People tend to create a trust in the state or jurisdiction in which they live. However, this might not be the smartest approach. Using trust friendly jurisdictions is becoming more common as an asset protection strategy and for good reason.

Of course, any trust a client seeks to have created should only be drafted by an experienced estate planning attorney. 

According to an article on, the friendliest jurisdictions for creating a trust are Alaska, Delaware, Nevada, and South Dakota. For clients concerned with issues such as divorce protection, assets, or federal estate tax, it could be beneficial to have their trusts set up in one of these friendlier jurisdictions and have the law of that state apply rather than the laws of the clients' home state.

As trust friendly as these states might be, no one should assume that these jurisdictions will "rubber stamp" every request that is made. For example, Delaware courts will not "step on the toes" of courts in other states. Moreover, some believe that Delaware is less likely to rule on non-adversarial cases. This might be the natural result of an increased use of these jurisdictions, as they establish reasonable boundaries to their modern trust drafting. Nonetheless, there are many advantages to setting up a trust in one of these trust-friendly states.

To demonstrate some of these advantages, the article makes several key point comparisons of Delaware's trust friendly jurisdiction to a less friendly state, New Jersey.

1. Delaware has a directed trust statute. New Jersey does not. 

For over 100 years, Delaware has allowed the trust document to name an advisor to direct the trustee on investments. This could be important in terms of holding, say, a closely held business in a trust and still securing a trustee. 

If a corporate trustee does hold such assets, the additional cost of work and liability will likely be factored into its fee. Ultimately, even if decisions are transferred to a different trustee, that does not guarantee the protection of the institution.

2. Delaware courts have dealt with "modern" trust drafting techniques.

Directed trusts and trust protectors are just a few of the more "modern" trust drafting techniques Delaware has used. New Jersey has had minimal cases, if any, involving these techniques.

3. Domestic asset protection trusts, or self-settled trusts, have been permitted since 1977.

Domestic asset protection trusts, or self-settled trusts, are trusts for which your client is a beneficiary. Asset protection trusts make up from one-third to one-half of all new trusts in Delaware. However, self-settled trusts are not permitted in New Jersey.

4. Perpetual trusts are allowed in both Delaware and New Jersey. 

The garden state scores here! However, not all states have allowed perpetual trusts, such as New York.

5. In terms of drafting, Delaware offers more flexibility. 

For instance, your client can more easily secure a trust that instructs a trustee not to diversify a portfolio in Delaware than in New Jersey. 

6. Delaware regularly updates its tax laws. 

Delaware updates its tax laws more frequently than New Jersey. This is important when a previous tax law has an adverse result. It allows a state to respond and correct the problem more quickly, as Delaware has demonstrated.

7. Delaware's income taxation of trusts is better than many other states.

With the income taxation of trusts more favorable in Delaware, your client that resides in New Jersey can set up a trust, such as a DING, in Delaware and avoid New Jersey capital gains tax. 

8. Delaware does not tax charitable remainder trusts (CRTs).

New Jersey taxes CRTs. Therefore, if a client is planning on setting up a CRT, set it up in Delaware, not New Jersey.

No matter where a client decides to set up a trust, our firm may be able to assist, either directly or by providing a referral to an out-of-state law firm we trust. Contact us if you have any questions about using trust-friendly states in asset protection.

To learn more about common estate planning issues, check out our free guide, Estate Planning Pitfalls: The 12 Most Common Threats to Your Estate & Your Family's Future, or to discuss your estate planning concerns, please call our office at 919-443-3035 or use our contact form.

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning
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