The Benefits of Establishing Your Trust in Delaware INSIGHTS

This Insights highlights a few of the favorable trust and tax laws that keep Delaware in the forefront as one of the most attractive jurisdictions for personal trusts.

Trusts are an important planning vehicle impose income tax on accumulated Asset Protection for preserving and maximizing a family’s income or capital gains if the irrevocable For your beneficiaries. Delaware wealth. A trust can offer even greater Delaware trust has only nonresident strictly enforces spendthrift trusts— tax and asset protection benefits when remainder beneficiaries. In addition, trusts specifically created to protect established under the right jurisdiction. Delaware imposes no income tax on beneficiaries from their own Delaware has long been one of the most required income distributions to bene- imprudence or incapacity—so that desirable jurisdictions for personal trusts ficiaries not residing in Delaware. creditors of your beneficiaries cannot due to its well-developed, flexible trust reach the trust assets other than for Transfer tax savings. Unlike most states, and tax laws. spousal support obligations. Delaware law permits personal property Some of the many benefits afforded to be held in trust indefinitely, and real For yourself. Traditionally, the only by a Delaware trust include: property held in trust need not be way an individual could create an distributed to beneficiaries until the irrevocable trust and retain some Tax Savings expiration of 110 years. This results benefits that could not be reached Income and capital gains tax savings. in distinct tax savings. For example, by creditors was to create an offshore For those individuals who live in a state a generation-skipping trust, also trust. As an alternative, a Delaware law that imposes a tax on trust income known as a “dynasty trust,” can be allows an individual to transfer assets and capital gains, Delaware may be created to provide for the transfer of to an irrevocable Delaware trust, a particularly advantageous jurisdiction wealth to multiple generations without commonly known as a “Delaware Asset for creating an irrevocable trust. transfer taxes. Protection Trust.” Under the terms Properly structured, a Delaware trust Additional tax saving benefits. Under of this trust, a settlor may continue can be administered free of Delaware Delaware law, trusts are not subject to benefit from the assets, in the income and capital gains taxes, to intangible personal property tax or trustee’s discretion, while potentially assuming the irrevocable Delaware state franchise tax, and there is no protecting assets from most creditors. trust has only nonresident remainder business license tax. beneficiaries. Delaware does not Instances in which a creditor can Delaware’s Prudent Investor Rule make claims against a trust include: allows a trustee to invest in almost any type of asset so long as the • When the claim resulted from an beneficiaries’ needs and objectives “ Delaware’s Prudent agreement or court order for pay- are met. A trustee’s investment Investor Rule allows ment of alimony, child support or performance is measured based on the property division; and a trustee to invest trust portfolio as a whole, not on an • When the claim resulted in death, in almost any type asset-by-asset basis. personal injury or property damage Flexibility to establish your own of asset so long on or before the date assets were investment strategy. Delaware law as the beneficiaries’ transferred to the trust. allows a settlor to direct the trust needs and objectives Additionally, Delaware law may provide investment strategy by express are met.” more creditor protection for your IRA language in the governing instrument. than under other state laws. This means that a settlor can structure his or her own investment approach, Investment Flexibility which may vary from the investment parameters authorized under Flexibility to pursue capital growth. Delaware’s Prudent Investor Rule. Under Delaware’s Total Return Unitrust statute, trustees may elect, Flexibility to control your investments upon proper notification to the and distributions. Under Delaware law, beneficiaries, to pay out between 3% a settlor can name either an individual and 5% of the fair market value of or institution to direct the trustee on trust assets to current beneficiaries. the investments. This arrangement This means trustees can invest in may be particularly attractive where assets providing long-term growth and the settlor owns a closely held family ensure that the distribution needs of business and wants to ensure that the current beneficiaries are met. the business remains in the family for years to come—or that control of the Additionally, under Delaware’s power business stays in the hands of specific to adjust statute, trustees can adjust individuals other than the trustee. receipts and disbursements between The settlor may also want to select income and principal. Basically, this an outside money manager to make power allows a trustee to increase the trust investment decisions, leaving the amount to be distributed to income-only administrative duties in the hands of beneficiaries, while at the same time the trustee. Should the settlor want allowing the trustee to invest for long- to retain investment control, he or term growth.

