Delaware Trust Law

Recognizing that asset protection is a sound and legitimate business planning tool, state legislatures are enacting laws which allow individuals to protect assets from future claims. Alaska passed the Alaska Trust Act in April, 1997 and in July, Delaware amended it’s trust law to permit the formation of Asset Protection Trusts. A number of other states are likely to follow this trend. The Delaware law is similar to that in Alaska. The key provisions of the law are the following:

1. A trust can be created in which the Settlor is also the beneficiary;
2. At least one trustee must be a licensed Delaware Trust Company, financial institution or an individual who resides in the state. This trustee must have some responsibility for trust tax returns and administration;
3. The Settlor may have the right to veto any distributions by the trustees;
4. Some portion of the assets of the trust must be in a bank or other financial institution in Delaware;
5. The power to make distributions to the Settlor must be held by a trustee who is independent of the Settlor;
6. The assets of the trust are protected from any claims against the Settlor except:
   
   • Fraudulent Transfers;
     
   • Claims for spousal support, alimony and child support;
     
   • Claims for personal injury or property damage which occurred before the transfer to the trust; and
     
   • Claims by creditors who relied upon an express written statement by the Settlor that the assets of the trust were available to satisfy the debt to such creditor.