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By Scott Altschul, Senior Vice President, Florida District, Key Private Bank –
For many years, the state of Delaware has developed the reputation as a friendly jurisdiction for U.S. business because of its advantageous tax code and pro-business legal environment. However, in recent years Delaware has become popular with estate and wealth planning professionals, who consider the state one of the best places to help clients with their wealth management needs.
In simple terms, a trust is a legal agreement in which ownership of assets is transferred from one party (grantor) to another party (trustee). Delaware Trusts are so appealing because they allow wealthy individuals, business owners and those in high-risk professions to preserve wealth for themselves and future generations. More specifically, Delaware Trusts, because of Delaware’s progressive trust laws, allow trustees to develop an advantageous wealth planning strategy that offers greater asset protection, wealth transfer and tax savings.
A properly planned Delaware Trust can benefit many people, including:
• Doctors and other professionals who are exposed to professional liability
• Corporate officers or directors of publicly traded companies whose activities are under increased scrutiny
• Business owners who want to protect their assets— including their interests in a family business— against future creditor claims
• Couples getting married who are uncomfortable with prenuptial agreements
• Individuals who establish a trust to their own benefit, such as a charitable remainder trust, and want to protect trust assets from future creditors
• The elderly, disabled and young adults who are or may become mentally, physically or financially impaired and need protection against their assets being diminished against their will
Conveniently, it is not necessary to live in or even to visit Delaware to benefit from its trust laws. In fact, Delaware Trustsare most beneficial to people who live elsewhere because they offer significant protection of assets and a high level of privacy. For example, personal trusts can be structured to shield assets from creditors, trust court filings are generally not required and proceedings can be confidential.
The state tax trust structure provides significant benefits as well: assets held in Delaware irrevocable trusts with out-of-state beneficiaries are not subject to income taxes in Delaware—or possibly anywhere else, depending on the individual’s state of residence.
As for flexibility, Delaware law provides for varied approaches to the investment and administrative management of trusts. The following are some examples of the most commonly used Delaware Trust strategies:
Dynasty trusts: Many individuals and families transfer their wealth to future generations in trusts. This strategy allows them to protect assets from beneficiaries’ creditors or even an ex-spouse, while preserving wealth for future generations. A Delaware Dynasty Trust enhances the benefits of these types of trusts. While many states place a limit on the duration of trusts (typically about 100 years), Delaware law allows trusts to last forever while offering increased control and flexibility. A properly planned Dynasty Trust maximizes the benefits to future generations by eliminating gift, estate and generation skipping taxes.
Delaware Asset Protection Trusts: Business owners, physicians, professionals and other wealthy individuals want to protect their hard-earned assets from loss due to frivolous and devastating lawsuits.
A properly planned Delaware Asset Protection Trust can protect assets—including interests in closely held businesses—from future creditors. It can also be used as an effective premarital planning solution to protect assets in the event of a future divorce.
Delaware Tax Advantaged Trusts: Business owners may be able to save state income tax on the capital gain realized on the sale of closely held business interests with the use of a properly structured Delaware Trust. A Delaware Tax Advantaged Trust can be used in certain circumstances to minimize or even eliminate state income tax on accumulated trust income and capital gains. This type of trust may also result in state income tax savings on the sale of a concentrated stock position or on the income accumulated in a Dynasty Trust.
Directed Trusts: Delaware law permits great flexibility in personal trusts. For instance, Delaware law permits the grantor—the person who creates the trust—to appoint advisors with power over the investments, distribution of trust assets and/or other trust decisions. In most cases, the grantor can retain investment control. The grantor may also choose to retain a trusted investment advisor to make investment decisions. For example, a business owner who transfers stock in aclosely held business can retain the power to direct the trustee in all investment decisions, such as the retention and sale of the stock.
There are many reasons why wealthy families, business owners or professionals might consider Delaware Trusts as part of their estate and tax planning strategy. To learn more about the benefits and requirements of establishing a Delaware Trust, meet with a wealth management professional. Not only should your estate or wealth planning professionalbe able to work with you to help analyze and assess specific financial and estate planning situations, as well as current needs and long-term goals, they can also guide you through the establishment and management of your Delaware Trust.
Author spotlight:
Scott J. Altschul
Scott Altschul is senior vice president and investment solutions specialist with Key Private Bank’s office in Palm Beach Gardens, Fla. He helps high-net-worth clients manage and grow their wealth, leveraging the considerable resources of Key Private Bank’s local team of experienced financial professionals in various disciplines.
Scotthas 20-plus-years of experience in the financial services industry, including experience as a portfolio manager for Merrill Lynch and a senior vice president of wealth management for a large financial institution. Prior to that, he practiced law for several years in New York.
A native of New York City, Scott earned his bachelor’s degree in economics from the State University of New York at Albany and a law degree from Hofstra University School of Law. He now lives with his family in South Florida.
An active member of the community, Scott has volunteered as a YMCA youth coach for baseball and basketball and has served on the board of directors for the Victory School in Miami. He sits on the Boca Raton Estate Planning Council and is a member of the South Palm Beach and Palm Beach County Bar Associations. He also has served on the professional advisory committee for the South Palm Beach Jewish Federation.
Key Private Bank provides a highly personalized approach to addressing wealth management issues and simplifying the financial lives of its clients. Specialized practice groups and a consistent, disciplined approach helps clients define their priorities and create individualized investment strategies that help them reach their goals. Service areas include financial planning, tax strategy, estate planning and insurance solutions.
About the author: Scott Altschul is senior vice president of Key Private Bank in Palm Beach, FL. He can be reached at either 561-775-6537 or scott_j_altschul@keybank.com.
©2012 KeyCorp