2 The Benefits of Establishing Your Trust in Delaware fiduciarytrust.com she may serve as the adviser without Statute. Otherwise, a court reformation Additionally, trust accountings are not jeopardizing any potential estate proceeding would often be required to required to be filed with a court unless planning benefits. modify the trust terms—which could court ordered, resulting in lower costs be costly, with no guarantee of success. in the administration of a trust. In Delaware, a settlor can authorize individual co-trustees, protectors or Enforceability of trust terms. Under Delaware Court of Chancery is advisers to direct the trustee to make Delaware law, beneficiary-instigated nationally renowned. Should a court distributions to beneficiaries. This litigation may be deterred because proceeding be necessary, the means all distribution decisions can a beneficiary’s interest will be reduced Delaware Court of Chancery is be made by someone other than the or eliminated if the will or trust’s nationally renowned for its corporate corporate trustee. validity is contested. This is called litigation decisions, experience in a No-Contest or In Terrorem Clause. fiduciary matters and its generally Except in cases of willful misconduct, expeditious handling of trust issues. a trustee will not be held liable for any Ability to care for a pet or for other loss resulting from complying with declared purposes. Delaware has an investment direction or a distribution enacted a statute that allows a settlor Other Estate Planning decision given or made by an authorized to establish a noncharitable purpose Options person. Correspondingly, an investment trust for the care of pets living at his Delaware law provides other estate adviser will not be held liable for or her death or for another declared planning vehicles such as limited any of the trustee’s non-investment purpose, such as for the maintenance partnerships and limited liability activities. Generally, the fee of of a family property. companies, business trusts and a Delaware corporate trustee is less investment companies to enhance tax when administering a trust with Confidential and Expedient savings and flexibility. a directed investment adviser serving. Judicial Settlements For more information on the benefits No duty to inform and report to of Delaware trusts, feel free to contact Control over Trust Terms beneficiaries. Generally, a trustee has your trust and estate professional or Flexibility to modify the trust. Under the duty to inform a beneficiary of his your Fiduciary Trust representative. Delaware law, so long as certain or her interests in a discretionary trust. conditions are met, a trustee has In Delaware, so long as the settlor the ability to modify the trust terms expressly provides language in the by distributing the trust assets of an trust, the trustee has no duty to inform existing irrevocable trust to a new a beneficiary of his or her own interest irrevocable trust. This is called in the trust “for a period of time.” “decanting” a trust. Trust terms No court filings. In Delaware, the may also be modified by Delaware’s confidentiality of a trust agreement merger statute and/or Delaware’s created outside of a will is preserved Non-Judicial Settlement Agreement by rules waiving court filings.

fiduciarytrust.com FIDUCIARY TRUST COMPANY INTERNATIONAL 3 FIDUCIARY TRUST COMPANY INTERNATIONAL is a global investment and wealth manager and a part of Franklin Templeton Investments, serving high net-worth individuals, families, endowments, foundations and other institutions. Fiduciary Trust provides the following services to clients throughout the world:

• Investment Management • Manager Selection and Monitoring • Trust & Estate Planning and Administration • Charitable Giving • Advanced Tax Planning • Master Custody and Safekeeping

Fiduciary Trust Boca Raton, FL St. Petersburg, FL Fiduciary Trust Company FTCI (Cayman) Ltd. International Offices (561) 988-8460 (800) 618-1260 of Canada Offices Grand Cayman New York, NY Coral Gables, FL Washington, DC Calgary (877) 384-1111 (877) 384-1111 (800) 574-3822 (800) 618-1260 (888) 621-3464 (212) 632-3000 Fort Lauderdale, FL Wilmington, DE Toronto (calling from (561) 988-8460 (866) 398-7414 (800) 574-3822 outside the US) fiduciarytrust.com Los Angeles, CA Hong Kong (800) 421-9683 (852) 2877-1931 San Mateo, CA London (877) 284-2697 (44) 20-7073-8500

Securities, mutual funds and other non-deposit investments: NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Fiduciary Trust Company International and subsidiaries (doing business as Fiduciary Trust International), Fiduciary Trust Company of Canada and FTCI (Cayman) Ltd. are part of the Franklin Templeton Investments family of companies. This communication is intended solely to provide general information. The information and opinions stated are as of November 2015, and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods. IRS Circular 230 Notice: Pursuant to relevant US Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.