicles.

For generations, Wilmington Trust’s highly experienced trust professionals have helped individuals, families, and businesses take advantage of Delaware’s exceptional opportunities. In fact, we are still assisting the families of our founders. Let us introduce you to just ten reasons why you should establish a trust in Delaware.

The Delaware Advantage R E A S O N

O N E

Delaware permits the creation of perpetual “dynasty” trusts that may be exempt from certain federal transfer taxes. Passing wealth on to multiple generations without incurring excessive wealth

R E A S O N

T W O

Delaware irrevocable trusts are exempt from Delaware income tax on accumulated earnings and capital gains if there are no remainder beneficiaries who are Delaware residents.

transfer taxes is made possible through Delaware’s laws governing the duration of a trust holding personal property.

Trust heirs deserve to receive the largest portion of their legacy rather than having it consumed by costly taxes.

Unlike many states that require a trust to terminate after a period of time, Delaware permits the creation of a perpetual trust even for reasons other than charitable purposes. In Delaware, personal property can remain in trust forever; a parcel of real estate can remain in trust in Delaware for 110 years. This technique makes it possible to create a perpetual “dynasty” trust to enhance the benefit of the federal exemption from the federal generation-skipping transfer tax (the “GST” tax).

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To help protect this wealth, Delaware does not impose state income tax on an irrevocable trust’s accumulated income and capital gains, provided future beneficiaries do not live in Delaware. Also, Delaware does not impose estate or personal property taxes on intangible assets held in a Delaware trust. This makes the state an ideal location for irrevocable trusts, such as generation-skipping trusts.

R E A S O N

T H R E E

Total Return Trusts align the interests of the income and remainder beneficiaries. A Delaware Total Return Unitrust (TRU) aligns the interests of current beneficiaries and future beneficiaries.

Traditional income trusts have occasionally

•

Asset allocation can be determined solely on the basis of investment decisions without

placed the trustees, who have a fiduciary duty

a need to purchase income-producing assets

of impartiality toward all beneficiaries, in the

to provide a reasonable payout to an income

middle of conflicts between current and future

beneficiary;

beneficiaries when trying to satisfy the income needs of the current beneficiaries. This struggle

•

Payouts to current beneficiaries can be adjusted to an amount between 3% and 5%,

has increased over the last 20 years because

not limited to income only;

current beneficiaries have seen declining payouts due to declining stock dividend rates,

•

Capital gains taxes can be paid by the Trust or the current beneficiary; and

while future beneficiaries have been limited in their ability to benefit from the equity market due to a trust’s traditional need to pro-

•

Averaging

periods

to

“smooth

out”

payments are not limited to three years, as in other states.

duce income. A Delaware Total Return Unitrust that follows Converting the administration of a traditional

modern portfolio theory can increase the har-

income trust to a Delaware Total Return

mony between current and future beneficiaries.

Unitrust creates many choices that can help ease the tension between the current beneficiaries and future beneficiaries. They include:

The Delaware Advantage R E A S O N

F O U R

Trusts can often be moved to Delaware to reap the benefits of the State’s laws, if the trust’s document permits it.

R E A S O N

F I V E

Delaware law facilitates the use of third-party investment advisors through its “direction trust” statute.

Can someone who benefits from an

To enhance flexibility, yet still secure the

irrevocable trust created in another state

safety that comes with the appointment

move the trust to Delaware and create a

of a corporate trustee, Delaware has

perpetual trust or convert it to a TRU?

adopted a “prudent investor” rule.

This is one of the questions most frequently

This rule permits a trustee to acquire virtually

posed to Wilmington Trust. Based on Delaware

any type of investment, and investment

court cases, the answer is “yes” in many

performance is assessed on the whole portfolio

instances. The trust may be moved to Delaware

rather than on an asset-by-asset basis. In

if the original trust instrument was written with

addition, someone other than the trustee may

sufficient flexibility and if the law of the

make investment decisions if the trust provides

original jurisdiction does not preclude this

for such flexibility. Therefore, Delaware law

result. There are several court cases that

makes it easy to use a family’s existing money

have allowed the movement of a trust to

manager(s) for a portion, or all, of the trust’s

Delaware by a beneficiary exercising a limited

assets. Delaware is particularly appealing

power of appointment.

because under “direction trusts,” a trustee may follow the direction of that advisor without breaching the trustee’s fiduciary responsibility.

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R E A S O N

S I X

Delaware’s “spendthrift” trust statutes provide significant protection from creditors’ claims.

R E A S O N

S E V E N

Delaware’s asset protection trusts offer an alternative to offshore accounts for creditor protection.

A trust established in Delaware which

Asset protection trusts have historically

contains a “spendthrift” clause provides

been available only by going “offshore.”

the maximum protection against credi-

For some individuals, an offshore trust

tors. In addition, bank accounts held by

may be an uncomfortable solution.

Delaware banks are not subject to attachment by most creditors.

