WEST VIRGINIA PASSES ASSET PROTECTION TRUST – TRUST LEGISLATION EFFECTIVE JUNE 8, 2016  – HERE COMES THE MOUNTAINAIR TRUST

By Jonathan GopmanMichael Sneeringer and Alan Gassman

Almost haven,

West Virginia,

Advances its trust law,

Throwing future creditors in the river.

 

Trusts are old there,

Like the Confederacy,

Until now creditors,

Could take about everything they see.

 

Country trusts,

Keep wealth home,

To the place,

It belongs, in West Virginia,

For the tax base, to build roads,

Keep it home.

 ———

I fear the morning hour when

someone’s lawyer calls me,

Grandma hit their client while driving

Her Ford 150 today,

And we only lost the umbrella policy

because of her last accident, yesterday, yesterday!!

 

Country trusts,

Keep wealth home, 

To the place,

It belongs, in West Virginia, 

For the tax base, to build roads,

Keep it home.

 

I hear the far loud call from

Alaska and Nevada,

My radio reminds me that I’ll

pay taxes if I stay,

But now at least future creditors

can’t touch my coal mine properties

if transferred yesterday, yesterday!

 

Country trusts,

Keep wealth home,

To the place,

It belongs, in West Virginia,

For the tax base, to build roads,

Keep it home. 

– A. Gassman

West Virginia became the 16th state in the United States to establish a public policy and statutes enabling its citizens and persons residing outside of West Virginia to establish an irrevocable trust that can benefit the grantor without being subject to creditors of the grantor when appropriate circumstances apply. Unlike the handful of jurisdictions that have established legislation that invites those from outside the state to have the strongest protection available for transfers to trusts, West Virginia’s statute requires that there be no creditors existing that would be expected to be able to pursue the assets of the trust upon funding, and requires an extensive affidavit to be executed when any contribution is made to the trust that such contribution does not constitute a fraudulent transfer or other inappropriate arrangement.

 Notwithstanding the conservative nature of the statute, the authors commend West Virginia’s new policy allowing its citizens and others to establish trust arrangements that will permit assets to be protected from the claims of creditors in situations where other exemptions and strategic forms of ownership that might be utilized would be more expensive, restrictive and inconsistent with investment, retirement and family planning objectives or needs. This statute also potentially provides West Virginia residents who have or will establish asset protection trusts in other jurisdictions to have some confidence that their local law may be applied in a challenge to such a trust structure in a supportive manner if the requirements of the West Virginia statutes are met (or close thereto). Clients who have trusted relatives or close friends in West Virginia who are establishing trusts well before problems are expected to occur may consider this state to be an appropriate situs, and use of the situs can help to prove that there are no expected creditor challenges at the time such a trust is established.

This article provides a summary of the new asset protection trust law in West Virginia and also discusses certain issues that the authors believe will need to be addressed quickly and corrected in subsequent legislation by the legislature in West of Virginia.

            Effective June 8, 2016 West Virginia will permit asset protection trusts to be established with the full benefit of creditor protection for a settlor who retains an interest in trust provided certain requirements are met. West Virginia permits residents and non-residents to create a “qualified self-settled spendthrift trust,” under the West Virginia Uniform Trust Code (the “WVUTC”).[1] Perhaps such trusts will be referred to as “Mountaineer Trusts.”[2]

            To understand the operation of the WVUTC it is important to ascertain the meaning of the terms “qualified beneficiary,” “qualified affidavit,” “qualified interest,” “qualified self-settled spendthrift trust,” “qualified trustee” and “independent qualified trustee.”

