Do I need to change or repurpose my old trust to work under the new rules?
In Wyoming, The Uniform Trust Code has been adopted since 2003. Further amendments to Wyoming's trust code, including the adoption of the Wyoming Chartered Family Trust Company Act, the addition of asset protection trust options and updates to the state's limited liability laws have continued to catapult Wyoming as a top jurisdiction to consider when you are moving or settling a trust.
Wyoming offers some of the most flexible and powerful trust and asset protection tools available in the United States. Here are some of the reasons siting a trust in Wyoming is so desirable, and why you may wish to change or repurpose your trust:
No State Taxes.
Wyoming is so desirable as a trust situs is because it does not impose a state income tax of any kind. Even if the Wyoming legislature wished to adopt an income tax, that desire would be largely limited by the Wyoming Constitution, which requires that any income tax be accompanied by a full credit against liability for sales, use and ad valorem taxes.
Most families wish to keep their estate details private in both the value of the assets and keeping the details of their estate out of public information. In Wyoming, there is an automatic seal that is placed on court filings involving a trust as a matter of course and not by a motion or other court filing. This protection became part of the Wyoming Trust Code in 2017 and is unique among Uniform Trust Code States. Upon a showing of need and a subsequent order of the court, the sealed trust records will be made available but only to the court, the settlor, any fiduciary, any qualified beneficiary, their attorneys and any interested person as determined by the court. There is no registry of any kind for filing of trust as public or court record. Wyoming trusts are also more private than trusts is almost all other states because the class of persons required to receive notice by a Wyoming trustee when undertaking certain trust related action is limited to a qualified beneficiary.
Narrow Definition of Certain Interested Persons and Qualified Beneficiary.
Realizing the need for enhanced trust privacy, Wyoming revised the Uniform Trust Code and made more narrow the disclosure requirements, limiting the disclosure requirement to "qualified beneficiary" in order to increase trust maker control and limit the risk of undesirable disclosure. In 2013 Wyoming defined a qualified beneficiary (an individual who would receive notice of certain trust changes) as "A beneficiary who is currently entitled to mandatory distributions of income or principal from the trust or has a vested remainder interest in the residuary of the trust which is not subject to divestment." There are further cascading definitions for situation in which it is proper to give notice without requiring a fiduciary to send notice to beneficiaries with remote interests. This adds to the settlor's privacy and reduces the costs and administrative burdens associated with more notice requirements. For example, where there is a trust in which one person has a life interest, with the remainder going to different persons, in Wyoming only the lifetime beneficiary and not the remainder beneficiaries is entitled to received reports from the trustee. This reduces the administrative burden on the trustee considerably. In addition, settlors of Wyoming trusts can create a truly quiet trust by overriding the default notification provision in the trust instrument. While this provision is not appropriate in every situation, this decision by the settlor of the trust allows for more flexibility depending on the circumstances.
Modern Trust Laws.
Statutory trust decanting has become available as a way to fix problematic trusts, change jurisdictions or respond to unanticipated changes in a family situation or the law. A trustee "decants" or fixes or changes a trust by distribution of some or all of the trust principal to a new trust rather than directly to a beneficiary. The provisions of the new trust may be largely the same as the prior trust but include differences designed to overcome issues with the original trust. Wyoming's decanting statute became effective in 2013. From the inception of that law, even with the addition of the 2015 and 2017 amendments, the Wyoming decanting statute is arguably one of the most precise, and as a result it provides a trustee with statutory authority to change a trust when necessary. W.S. 4-10-816(a). The 2015 and 2017 amendments restrict a trustee's decanting authority for tax reasons. However, Wyoming's statute also gives a provision designed to prevent a trustee's exercise of the decanting power from triggering unintended transfer tax and holds the trustee harmless from liability if the power is exercised in good faith.
Wyoming continues to be one of a handful of states that allow Domestic Asset Protection Trusts (DAPT). So long as the trust is irrevocable, is not funded via a fraudulent transfer, follows statutory requirements and is not subject to other exceptions, its assets are generally protected from attachment by a beneficiary's creditor. Since 2015 the Wyoming Trust Code allows an asset protection trust with no exception creditors, which is the Domestic Asset Protection Trust. The result of this revision is that a creditor of a settlor of an irrevocable discretionary trust created for the benefit of the settlor may not attach the trust property or compel the trustee to make a distribution. This is allowed even if (1) the trustee has the discretion to make distributions based on a standard (2) has abused his discretion or (3) elects to make a distribution directly to a third party for the benefit of the beneficiary. Wyoming law provides that no property interest is created in a beneficiary of a discretionary trust (DAPT) whether or not distributions are made pursuant to a standard of distribution, which further reinforces the creditor protections of the Wyoming Discretionary APT (DAPT) as well as any other Wyoming trust.