Offshore trusts may leave individuals susceptible to the whims of foreign governments and

And Delaware has expanded the “spendthrift”

potentially volatile political climates. In addi-

provision to exclude Individual Retirement

tion, the necessity to apply foreign law and use

Accounts (IRAs) and rollover IRAs from

foreign judicial systems, the disadvantages of

attachment. Combined, these provisions afford

geographic remoteness, and punitive changes in

much more credit protection than may be

the U.S. tax law may also discourage the

available under the laws of other states. In

establishment of offshore trusts. Now, investors

addition, no limit is placed on the amount

have an alternative to offshore accounts with

that may be sheltered from creditors’ claims in

Delaware’s asset protection trusts.

these accounts. Liability Protection with Delaware Asset Protection Trusts — There are many sources of liability that may result in the loss of individual wealth, including: •

Tort Creditors

•

Regulatory Creditors, including environmental and other regulatory entities

•

Contract Creditors (continued)

The Delaware Advantage R E A S O N

S E V E N (continued)

Professionals, such as medical and dental practitioners, attorneys, accountants, executives, business owners, architects, engineers, and many others, are particularly vulnerable to tort creditors in cases regarding malpractice. Environmental liabilities can be enormous, defying

traditional

notions

of

Environmental

Response,

Compensation, and Liability Act of 1980, often referred to as “Superfund,” officers, directors, and even shareholders of corporations may be liable for corporate environmental wrongdoing.

Under Delaware’s Qualified Dispositions in Trust Act, an individual may create an irrevocable Delaware trust that should not be reachable by future creditors. This type of trust offers a strategy for the protection of assets while still enabling the creator of the trust to benefit from the funds. A Delaware Asset Protection Trust may be an ideal option for any individual potentially subject to costly lawsuits yet not wishing to relinquish complete control of trust assets.

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E I G H T

A variety of estate planning vehicles are available through Delaware limited partnerships, Delaware limited liability companies, and Delaware business trusts.

liability

protection. For example, under CERCLA, the Comprehensive

R E A S O N

Delaware’s Limited Partnership Act and Limited Liability Company Act were designed to ensure maximum flexibility, optimal tax treatment, and appropriate valuation discounts for estate planning purposes.

These laws make Delaware an excellent jurisdiction

to

govern

family

limited

partnerships and limited liability companies. These types of partnerships and companies are especially appealing to entrepreneurs, as Delaware business trusts have frequently been used in the recapitalization of closely held companies.

R E A S O N

N I N E

Grantors are assured the highest level of confidentiality because trust court filings are not required in Delaware.

R E A S O N

T E N

Delaware’s Court of Chancery has more than 200 years of history in developing legal precedent in trust and corporate law.

At Wilmington Trust, we know just how

What has made Delaware’s laws governing

important complete privacy and utmost

trusts, limited liability companies, and

confidentiality are to trust grantors and

limited partnerships the most advanced

their heirs. In Delaware, trusts do not

and flexible in the nation today?

have to be filed with a court, and court accountings are not required.

The answer to this question lies in the fact that jurisdiction is vested in the Delaware Court of

When judicial involvement is needed, prompt

Chancery. The Court of Chancery, established

and efficient relief generally is available from

in 1792, holds a preeminent position in the

Delaware’s Court of Chancery, a court famous

development of law in the United States.

for its corporate law decisions and experienced

Because of its unique role as a commercial and

in handling fiduciary relationships and other

fiduciary court, the Court of Chancery does not

equitable matters.

suffer from the backlogs that plague many other

states’

civil

courts,

and

it

has

demonstrated, time and again, its ability to respond quickly to critical issues. In addition, the Delaware General Assembly takes seriously its role in maintaining the advantages of Delaware law.

Long History of Working with the Delaware General Assembly — Wilmington Trust has historically been very active in working with the Delaware State Bar Association and the Delaware Bankers Association in proposing new trust and tax legislation. The Delaware Legislature is very responsive to the needs and desires of its constituency and responds quickly to update, revise, and continually protect Delaware’s tradition as a place that allows families to plan for the future.

A tradition of personalized service. Successful individuals and families have chosen to establish relationships with Wilmington Trust that have spanned multiple generations.

Why? Because of the level of personalized service and attention we devote to helping them achieve their financial goals. Even before a trust is established, we work with each individual or family and their advisors to analyze and assess their unique situation and needs. A personalized plan is then developed and complemented with our broad array of trust, estate planning, and investment management alternatives. Perhaps most important, all clients and their advisors receive the personal dedication of a team of responsive and trained professionals who offer intelligent financial solutions for even the most unusual situations. Our strong heritage of wealth management expertise is reflected not only in the exceptional quality of our services, but in the exceptional skills of our trust, planning, and investment professionals.

This article is for information purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Wilmington Trust that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor’s objectives, financial situation, and particular needs. This article is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional advisor should be sought. Some of the products discussed in this article are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by Wilmington Trust or any other bank or entity, and are subject to risks, including a possible loss of principal amount invested. Past performance is no guarantee of future results. ©2008 Wilmington Trust Corporation. Member FDIC.

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