            Under the WVUTC a “qualified beneficiary” means a beneficiary who, on the date the beneficiary’s qualification meets one of the following requirements: (i) the beneficiary is a distributee or permissible distributee of trust income or principal; (ii) the beneficiary would be a successor distributee or permissible distributee of trust income or principal if the interests of the distributees described in (i) terminated on that date without causing the trust to terminate; or (iii) the beneficiary would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.[3]

            Under the WVUTC a “qualified affidavit” is a duly executed affidavit of the grantor that contains all of the statements described in § 44D-5-503b(e)(1)-(8) of the Code of West Virginia.  The Qualified affidavit must be duly signed and delivered to the trustee of the asset protection trust upon formation of the trust and when any contribution is made to the trust. The affidavit requirement is prudent from a legislative standpoint, however, it potentially causes the loss of the protection of the statutes and criticism if contributions are made without compliance with this statutory requirement.[4]  An affidavit is defective and is not a qualified affidavit if it materially fails to meet the requirements set forth in § 44D-5-503b(e) of the Code of West Virginia. An affidavit is not considered defective and is a qualified affidavit if it contains any non substantive variances from the language set forth in § 44D-5-503b(e) of the Code of West Virginia, it contains statements or representations in addition to those required that do not materially contradict the required statements or representations, or there are any technical errors in the form, substance or method of preparation or execution of the affidavit if those errors were not the fault of the affiant and the affiant reasonably relied upon another person to prepare or notarize the affidavit.

            Under the WVUTC, a qualified affidavit must state that:

            (i) the property being transferred to the trust was not derived from unlawful activities;

            (ii) the grantor has full right, title, and authority to transfer the property to the trust;

            (iii) the grantor will not be rendered insolvent immediately after the transfer of the property to the trust;

            (iv) the grantor does not intend to defraud any creditor by transferring the property to the trust;

            (v) there are no pending or threatened court actions against the grantor, except for any court action expressly identified in the affidavit or an attachment to the affidavit;

            (vi) the grantor is not involved in any administrative proceeding, except for any proceeding expressly identified in the affidavit or an attachment to the affidavit;

            (vii) the grantor is not indebted on account of an agreement or order of court for the payment of support or alimony in favor of such transferor’s spouse, former spouse or children, or for a division or distribution of property incident to a judicial proceeding with respect to a divorce or annulment in favor of such transferor’s spouse or former spouse, except for any such indebtedness expressly identified in the affidavit or an attachment to the affidavit; and

            (viii) the grantor does not contemplate at the time of the transfer the filing for relief under the Bankruptcy Code of the United States.

            A “qualified interest” is the grantor’s interest in a qualified self-settled spendthrift trust to the extent that such interest enables the grantor to receive distributions of income, principal or both in the sole discretion of a qualified trustee. A grantor may have a qualified interest in a qualified self-settled spendthrift trust and also have an interest in the same trust that is not a qualified interest, and the rules of § 505 of Article 44D of the Code of West Virginia (West Virginia’s general self-settled trust rule) will apply to each interest of the grantor in the same trust other than the grantor’s qualified interest.

            A “qualified self-settled spendthrift trust” means a trust provided the trust agreement expressly incorporates the law of West Virginia to govern the validity, construction and administration of the trust; it is irrevocable; it is created during the grantor’s lifetime; there is, at all times at least one beneficiary other than the grantor to whom (i) income may be distributed, if the grantor’s qualified interest relates to trust income; (ii) principal may be distributed, if the grantor’s qualified interest relates to trust principal; or (iii) both income and principal may be distributed, if the grantor’s qualified interest relates to both trust income and principal.

            The WVUTC does not appear to permit a grantor to be insulated from creditors while retaining powers that may be necessary to prevent a gratuitous transfer to the trust from being considered a completed gift under the current position of the Internal Revenue Service set forth in Chief Counsel Advice (“CCA”) 201208026. Thus, certain powers such as the power to veto distributions during the grantor’s lifetime coupled with a testamentary non-general power of appointment or an inter vivos non-general power of appointment may not be retained by a grantor under the WVUTC for the grantor’s interest in the trust to qualify as a qualified interest. Compare West Virginia’s statutory framework with Delaware, and the laws of many other APT states, which explicitly allow a transferor to veto distributions or retain an inter vivos power of appointment.[5]

            If a donor-settlor is the sole current beneficiary of a trust and retains a testamentary special power of appointment over trust property, any gratuitous transfers by the donor to the trust will constitute incomplete gifts for federal gift tax purposes. However, under the provisions of the WVUTC such a trust will not qualify as a qualified self-settled spendthrift trust.