Tenancy by the Entirety Protection.
In 2013 Wyoming extended tenancy by the entirety protection to trust property. Wyoming permits married persons to own both real and personal property as tenants by the entireties. Tenants by the entireties is is a protective form of ownership in which the creditor of only one spouse cannot attach property owned by both spouse. For example, if you own real property as husband and wife, a creditor of wife cannot place a lien on the property to collect a judgment against her. Now, property initially owned by a married couple can be transferred to a trust and retain the tenancy by the entirety status.
Wyoming Limited Liability Companies.
Wyoming's LLC laws require the entity's registered agent to appear publicly on the Secretary of State's informational website. However, the members and managers of the LLC are not public. In 2010, Wyoming revised its LLC statute to allow significant freedom and flexibility in the management structure and operation of an LLC. The Wyoming Supreme Court has stated that a LLC's corporate veil will only be pierced under certain extraordinary circumstances. Fraud, inadequate capitalization and the decree to which the business and finances of the company are intermingled with the member are the three most common reasons a court will consider allowing a Wyoming limited liability company to be "pierced", meaning the individual member or members will be held responsible for creditor claims. The Wyoming statute has concisely stated the circumstances which allow the liability protection of an LLC to be pierced, and the instances when that ability is limited. The limitation on the ability to pierce, or disregard the protection of the LLC, based on a LLC's tax status is specifically addressed. This concise statute on liability is one of the reasons Wyoming is also one of the top places in the country to site your LLC.
The Tax Cuts and Jobs Act.
The Act, signed into law on December 22, 2017, drastically alters federal income tax planning and return preparation in the area of estates and trusts. In particular, there is a new tax rate structure, changes to income tax deduction and the limitations on charitable contributions. The Act relates to estates and trusts from tax years 2018 to tax year 2025. Relevant estate, gift and generation skipping provisions provide: (1) exemption amounts will increases to $11,400,000 for individuals in 2019; (2) the exemptions are scheduled to increase with inflation each year until 2025; (3) highest marginal federal estate and gift tax rates will remain at 40% (4) annual gift tax exemption is $15,000 in 2019. The increase in the exemption amounts will mean that estate transfer taxes will not impact the majority of estates. And, once the estate tax provisions sunset in 2026, the basic exclusion will return to 5 million, indexed for inflation. Other changes that may impact your trust under the Act are: child tax credit, education 529 credit, kiddie tax, income tax rates.
Case studies of recent trust updates include:
Case study number 1: An individual in his 90's wished to move from Oregon to Wyoming. The client sold his real property in Oregon, and wished to buy a one level home in Wyoming to live in. He also wished to move all of his accounts, including his brokerage, 401(k), regular checking and savings accounts, annuities and life insurance accounts to Wyoming. The Oregon trust was "decanted" or changed to a Wyoming trust, the property in Oregon was sold, the proceeds were transferred to the Wyoming trust and the Wyoming trust purchased a new home in Wyoming. All of his accounts were moved to Wyoming, and all of the beneficiary designations were changed to make his trust the beneficiary. At the real property closing, I worked with the title company so that his Wyoming trust owns his property. All of his personal property was transferred to the trust via an Assignment of Personal Property.
Case study number 2: A Wyoming married couple with no estate planning (and no existing will) wished to make an estate plan. It was determined that a Wyoming trust would be the best vehicle for them, because of their wishes for the ongoing generations of their family and the type and amount of real and personal property they own. Some of the documents prepared for their plan were: A Certification of Trust, Pourover Will, Trust Agreement (for married people), Deeds (for their real property), HIPAA Authorization, Medical Power of Attorney, Statement to Physicians, Springing Financial Power of Attorney, and Beneficiary Designations. This couple now has a flexible Wyoming trust that reflects their wishes for their family and incorporates the recent federal tax law changes.
Case study number 3: An unmarried individual had a Wyoming trust that did not fully specify provisions for a Special Needs Trust for a family member. The trust also did not have the supporting agreements for medical and financial planning, which are: The HIPAA Authorization, Medical Power of Attorney, Statement to Physicians, and Springing Financial Power of Attorney. The trust had not been maintained since it was created in 2013, meaning that real property that had been sold was not reflected in the trust schedule, and the other assets that were in the trust were not listed properly. The trust has been amended to provide for special needs, the supporting documents are in place, including the beneficiary designations, and the current and proper assets are now listed.
The Take Away: Because of the balance of flexibility and the concise Wyoming statutes combined with the federal tax law, now is a great time to fix or amend trusts that are broken to revise them to deal in a flexible fashion with the uncertainty that the future always brings.
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