2000 Lane Reports

Offshore-Style Asset Protection Planning - Without Going Offshore

Wednesday, March 1, 2000
by Marc J. Lane

Delaware has long been recognized as a business-friendly state. Its easy-to-live-with, pro-management business laws have motivated thousands of corporations to organize there. And its courts have advanced the philosophy that Delaware is a good place to do business.

Thanks to a recent amendment to Delaware's trust law, the state may also become the jurisdiction of choice for financial advisers and tax experts seeking to shelter their clients' wealth from claims of creditors.

The amendment permits anyone, even if he or she has no Delaware connection, to set up an "asset protection" trust and shelter assets from most claims. All that's required is that one of the trustees be a Delaware resident or trust company and that some, but not necessarily all, of the trust's assets be held in a Delaware financial institution.

There are two public-policy exceptions to the rule. The first allows a claimant to access trust assets if the claim accrued before the trust was funded; the state simply won't help a debtor defraud a creditor. The second protects children, spouses and former spouses who are after child support, maintenance or property division. Otherwise, a Delaware trust can help wealthy people hold on to their property.

A candidate for such a trust understandably might be disinclined to transfer his assets away. But his enthusiasm is likely to be sparked once he learns that he can name himself a "discretionary beneficiary," eligible to have trust assets paid out to him whenever he makes a request of the trustee.

Some wealthy people may benefit from transferring assets into a family limited partnership. (Read the April, 1999, "Lane Report" to see "how family limited partnerships build wealth.") A husband and wife can serve as the general partners; and the limited partnership interests can be held by a Delaware trust. That way a couple can continue to control their assets while safeguarding any limited partner distributions. Or, transfers of significant wealth can be made to a Delaware trust, with the transferor and a trust company jointly serving as trustee. The trust can include all the dispositive and estate tax-sheltering provisions available to the transferor so that, at death, his or her assets can be distributed without probate, subject to a minimum of estate tax, and without having suffered the risk of creditors' claims.

Of course, every planning decision should be a measured and deliberate effort to address the needs and objectives of the client. And, where it fits, the Delaware trust, may be one component in a carefully considered wealth-management strategy.

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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright, 2003 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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