            Prior to the release of CCA 201208026, it was generally thought that it should also be possible for a donor-settlor to retain a testamentary special power of appointment over the trust to avoid a taxable gift even though the settlor may be just one member of a class of permissible beneficiaries to whom an independent trustee may at any time make distributions of income and principal in such trustee’s sole, absolute and uncontrolled discretion (that is, a “pot trust”).[6] The foregoing concept was similar to the gift tax rule set forth in Regulation § 25.2511-1(h)(4) which provides:

If A creates a joint bank account for himself and B (or a similar type of ownership by which A can regain the entire fund without B’s consent) there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn without any obligation to account for a part of the proceeds to A. Similarly, if A purchases a United States savings bond, registered as payable to “A or B,” there is a gift to B when B surrenders the bond for cash without any obligation to account for a part of the proceeds to A.

            Nevertheless, use of a testamentary special power of appointment as the sole mechanism to cause a gift to be incomplete for federal gift tax purposes has been called into question after the release of CCA 201208026. In CCA 201208026, two settlors created an irrevocable trust and gratuitously transferred property to it. The trustee of the trust was a child of the settlors who was also a current beneficiary (that is, an adverse party for tax purposes), and the beneficiaries during the lifetime of the settlors were the settlors’ children, other descendants, and their spouses.  The only power the settlors retained was a testamentary limited power of appointment. The trust was to terminate when both settlors died.  The ruling held that transfers to the trust were completed gifts because during the term of the trust the settlors retained no dominion or control over trust assets. The fact that the settlors retained a limited testamentary power of appointment was insufficient to treat the transfers as incomplete gifts. Perhaps a critical difference between the terms of the trust in CCA 201208026 to the terms of the trust in all of the other authority discussed above is that neither settlor was a current beneficiary of the trust, that is, the trustee could not make any distribution of trust property to either settlor.[7]

            Under the WVUTC the trust must at all times have at least one qualified trustee (that is, a West Virginia resident or licensed trust company) who may be, but need not be, an independent qualified trustee.[8] A “qualified trustee” means any person who is a natural person residing within West Virginia or a legal entity authorized to engage in trust business within West Virginia and who maintains or arranges for custody within West Virginia of some or all of the property that has been transferred to the trust by the grantor, maintains records within West Virginia for the trust on an exclusive or nonexclusive basis, prepares or arranges for the preparation within West Virginia of fiduciary income tax returns for the trust, or otherwise materially participates within West Virginia in the administration of the trust. A trustee is not a qualified trustee if such trustee’s authority to make distributions of income or principal or both are subject to the direction of someone who, were that person a trustee of the trust, would not meet the requirements to be a qualified trustee.

            An “independent qualified trustee” is a qualified trustee who is not, and whose actions are not, subject to direction by (i) the grantor; (ii) any natural person who is not a resident of West Virginia; (iii) any entity that is not authorized to engage in trust business within West Virginia; (iv) the grantor’s spouse; (v) a parent of the grantor; (vi) any descendant of the grantor; or (vii) a sibling of the grantor.

            The WVUTC provides that a grantor may transfer assets to a qualified self-settled spendthrift trust and retain in that trust a qualified interest, and, except as otherwise provided in Article 44D of the Code of West Virginia, the provisions of § 505 of Article 44D of the Code of West Virginia do not apply to such qualified interest.[9]

            The WVUTC provides that the provisions of § 505 of Article 44D of the Code of West Virginia, creditor’s claim against grantor, shall continue to apply with respect to any interest held by a grantor in a qualified self-settled spendthrift trust other than a qualified interest.[10]

            The WVUTC provides that a transfer by the grantor to a qualified self-settled spendthrift trust shall not, to the extent of the grantor’s qualified interest, be deemed to have been made with intent to delay, hinder, or defraud creditors, for purposes of the Uniform Fraudulent Transfer Act of West Virginia (“WVUFTA”) merely because it is made to a trust in which the grantor retains a qualified interest and it was made without consideration. A transfer by a grantor to a qualified self-settled spendthrift trust may, however, be set aside under the WVUFTA or if the qualified affidavit contains a material misstatement of fact. Notwithstanding the foregoing, any transfer made to a qualified self-settled spendthrift trust that would be avoided under the WVUFTA as a transfer to avoid a creditor or for marital purposes will first be chargeable with the entire costs and expenses including attorney’s fees properly incurred by the trustee in the defense of the action or proceeding to set aside the transfer.[11]

