With more than 100 million lawsuits filed in US state courts every year, it’s no wonder that business owners, doctors, lawyers, architects, and other professionals are concerned about asset protection. For years, offshore trusts have been one of the primary means of asset protection for those who are interested in shielding themselves and their families. However, increasing tax scrutiny and compliance have brought these trusts under fire, encouraging individuals to seek other avenues.
One popular onshore alternative is the Wyoming Self-Settled Spendthrift Trust, commonly referred to as a domestic asset protection trust (DAPT).
When it comes to asset protection, in Wyoming – unlike many other states – the law allows a trust maker, even a nonresident trust maker, to transfer assets to an irrevocable spendthrift trust, which not only shields those assets from the trust maker’s creditors, but also allows distributions to be made to the trust maker. It’s important to remember, however, that if you want to use these trusts for asset protection, you must start planning early.
Any DAPT will have a waiting period before your assets are protected, so this is not a tool you can implement the moment a lawsuit arises. In Wyoming, there is a four-year waiting period before your assets are shielded, and when new assets enter the trust, they have a four-year waiting period too. If you have asset protection concerns, we recommend that you start planning sooner rather than later.
Although there are currently 15 states that allow the creation of self-settled DAPTs, over the past few years, Wyoming has consistently updated its trust laws to become one of the most progressive trust planning jurisdictions in the United States.
While most states set spendthrift trust assets aside for beneficiaries and make them completely off limits to the trust maker, in Wyoming, the owner of the trust can also be a beneficiary and have access to the funds.
For example, in a Wyoming trust, a trustee or administrator may disperse up to 5 percent annually of the initial value of the trust’s assets, or as it may be valued from time to time, to the trust maker. A trustee may also be authorized to make distributions to the trust maker in its sole discretion and may even be directed to do so by a trust “advisor” designated by the trust maker.
In addition to the flexibility afforded to trust makers with a Wyoming DAPT, the state offers another major benefit: it has no state tax on income, which means interest and dividends earned on trust assets grow state tax-free while retained in trust.
With the combination of tax benefits, progressive trust statutes, and strong asset protection measures, it’s not surprising Wyoming domestic asset protection trusts are seen as an excellent onshore alternative to offshore accounts.
As is the case with most DAPTs, the trust maker does not need to live in the state where it is domiciled. The trustee, however, must be a Wyoming qualified trustee, such as a financial institution regulated in Wyoming or a person living in state. If you’re interested in learning more about Wyoming trusts, please contact a member of our Laramie, Wyoming, team at 307.721.6941 or our Jackson Hole, Wyoming, team at 307.739.3900, or sign up for a complimentary consultation.
For a more in depth look at Wyoming Trusts, download our recent webinar.
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First Western Trust cannot provide tax advice. Please consult your advisor to see how the information contained within may apply to your specific situation.