At the 57th Annual Heckerling Institute on Estate Planning in Orlando, Fla., Amy K. Kayuk of McDonald & Kanyuk, PPLC in Concord, N.H. discussed trust jurisdictions issues in her session, “It’s a Nice Place to Visit, but Do You Want to Live There?” As trust law has expanded, it may be advisable for your clients to establish trusts in jurisdictions other than the one in which the client lives. Kanyuk’s lecture provided an excellent primer on the various considerations that practitioners need to take into account when setting out on this path. For example, the client may want to establish a dynasty trust for a longer period than is permitted in the client’s home jurisdiction, or the client may want to establish a domestic asset protection trust or a purpose trust, and the client’s home jurisdiction doesn’t permit the client to do so.
Client’s Goals
The overarching consideration stressed by Kanyuk is understanding your client’s goals for the trust when deciding on the appropriate jurisdiction. We’ve all seen the ranking charts for domestic asset protection or dynasty trust jurisdictions but keep in mind that the “best” jurisdiction in the rankings may not be the right jurisdiction for your client. Further, if a client wants to establish a trust to last for multiple generations, the advisor will need to take into account each available jurisdiction’s rule against perpetuities (or lack thereof) when forming the trust. Furthermore, what if the client’s home jurisdiction has a strong public policy for the limitation of the duration of trusts? Kanyuk suggested adding a savings clause in the trust, which provides that in the event the state law governing the term of the trust has changed or the trust is now being administered in a different jurisdiction with a different rule against perpetuities, then the trust will terminate pursuant to the currently applicable rule against perpetuities period.
Flexibility
Another consideration to take into account is flexibility. Does the client want a permissive jurisdiction that will provide the beneficiaries with flexibility so that the trust can be adjusted for future changes in facts and circumstances? Or do they want to exert dead hand control so that it’s extremely difficult to change the trust in the future? If flexibility is important to the client, Kanyuk advised that it may be best to look for a jurisdiction that allows non-judicial trust modifications or decanting, particularly useful is when there’s a decanting statute in place. If a client values rigidity, Kanyuk recommended advisors consider jurisdictions that are less permissive toward such changes, and the drafter should include specific prohibitions on trust modifications or decanting in the trust provisions. In the same vein, it’s important to consider whether the desired jurisdiction permits the enforcement of no-contest clauses (Florida doesn’t). If the jurisdiction permits no-contest clauses, are there exceptions, such as actions brought in good faith that the client should be aware of? Furthermore, the client may not want the beneficiaries to know anything about the trust. Some clients love the idea that the existence of a trust can be kept from the beneficiaries to keep the beneficiaries from embracing a trust fund baby feeling of entitlement. What they don’t know can’t spoil them, right? If that’s the case, the advisor should look for a jurisdiction that permits “quiet trusts,” which don’t require accountings or a jurisdiction that only requires accountings be made to a third party (such as a trust protector).
Sufficient Connections
Kanyuk additionally raised the importance of choosing a jurisdiction that has a sufficient connection to the trust so that the laws of the chosen situs will be the ones applied by a court if any dispute arises. Unfortunately, the level of connection necessary isn’t clear. While a client is free to choose any jurisdiction they wish, the laws of the chosen jurisdiction may not be applied if a court determines that there’s a strong public policy to instead apply the laws of another jurisdiction to the matter. Physical presence of at least some of the trust assets in the jurisdiction, administration of the trust occurring only in the jurisdiction and a resident trustee were all discussed as being a good start when establishing connections to the jurisdiction. One thing is clear: more connections are better, and when choosing between two similar jurisdictions, the safer option is to establish a trust in a jurisdiction where the client can establish the greatest number of connections.
Forum Shopping
Although Kanyuk addressed other considerations, one of the more interesting ones was whether the trustee has a duty to keep forum shopping after the trust has been established. She didn’t think so, but she advised drafters to include provisions in the trust documents stating that while the trustee has the ability to change the situs of the trust, the trustee is under no duty to do so.
Competent Counsel
As noted throughout this review, Kanyuk made it very clear that when choosing a jurisdiction for a long-term trust, the client’s unique goals are paramount, and the attorney would be well advised not to rely solely on a jurisdictional ranking chart. Above all, she strongly cautioned attorneys that if you end up choosing a jurisdiction where you’re admitted to practice, it’s critical to work with local and competent counsel.
Karen L. Witherell, Esq. is a partner at Bove & Langa, P.C. in Boston