            The WVUTC provides that a creditor of the grantor may bring an action under the WVUFTA to avoid a transfer to a qualified self-settled spendthrift trust or otherwise to enforce a claim that existed on the date of the transfer by the grantor to such trust within four years after the date of the grantor’s transfer to which such claim relates.[12]

            The WVUTC provides that a creditor will have only such rights with respect to a transfer by the grantor to a qualified self-settled spendthrift trust as are provided in § 44D-503a of the Code of West Virginia. No creditor and no other person is permitted to have any claim or cause of action against any trustee, trust adviser, trust director, or any person involved in the counseling, drafting, preparation, or execution of, or transfers to, a qualified self-settled spendthrift trust.[13]

            If a grantor makes more than one transfer to the same qualified self-settled spendthrift trust, the WVUTC provides:

            (i) A subsequent transfer made by the grantor shall be disregarded in determining a creditor’s claim with respect to determining whether a prior transfer was made by the grantor. The four-year limitations period that applies with respect to actions brought under the WVUFTA as to a subsequent transfer commences on the date that such subsequent transfer occurs with respect to each subsequent transfer by the grantor; and

            (ii) Any distribution to a beneficiary from a trust is deemed to have been made from the portion of the trust attributable to the latest transfer.[14]

            The WVUTC provides that an existing trust outside of West Virginia can be moved there if it meets all of the requirements of a protected qualified self-settled spendthrift trust and will be treated as having been formed on the date that the assets of the trust were moved to the previously serving non-West Virginia trustee by the grantor regardless of whether the affidavit requirement discussed above has been satisfied.[15] The problem, however, is that the terms of a West Virginia asset protection trust are so restrictive it would appear that few, if any, foreign asset protection trusts established by residents of West Virginia (or residents of other states) will be able to migrate to West Virginia.  The WVUTC will need to be corrected before any mass migration of out of state asset protection trusts should reasonably be expected.  Furthermore, West Virginia imposes a state income tax on non-grantor trusts further reducing the likelihood of a mass migration of out of state trusts to the jurisdiction.[16]

            The WVUTC provides that a vacancy in the position of qualified trustee that occurs for any reason (even if there is another trustee then serving) shall be filled in the following order of priority by a person eligible to a qualified trustee and who is:

            (i) designated pursuant to the terms of the trust instrument to act as successor trustee;

            (ii) designated by unanimous agreement of the qualified beneficiaries; or

            (iii) appointed by the court pursuant to any of the provisions of Article 44D-7 of the WVUTC.[17]

            The WVUTC provides that a vacancy in the position of independent qualified trustee that occurs for any reason (even if there is another then serving trustee) will be filled in the following order of priority by a person eligible to be an independent qualified trustee and who is:

            (i) designated pursuant to the terms of the trust instrument to act as successor trustee;

            (ii) designated by unanimous agreement of the qualified beneficiaries; or

            (iii) appointed by the court pursuant to any of the provisions of Article 44D-7 of the WVUTC.[18]

            The WVUTC provides that the irrevocability requirement under the statute at § 44-D-5-503b(c)(1) will be deemed as satisfied notwithstanding that one or more of the following rights, powers, and interests is reserved by the grantor:

            (i) A power of appointment, exercisable by the grantor by will or other written instrument effective only upon the grantor’s death, as long as such power is not exercisable in favor of the grantor’s estate or the creditors of the grantor’s estate (such provision was presumably included in the WVUTC to enable a grantor to make transfers to a trust that would not constitute completed gifts for federal gift tax purposes);

            (ii) The grantor’s qualified interest in the trust;

            (iii) The grantor’s right to receive income or principal pursuant to an ascertainable standard (as needed for health, education and maintenance as described in § 2041 of the Internal Revenue Code and the regulations thereunder;

            (iv) The grantor’s potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust that qualifies under § 664(d) of the Internal Revenue Code, and the grantor’s right, at any time, and from time to time, to release, in a writing delivered to the qualified trustee, all or any part of the grantor’s retained interest in such trust;

