Delaware’s Popularity Through a Trust Lens
Morris Nichols special counsel Zach Haupt recently spoke with Citywealth about the popularity of Delaware for private clients, “through a trust lens.”
“While Delaware has been a popular trust jurisdiction for many decades, we have continued to see significant growth in recent years and expect that trend to continue for years to come for a variety of reasons,” he said, and then outlined four key areas that support the First State’s trust strengths.
Trust Industry Infrastructure: “First, due to Delaware’s long history as a popular jurisdiction, the trust industry’s infrastructure is very well established,” Zach observed. “Delaware is home to many reputable trust companies, ranging from some of the world’s largest financial institutions to smaller, boutique companies that specialize in certain types of trusts. Additionally, many Delaware lawyers and law firms specialize in providing advice related to trust planning and administration, so there’s no shortage of highly capable advisers here in the First State.”
Delaware Caselaw and Statutes: “Next, Delaware has a robust body of statutory and case law that both honors settlor intent and provides flexibility to deal with unforeseen circumstances and developments in the law. Due to Delaware’s size and political climate, Delaware is relatively nimble at updating its laws to remain on the cutting edge, but always in a way that is mindful of maintaining its reputation as a stable and reliable jurisdiction. Delaware law is consistently favored by settlors and beneficiaries for myriad reasons, chief among them being strong asset protection, the ability to create perpetual dynastic trusts, the ability to control what information is made available to beneficiaries, and the ability to bifurcate responsibilities among more than one fiduciary so that additional offices (such as investment advisers, distribution advisers and trust protectors) can be created and filled with the people who are best suited to fill those roles.”
Esteemed Delaware Court of Chancery: “Delaware’s highly respected Court of Chancery has jurisdiction over trust-related matters in Delaware further contributing to the state’s favorability as trust jurisdiction. Delaware’s Court of Chancery is the court that also presides over corporate disputes involving many Fortune 500 companies. So, when a trust becomes the subject of litigation in Delaware, the matter will invariably be presided over by a highly-esteemed jurist who will be very capable of understanding complex issues.”
Tax Planning Applications: “Finally, in addition to Delaware’s robust infrastructure, favorable laws and the Delaware Court of Chancery, another driver of Delaware’s consistent growth is the ability to use Delaware trusts in connection with tax planning. As a result of recent federal tax law changes, the United States transfer tax exemption was temporarily increased but will sunset under current law back to prior levels (tied to inflation) at the end of 2025. Consequently, high net worth clients with assets that are subject to the United States transfer tax regime have a temporary opportunity to utilize the greater exemption amount to transfer valuable assets from their estates transfer tax-free. Savvy clients aware of the coming changes are taking advantage of this opportunity by planning now using Delaware trusts to get ahead of the rush that will take place in 2025. Additionally, uncertainty regarding how the tax laws may change following the 2024 presidential election has caused clients to focus more acutely on their wealth and tax planning needs.”
Read the full article, “IFC Insights: Delaware,” from Citywealth.