In Delaware We Trust?

First Republic Investment Management

October 29, 2015

Considering a trust as a way to transfer assets to loved ones or charities? If so, it may be worth looking at establishing that trust in a state that offers unique tax and estate planning advantages.

Already known for its sophistication in corporate governance, Delaware is also a leading jurisdiction in family trust governance. Over several decades, the state has developed a reputation among high net worth individuals and their advisors as a premier location for the establishment and administration of a trust. Its reputation has been driven by a number of factors.

Tax Savings

With no state tax on income that accumulates in the trust for future distribution to non-resident beneficiaries, Delaware offers the opportunity for significant tax savings.

For example, an individual directly owning $2 million of stock with a tax cost of $500,000 would pay $150,000 in state income tax if he or she sold the stock while residing in a state with a 10% state income tax rate. However, if that stock is transferred to a Delaware trust, the $150,000 tax could be avoided.

Flexibility and Customization

Delaware also allows a high degree of customization and flexibility in the way trusts can be structured. Three types of trusts permitted under state law demonstrate the considerable freedom an individual who establishes a trust can have.

  • Dynasty Trusts: Can last as long as the trust creator wishes, with many structured to last multiple generations.
  • Directed Trusts: Can have trustee responsibilities divided among various individuals and/or professional trustees.
  • Silent Trusts: Can restrict a beneficiary’s right to be informed of his or her interest in the trust for a period of time.

Sophisticated Infrastructure

Lastly, Delaware has developed a very modern and sophisticated body of statutory law governing trusts. Additionally, should a dispute arise at some point during the life of the trust that brings it into a court proceeding, the Delaware Chancery Court, one of the most respected courts in the country, would hear the matter.

Evaluating a Move to Delaware

Given the many subtle (and some not-so-subtle) reasons why the location of a trust is important, it is worth taking the time to discuss with your advisors which state best meets your goals for the stewardship of your assets. First Republic Trust Company of Delaware LLC can work with a client’s tax and legal advisors to evaluate and facilitate the transfer of a trust located in another state to Delaware.

©First Republic Investment Management, 2015

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