            (v) The grantor’s receipt each year of a percentage, not to exceed five percent (5%), of the initial value of the trust assets or their value determined from time to time pursuant to the trust instrument;

            (vi) The grantor’s right to remove a qualified trustee or independent qualified trustee and to appoint a new trustee who meets the same criteria under § 44-D-5-503b(a);

            (vii) The potential or actual use of real property by the grantor held under a qualified personal residence trust (within the meaning of § 2702(c) of the Internal Revenue Code);

            (viii) The potential or actual receipt or use of a qualified annuity interest by the grantor (within the meaning of § 2702 of the Internal Revenue Code);

            (ix) The ability of a qualified trustee, whether pursuant to discretion or direction, to pay, after the grantor’s death, all or any part of the grantor’s debts outstanding at the grantor’s death, the expenses of administering the grantor’s estate, or any federal or state estate, inheritance, or death tax imposed on or with respect to the grantor’s estate; and

            (x) A grantor’s potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on trust income, or the direct payment of such taxes to the applicable tax authorities, pursuant to a provision in the trust instrument that expressly provides for the direct payment of such taxes or the reimbursement of the grantor for such tax payments.[19]

            The definition of a qualified self-settled spendthrift trust requires at least one beneficiary other than the grantor be eligible to receive distributions of income and/or principal if the grantor is eligible to receive such distributions. Thus, the references to the grantor’s ability to retain an interest in a grantor retained annuity trust and a qualified personal residence trust are puzzling at best because the grantor is required to be the sole beneficiary of such a trust during the initial term of such trusts. This definition would also seem to greatly limit a grantor’s ability to use a charitable remainder trust under the act.

            The WVUTC provides that a beneficiary who has the right to withdraw his or her entire beneficial interest in a trust shall be treated as its grantor to the extent of such withdrawal right, when such right to withdraw has lapsed, been released, or has otherwise expired, without regard to the limitations otherwise imposed by subsection (b), § 505 of Article 44D.[20]

            In several private letter rulings the Service takes the position under §§ 678(a)(1) and (a)(2) of the Internal Revenue Code that a powerholder is treated as the owner for income tax purposes of all or a portion of a trust since the powerholder possesses or possessed a Crummey Power over such property.[21]

            Under § 678(a), an individual who is not the grantor is treated as the owner of any portion of a trust if such individual has a power exercisable solely by the individual to withdraw trust corpus or the income therefrom.  Additionally, if that person previously released or modified his or her withdrawal power and thereafter retains such control over the trust which would otherwise make the grantor the owner under §§ 671 to 677 of the grantor trust rules, § 678(a) will continue to treat the powerholder as the owner.  Use of the term “control” in § 678 should be read in light of the grantor trust rules and viewed with an expansive meaning (i.e., “within the principles of sections 671 to 677”).

            Section 678(a)(2) uses the terms “release” and “modify” which seem to indicate the need for an overt act on the part of the powerholder for the statute to apply. Conversely, most Crummey powers of withdrawal generally lapse by operation of the terms of the trust instrument.  Compare also, §§ 2041(b)(2) and 2514(e), provisions which specifically use the term “lapse.”  Under these provisions it would seem inaction may be necessary to claim the desired tax benefits.

            Section 678(b) provides that the general rule of § 678(a) shall not apply with respect to a power over income if the grantor of the trust is otherwise treated as the owner under any other provision in the grantor trust rules.  Consequently, § 678(b) resolves any potential overlap in favor of treating the grantor, rather than a beneficiary, as owner of the trust income. Thus, assuming any other provision of the grantor trust rules initially causes the grantor to be treated as the owner of a trust, the existence of a Crummey power of withdrawal or a 5 and 5 power in one or more beneficiaries should not change this treatment due to the ordering rule of § 678(b).[22]

