The United States is in hot competition with international financial centers and offshore tax havens for a slice of the ever-growing big money wealth management business.
In the last several years, some 17 states in the U.S. have enacted highly specialized asset protection trust law to go head to head with their global competitors. And each other.
These new trust laws combine the typical law of trusts as used in estate planning with special features to protect trust assets from the creditors of both the funder of the trust, called the grantor, and the trust’s beneficiaries.
The state laws vary considerably. So many professionals using asset protection trusts consider some states in a more favorable light than other states.
States as Alaska, Delaware, South Dakota, and Nevada have gotten a lot of press. But Tennessee, Ohio, Michigan, Missouri, Utah, Oklahoma, Mississippi, Hawaii, Rhode Island, Arkansas, Wyoming, Virginia, West Virginia Michigan, and New Hampshire also are in the competition.
If all you had in the world was $1 million standing between you and being destitute would you be interested in protecting your $1 million?
An asset protection trust in the right jurisdiction can go a long way to cutting off creditors, dealing with divorces, reducing taxes, and passing on a legacy.
In the past, people concerned about their financial safety and security were limited to using jurisdictions outside the United States for asset protection trusts.
Lots of U.S. professionals, financial institutions, and courts were decidedly against wealth protection for various legal and marketing reasons.
Well, money talks.
The increasing popularity of the offshore jurisdictions woke the U.S. financial industry up to the fact there were fees to be made.
The prospect of earning gobs of fees from money under management transformed the distaste for asset protection by the U.S. financial industry into a hearty appetite.
It took a little while, but the US wealth industry woke up to the fact that by offering asset protection—financial and legal– fee paying money can flow from the four corners of the earth, and from within the United States, out of the grubby hands of competitors and into theirs.
Besides Congress unmercifully squeezing the offshore financial centers, some of the states responded by creating a suitable legal environment that mirrored the offshore jurisdictions.
A one-two punch to the offshore competition.
Slowly at first, then more states enacted legislation for protecting assets held by trust.
The result is that the biggest tax haven in the world—that is the United States– also is on track to be the world’s biggest asset protection country.
Still missing from the wealth protection menu by the states was a legal form of the foundation used internationally.
While charitable foundations are widely-used in the US, they were not allowed for business purposes like the offshore foundations.
The foundation in international planning is a favored entity for coordinating and protecting cross-bordered family or other closely held business interests.
Playing a bit of catch-up in garnering a reputation as a player, New Hampshire boldly enters the fray by enacting its Foundation Act.
The first state to do so.
A New Hampshire Foundation is a separate legal person for litigation and other legal matters.
But for U.S., federal tax purposes, the New Hampshire foundation could be a trust although it might also be structured to be taxed as a corporation.
If taxed as a corporation, it would be a legal entity with trust attributes for management, but not subject to the bewildering complexities of trust tax law like the grantor trust rules.
For income tax, succession, or estate planning this is powerful stuff.
New Hampshire wisely enacted domestication law as part of its foundation legislation.
This way foreign foundations formed in offshore tax havens can easily relocate into New Hampshire.
Asset protection is a competitive business which each jurisdiction is doing what it can to differentiate itself from its competitors.
New Hampshire by legislating its new legal form of foundation just upped the ante on the other states for wealth protection business.
Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.