The Dilendorf Law Firm works closely with clients looking to preserve and protect wealth by using strategies such as domestic asset protection trusts (DAPTs). An Alaska DAPT is unique from other states’ and it was the first state to adopt “new age” trust laws, allowing for DAPTs and self-settled trusts. Since its inception, Alaska’s DAPT has evolved to include cutting-edge trust statutes that make it the most comprehensive asset-protection statutes in the nation.
By applying our unique philosophy of customized solutions, the attorneys at the Dilendorf Law Firm are committed to providing the most strategic counsel to our clients with regard to asset protection. We apply out-of-the-box thinking to provide guidance that has proven to positively impact our clients’ financial, trust, and estate planning objectives.
When considering a domestic asset protection trust as part of an overall asset protection strategy, the following advantages are found in an Alaska DAPT.
Advantages of Alaska’s self-settled spendthrift trust
Alaska was the first state to allow for self-settled spendthrift trusts and offers some of the best statutes for both the settlor and other trust beneficiaries. A self-settled trust allows the grantor to avoid being subjected to creditor claims by creating an irrevocable trust, while also being a discretionary beneficiary. In addition, some assets in such a trust may be excluded from the taxable estate of the grantor, even if they are a trust beneficiary. The details of this statute can be found in PLR 200944002, which received a favorable ruling from the IRS and is unique to the Alaska DAPT.
Advantages of Alaska’s DAPT creditor protection
While some individuals might believe that foreign asset protection trusts are a more reliable instrument for asset protection, Alaska’s self-settled trust laws there is no need to seek protection outside the United States. Unlike other states’ DAPT laws, Alaska has no special group, or “class” of creditors, which means creditors must prove “actual fraud” instead of constructive fraud, before assets from the trust can be attached in a judgment.
Additionally, Alaska’s DAPT has a provision that states that a beneficiary of a discretionary trust does not have a “clear property right in his or her beneficial interest”, but rather has a mere expectancy. As a result, creditors of a trust beneficiary have no legal right to attach. With an Alaska self-settled spendthrift trust, creditors cannot seek a court order to attach assets or distributions in the trust, nor can they seek a court order compelling the trustee to provide a distribution for the creditor.
Advantage of no state income tax
An Alaska DAPT allows trust beneficiaries to realize extraordinary year-on-year returns, which are compound-free from state and local income tax. Alaska also has no estate tax, no gift tax, and no tax on intangibles. In addition, the IRS has held that certain transfers to the trust may be incomplete for the purposes of gift taxes and that the trust may be deemed a non-grantor trust, also known as a “DING trust”. Under this structure, a trust may avoid state income tax as long as it is created in a state without an income tax and avoids being deemed a taxable gift.
Alaska permits perpetual trusts
Using a perpetual, or dynasty trust, allows for the seamless passing of wealth from one generation to the next, while avoiding costly gift, estate, and generation-skipping transfer (GST) taxes. An Alaska Perpetual Trust is an ideal vehicle to take advantage of this wealth-building federal exemption to the GST.
Alaska’s powerful decanting statute
Decanting is the paying of trust assets from one trust into another, and Alaska’s trust statutes make it the most effective way to move a trust into the state and take advantage of its many benefits. It also allows for the extension of the trust’s duration, including the ability to decant for purposes of protecting public assistance benefits, as well as the ability to grant a lifetime power of appointment to a trust beneficiary.
In addition to the many advantages listed above, an Alaska domestic asset protection trust allows an individual whose IRA is not protected from creditors under the laws of his or her own state to utilize Alaska law to provide such protection. As long as an IRA is in the form of a trust that is governed by Alaska law, it is protected by this statute. Another estate-planning advantage is that non-residents of Alaska can have their wills probated under Alaska law.
Many other aspects of Alaska’s self-settled trusts may be beneficial to an individual seeking flexible asset protection. The attorneys at the Dilendorf Law Firm are aware of the nuances between states’ DAPT laws and we adeptly steer clients toward the domestic asset protection trust that makes the most sense for their needs.
- The Alaska State Legislature
- DAPT Completed Gift Version (PLR 200944002)
- Trusts – Alaska Court System
- Self-Settled Spendthrift Trusts and the Alaska Trust Act – Duke Law School
- Alaska on the Asset Protection Map – Duke Law School
- IRS Rules Self-Settled Alaska Trust WIll Not Be in Grantor’s Estate – Hofstra University
- New Alaska Law Will Enhance Nationwide Estate Planning – Hofstra University
- Dynasty Trust State Ranking Charts
- Irrevocable Asset Protection Trust
- US Senate Report | Tax Haven Abuses: The Enablers, The Tools and Secrecy
- Spendthrift and Discretionary Trusts
- Table of Contents for Asset Protection Strategies
- Steve’s Leimberg’s Asset Protection Planning