            However, the holding of two earlier private letter rulings, 8142061 and 8545076, may be based on a different theory from the rulings cited above.  Some commentators believe these earlier rulings could be read to hold that a powerholder who allows a Crummey power of withdrawal to lapse is treated as having withdrawn the assets subject to the withdrawal right and to have recontributed such assets to the trust.[23]  Under this theory, a powerholder is treated as the new grantor of the trust upon the lapse of the Crummey power.  Furthermore, the original grantor cannot be taxed on the income earned by a grantor trust after the lapse because he is no longer considered the grantor of the trust.  This “recontribution” theory has merit under § 505(b)(1) of the UTC where the beneficiary possessing the withdrawal power “is treated in the same manner as the settlor of a revocable trust to the extent of the property subject to the power.”  Perhaps the counter argument to this theory is that § 505(b)(2) of the UTC provides “upon the lapse, release, or waiver of the power, the holder is treated as the settlor of the trust only to the extent the value of the property affected by the lapse, release, or waiver exceeds the greater of the amount specified in Section 2041(b)(2) or 2514(e)…or Section 2503(b).” Nevertheless, this argument may be weak because § 505 clearly changes the common law rule that was fundamental to the manner in which general powers of appointment have been treated for creditor rights purposes.  Both Crummey powers and 5 and 5 powers are inter vivos general powers of appointment granted to a beneficiary of a trust. At common law an inter vivos general power of appointment is considered an authorization to acquire property and not an interest in property.  It is not considered the same as ownership.[24]  Section 13.2 of the Restatement of the Law Second Property 2d (Donative Transfers) reflects this common law rule.  It provides:

            Appointive assets covered by an unexercised general power of appointment, created by a person other than the donee, can be subjected to payment of claims of creditors of the donee, or claims against the donee’s estate, but only to the extent provided by statute.

            Also of note is that West Virginia has not repealed the statutory rule against perpetuities and instead follows the Uniform Statutory Rule Against Perpetuities.[25] West Virginia has a directed trust statute, albeit limited.[26]

CONCLUSION:

            While it appears to be a step in the right direction the WVUTC also seems highly problematic on many levels and is not likely to cause a significant influx of trust business to the state of West Virginia any time soon. The legislation will need to be modified before West Virginia becomes an attractive jurisdiction for planners to recommend. The major issues to address are the ability of a grantor to retain powers that will cause the grantor’s gifts to the trust to be considered incomplete under the what appears to be the current position of the Internal Revenue Service and the ability of the grantor to use certain types of trusts that are common in the estate planning process such a grantor retained annuity trusts and qualified personal residence trusts while benefiting from the asset protection features otherwise provided to a grantor under the act. Other less salient issues are present as well such as the state income that will apply to non-grantor trusts in West Virginia and the potential change in the taxpayer who is considered the grantor of the trust under the grantor trust rules when a Crummy power is granted to a beneficiary and after it lapses and the original grantor retained certain powers or interests over or in the trust that would otherwise cause grantor trust status to the original grantor.

Jonathan E. Gopman is chair of the trusts and estates practice at Akerman LLP, a fellow of the American College of Tax Counsel and a member of the American Bar Association and the ABA’s Section of Real Property, Trust and Estate Law. He is co-chair of the Asset Protection Planning Committee of the RPTE Section of the ABA (for the 2015-2016 bar year). He is a fellow of the American Bar Foundation and an adjunct professor of taxation at Ave Maria Law School in Naples, Florida where he also serves on the school’s curriculum planning committee and served as the chair of the steering committee for the school’s inaugural Estate Planning Day Conference held April 28, 2014. He continues to serve as a member of the steering committee for this conference. Jonathan is a commentator on asset protection planning matters for Leimberg Information Services, Inc., a member of the legal advisory board of Commonwealth Trust Company in Wilmington, Delaware, and a member of STEP. He is AV rated by Martindale Hubbell. Jonathan is the co-author of the revised version of the BNA Tax Management Portfolio on Estate Tax Payments and Liabilities. He has been interviewed for, and quoted in, numerous articles in well-known publications such as the New York Times, Bloomberg Magazine, Forbes Magazine, Wealth Manager Magazine and the Elite Traveler. In 2009, 2010, 2011, 2012, 2013, 2014 and 2015 Jonathan was selected for inclusion in The Best Lawyers in America® in the specialty of trusts and estates, he was selected as a Florida Super Lawyer for 2010, 2011, 2012, 2013, 2014, 2015 and 2016 and he was included in the Florida Trend Legal Elite for 2010 and 2011. In the December 2005 and 2007 issues of Worth Magazine Jonathan was recognized as one of the top one hundred estate planning attorneys in the country. Jonathan is considered one of the leading experts in the world on asset protection planning. Jonathan is the originator of the idea for the statutory tenancy by the entireties trust (commonly referred to as a “STET,” a termed he coined) that is set forth in § 3574(f) of Title 12 of Chapter 35 of the Delaware Statutes. This statute was enacted into law in Delaware in July of 2010 and became effective on August 1, 2010. A substantially similar version of the statute in Delaware enabling the creation of a STET was passed in Nevis by the Nevis Island Assembly on May 27, 2015. Jonathan was the primary draftsperson of that statute for the government of Nevis. Jonathan’s articles, commentaries and presentations have also served as the impetus for changes to the trust laws of several states. In calendar years 2011 through 2015, Jonathan assisted the government of Nevis in revising its trust laws set forth in the Nevis International Exempt Trust Ordinance by rewriting a significant portion of the Ordinance. This legislation was enacted on May 27, 2015 by the Nevis Island Assembly.

