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An Analysis of Wyoming Asset Protection Provisions

Oct 5, 2021 | Podcasts

“An Analysis of Wyoming’s Asset Protection Provisions,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

I’m Stacy Singer, an ACTEC Fellow from Chicago. Wyoming has had recent changes to its state law primarily related to asset protection in the Wyoming Uniform Trust Code. To update us on these recent changes I’m joined today by ACTEC Fellow George Karibjanian of Boca Raton, Florida. Welcome, George.

Thanks, Stacy. As many attorneys who practice in the asset protection field are aware, there are now 19 jurisdictions in the United States that have adopted asset protection trust legislation. It is no longer simply trust law, but now it’s become a very influential marketing tool as the states are now competing against each other to obtain business. Wyoming, seemingly, has been very aggressive over the last few years in trying to get this business and in changing their laws to entice business to come to Wyoming. What we’re going to talk about here is a highlight of some of the advantages, or maybe even perceived advantages, of Wyoming law, and are they really the destination to which business should move.

Many of the marketing tools from Wyoming trust companies emphasize the advantages that seemingly Wyoming has over every other jurisdiction. Well, it’s not necessarily certain that’s accurate. Wyoming is a Uniform Trust Code jurisdiction, but so are 34 other jurisdictions in the United States. In fact, the UTC has taken control in more than two-thirds of jurisdictions, and I might even argue it is now the common law with respect to trust law in the United States.

Advantages of Wyoming Trusts

Wyoming does have advantages. They have a very long rule against perpetuities, although not as long as, say, New Jersey, Delaware, Virginia, Maryland, and D.C., for example, which have abolished the rule against perpetuities. With respect to trusts under Wyoming law, following the Uniform Trust Code, Wyoming has deviated in one area which is very important, especially for those who wish to set up a private or hidden trust. And that is in the notice requirements citing UTC 813.

As many UTC state practitioners are aware, there are certain notices that are required to be sent to the qualified beneficiaries, and also annual reports, or as in Florida- we call them accountings, are required to be sent to all of the qualified beneficiaries. The way the UTC works, if you’re not in a UTC jurisdiction, is that many of the provisions are what we call mandatory provisions and they are found in UTC section 105. That means that the trust cannot override those particular provisions. In most UTC jurisdictions, the notice provisions under section 813 are mandatory.

Under Wyoming’s version of the UTC, in Wyoming statutes 4-10-105, there is no mention of the 813 requirements. Therefore, it would be possible in Wyoming to override within the trust agreement any of the notice provisions and any of the accounting provisions. That leads to privacy, which entices many wealthy families who would like to set up trusts for secondary generations, but not have the notice requirements that are usually associated.

Beneficiary Representation

Another area where it’s a little surprising Wyoming has not broadened its provision was with respect to who can represent a beneficiary in a trust proceeding, in the sense of virtual representation. For example, in UTC 302, it is provided that the holder of a testamentary general power of appointment may represent the takers in default over the power. That is the provision that Wyoming has followed.

Interestingly, Maryland and D.C., for example, broadened that to not just say testamentary general power, but any broad special power, meaning a power that is exercisable in favor of anybody other than the powerholder, the powerholder’s creditors, the powerholder’s estate, or the creditors of the powerholder’s estate. A state like Florida, my home state, says any power of appointment, special or general, would apply. So that’s very interesting to see.

Other Trust Provisions

Wyoming also does have what we call the quasi DAPT (Domestic Asset Protection Trust) provisions. And that is the following. It’s understood that if someone created an inter vivos QTIP trust, after the death of the donee spouse, the trust could provide for returning interest back to the donor spouse. Now, the treasury regulations are very clear that that is not a retained interest for sections 2036 and 2038. What was up for debate was whether that is something that could possibly be causing or sustaining inclusion under 2041. Several states have adopted what’s called a quasi DAPT provision to say: “no, in that instance it’s not going to be subject to the claims of the settlors’ creditors.”

Wyoming has the statute, but that’s all that Wyoming seems to have. They do not have any provisions that would protect a recurring interest, say, in a SLAT, which is very popular at this time of year. Wyoming also has self-settled spendthrift trust legislation. And those statutes pretty much follow the general rule that there must be a Wyoming trustee, there must be a solvency affidavit filed. So that’s pretty much standard.

So, with those – one last difference I should bring up – many states have, for grantor trusts, a grantor trust reimbursement provision that would exclude any such payments coming back to the grantor from this grantor’s creditors. Wyoming does not seem to have that. Perhaps that’s in the works, but you would think that a state that is forward-thinking should have that.

Wyoming-Directed Trusts

Switching to Wyoming directed trusts, one thing to note, Wyoming has a pretty substantial directed trust provision, which would allow an excluded trustee from a trust advisor to escape general liability. What I found interesting is that Wyoming does not seem to have that with respect to trustee-to-trustee direction.

And by that, I mean the following. A state like Delaware has two separate statutes, 12 Delaware Code 3313 and 12 Delaware Code 3313A. 3313 is the standard directed trust provision for a trust advisor, but 3313 would allow the same to occur if one trustee directs an action away from the other trustee. Wyoming does not have a specific provision for that. So that is something to take note.

Wyoming Private Trusts and LLC’s

The last thing I’d like to discuss would be in Wyoming; two things, actually. Wyoming private trust companies. Many states are adopting private trust company language so that you can sort of keep things in house. You don’t have to retain the big trust company, you can have the family controlling what it needs to control. Wyoming does not have the least expensive capital requirement. That seems to still be in New Hampshire and South Dakota at a $200,000 minimum capital. Wyoming requires a minimum of $500,000 for capital, plus a surety bond of at least $1 million.

The last thing then we’d like to discuss are Wyoming limited liability companies. This is a very hot issue in planning, given the fact that many states have adopted the revised Uniform Limited Liability Company Act. And in that, a membership interest in a limited liability company is protected from creditors by what’s called charging order protection. In other words, if a judgment is reached, a creditor cannot take the membership interest from the debtor. All the creditor receives is a charging order, which means that they would be entitled to distributions, but the debtor continues to own and vote on the interest.

Some states allow that if nothing is paid on the charging order, that the creditor can then foreclose on the interest. States with asset protection designs have statutorily prevented that from occurring. They say that the charging order is not only the exclusive remedy for a creditor, but foreclosure action is not allowed. That is present in the Wyoming statute. What is not present in the Wyoming statute is whether this applies to a single-member limited liability company. States like Delaware have a specific provision stating, up front, that their charging order protection is available for single-member LLCs.

Florida is the reverse. Florida says that such protection is not available. Other states are like Wyoming where it’s silent. And it will be up to the courts to decide. It was discussed yesterday that Missouri and, as I discovered, Georgia, have assumed the protection is available for a single-member limited liability company. It is unclear whether that’s present in Wyoming. Stay tuned. We’ll see if that is addressed. And with that, that is a brief overview of some of the advantages of Wyoming law with respect to asset protection.

Thank you, George, for that update on Wyoming’s asset protection provisions.

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