Michael A. Sneeringer is an associate in Akerman LLP’s Naples office. He practices in the areas of estate planning, probate administration, asset protection planning, and tax law. He serves as a Co-Vice Chair of the Asset Protection Planning Committee of the Real Property, Trust and Estate Law Section of the ABA (for the 2015-2016 bar year) and is one of the current Fellows in the Real Property, Probate and Trust Law Section of the Florida Bar’s Fellowship Program. He earned his B.A. in Political Science from Washington & Jefferson College, his J.D. from St. Thomas University School of Law and his LL.M. in Estate Planning from the University of Miami School of Law

Alan S. Gassman is an attorney practicing in Clearwater, Florida with the firm of Gassman Law Associates, P.A. Mr. Gassman’s primary practice focus over the past 26 years has been the representation of high net worth individuals, physicians and business owners in estate planning, taxation, and business and personal asset structuring. Mr. Gassman speaks often for national and state sponsored continuing education programs and publishes several articles each year in publications such as such as BNA, Estates and Trusts Magazine, Estate Planning Magazine, The Florida Bar Journal and Leimberg Estate Planning Network (LISI).


[1] See Title 91, Chapter 9, Article 15. Code of W.V. §§ 44D-5-503a, 44D-5-503b and §44D-5-503c (and amending and reenacting § 44D-5-505).

[2] Our apologies to fans of the Thundering Herd!!!!

[3] See Code of W.V. 44D-1-103(r).

[4] See Gassman and Daniels, The Affability of Affidavits in Domestic Asset Protection Trust Planning, LISI Asset Protection Planning Newsletter #293 (Apr. 28, 2015) at http://www.leimbergservices.com, for a discussion of the benefits and detriments of jurisdictions that require such affidavits and potentially put grantors and advisors in jeopardy of civil and criminal liability.

[5] See e.g., Del. Code §3570(10)b; Tenn. Code § 35-16-111; and Nev. Rev. Stat. § 166.040.

[6] See e.g., Reg. § 25.2511-2(b); PLRs 9030005, 200148028, 200247013, 200502014, 200612002, 200647001, 200715005, 200729025, 200731019 and 200731019. See also Wells, Domestic Asset Protection Trusts-A Viable Estate and Wealth Preservation Alternative, 77 Fla. Bar J. 44 (May 2003); and Fox and Huft, Asset Protection and Dynasty Trusts, 37 Real Prop. Prob. & Tr. J. 287 (Summer 2002).

[7] For an additional discussion of some of the practical issues created by this memorandum and some revisions to the trust agreement which may have allowed the settlors to achieve their goals in establishing the trust, see Gift Taxes: Chief Counsel Memorandum Switches IRS Position on Completed Gifts, 54 DTR G-6 (Mar. 20, 2012); and Zaritsky, et. al, Chief Counsel Advisory 201208026, LISI Estate Planning Newsletter #1936 (March 6, 2012) at http://www.leimbergservices.com. See also Rubin, CCM 201208026: Using Testamentary Powers of Appointment to Create Incomplete Gifts-The IRS Throws Down the Gauntlet, LISI Estate Planning Newsletter #1959 (May 8, 2012), at http://www.leimbergservices.com; Aucutt, Ron Aucutt’s Top Ten Estate Planning and Estate Tax Developments of 2012, LISI Estate Planning Newsletter #2043 (December 31, 2012) at http://www.leimbergservices.com; and Gassman, et. al, Planning After IRS Memo 201208026: How Foreign Can Creditor Protection Trust Laws Get?, LISI Asset Protection Planning Newsletter #207 (Sept. 11, 2012) at http://www.leimbergservices.com.

[8] See Code of W.V. § 44D-5-503b(c)(4).

[9] See Code of W.V. § 44D-5-503a(a).

[10] See Code of W.V. § 44D-5-503a(b).

[11] See Code of W.V. § 44D-5-503a(c).

[12] See Code of W.V. § 44D-5-503a(d).

[13] See Code of W.V. § 44D-5-503a(e).

[14] See Code of W.V. § 44D-5-503a(f).

[15] See Code of W.V. § 44D-5-503a(g).

[16] See Code of W.V. § 11-21-7(c).

[17] See Code of W.V. § 44D-5-503c(a).

[18] See Code of W.V. § 44D-5-503c(b).

[19] See Code of W.V. § 44D-5-503c(c).

[20] Code of W.V. § 44D-5-503c(d).

[21] See e.g., PLRs 201216034, 201039010, 200747002, 200238012, 200238011, 200238010, 200238009, 200238008, 200238007, 200238006, 200238005, 200238004, 200235009, 200235008, 200235007, 200147044, 200022035, 200011054, 200011055, 200011056, 200011058, 9812006, 9810008, 9810007, 9810006, 9809004, 9809005, 9809006, 9809007, 9809008, 9801025, 9745010, 9739026, 9625031, 9541029, 8142061, 8521060, 8545076, 8809043, 8805032, 8701007, 9034004, 9320018 and 9311021.  See also Rev. Rul. 67-241, 1967-2 CB 225.

[22] See e.g., PLRs 200729005, 200729007, 200729008, 200729009, 200729010, 200729011, 200729013, 200729014, 200729015, 200729016, 200730011, 200606006, 200603040, 9321050, 9309023, 9141027, 8308033, 8326074, 8142061, 8103074, and 7909031. For a more detailed analysis of this subject see Gopman and Rizzo, PLRs 200730011, 200729005, 200729007, 200729008, 200729009, 200729010, 200729011, 200729013, 200729014, 200729015, 200729016 – Grantor Treated as Owner of Entire Trust, LISI Estate Planning Newsletter #1157 (Aug. 1, 2007) at http://www.leimbergservices.com; and Leimberg, PLR 200730011- Grantor Trust Ruling, LISI Estate Planning Newsletter #1156 (July 31, 2007) at http://www.leimbergservices.com. See also e.g., PLR 201235006 (“Under § 678(a), the withdrawal rights granted to the beneficiaries result in the treatment of the beneficiaries as owners of the portions of [the trust] subject to their respective withdrawal powers, unless as provided in § 678(b), the grantor is treated as the owner. If it is determined that [the trust] is a grantor trust under §675(4) with respect to Taxpayer, then it is a grantor trust in its entirety with respect to Taxpayer notwithstanding the withdrawal rights held by the beneficiaries that would otherwise make them owners under § 678(a)”).

[23] See Early, Income Taxation of Lapsed Powers of Withdrawal: Analyzing their Current Status, 62 J.Tax’n 198 (Apr. 1985); Mulligan, Defective Grantor Trusts Offer Many Tax Advantages, 19 E.P. 131 (May/June 1992).

[24] See e.g., Irwin Union Bank and Trust Company v. Long, 312 N.E.2d 908 (Ind. App. 1st Dist., 1974).

[25] See Code of W.V. § 36-1A-1(a).

[26] See Code of W.V. § 44D-8-808. See also Nenno, Directed Trusts: Making Them Work, 38 Est. Gifts & Tr. J. 159 (Mar. 14, 2013).