Alaska's Unique Benefits
Alaska's laws are among the most progressive in the U.S., providing a number of unique estate planning and tax savings benefits not available in most other states. Alaska was the first state to pass legislation authorizing self-settled domestic asset protection trusts (commonly called "Alaska Trusts") and continues to be in the forefront in updating and improving its statutes to provide favorable protections for individuals, families, and family-owned entities. Alaska has become one of the top states of choice for the location of trusts and family limited liability companies (LLC).
Alaska USA Trust Company has the experience and ability to help both residents and non-residents of Alaska take advantage of Alaska's unique benefits. What follows is a brief overview of some of these benefits. To decide whether or not an Alaska Trust or LLC is appropriate for your circumstances, you must consult with a knowledgeable estate planning attorney.
Note: Alaska Statutes referenced in this site can be viewed at the State of Alaska Infobase website. These references are provided for convenience. Please consult with an estate planning professional about your personal circumstances.
14 state regulatory comparison chart
Comparison of the Domestic Asset Protection Trust Statutes [pdf download]
Alaska Trust Legislation
The Alaska Trust Act became effective on April 2, 1997. The two major focal points of the Trust Act were the authorization of domestic self-settled asset protection trusts (as an alternative to offshore trusts) and the effective elimination of the Rule Against Perpetuities thereby enabling "dynasty" or "perpetual" trust planning. [A.S.13.36; A.S.34.27.051; and A.S.34.40.110 - .115]
Alaska has some of the strongest asset protection laws in the country. Alaska bars all creditors from attaching the trust assets before distributions are made to a beneficiary. This includes, but is not limited to, claims by tort, creditors, and ex-spouses for alimony or child support. Moreover, a 2006 amendment specifically provides that a beneficiary's interest in a trust is not considered property subject to division in a divorce or dissolution. Alaska has not adopted the Uniform Trust Code.
The term "Alaska Trust" is frequently applied to both the Alaska Asset Protection Trust and the Alaska Dynasty Trust. Often an Alaska Trust will contain both types of planning, but some Alaska Trusts are designed solely for asset protection and others solely for multi-generational planning. Both types of trusts are discussed below.
In 1998, Alaska made another major improvement to its trust laws by enacting the Alaska Community Property Act. [A.S.34.77.010 - 34.77.995].
Alaska Asset Protection Trusts
An Alaska Asset Protection Trust is an irrevocable trust which enables the grantor of the trust to not only be a beneficiary, but also to have protection from creditors. This is a departure from prior law which generally did not permit creditor protection. For a grantor to receive the asset protection contemplated by the Alaska Trust Act, the grantor's transfer of assets to the trust must not be a fraudulent transfer and the Situs Requirements set out below must be met.
Alaska's statutes require that a grantor sign an "Affidavit of Solvency" prior to contributing assets to an Alaska Trust. Additionally, although not required by the statute, a general rule of thumb used by Alaska estate planning professionals is that no more than 50% of the grantor's net worth should be contributed to the trust.
In addition to providing asset protection for grantors, Alaska Asset Protection Trusts can also be used in place of prenuptial agreements, for estate freezes, and can be designed as grantor trusts or nongrantor trusts (the latter of which can take advantage of the fact that Alaska has no state income tax on trusts). Alaska Asset Protection Trusts are also frequently drafted to include perpetual or dynasty planning which is discussed below.
Alaska Dynasty Trusts (also called Perpetual Trusts)
An Alaska Dynasty Trust is an irrevocable trust intended to benefit successive generations. Grantors of such trusts generally have two goals in mind: (a) protecting the trust assets from transfer taxes (gift tax, estate tax, and generation skipping tax) for as long as possible; and (b) protecting the trust assets from claims of the beneficiaries' creditors by taking advantage of Alaska's strong asset protection statutes as discussed above.
Alaska is one of the premier jurisdictions for dynasty trusts. In the past, the general rule in the U.S. was that a trust had to be terminated by the end of a period of time set by the "Rule Against Perpetuities" (which roughly meant termination when grandchildren became beneficiaries). Distribution of the trust assets to the beneficiaries also meant that such assets were includable in the beneficiaries' estates for transfer tax purposes and became exposed to creditors' claims. Alaska, however, has abolished its Rule Against Perpetuities except if a trust contains a power of appointment, in which case the perpetuities period runs for 1,000 years. This means that assets held within the trust have the opportunity for substantially more growth than if they were subject to transfer taxes at succeeding generations.
For a Dynasty Trust to come under Alaska jurisdiction, it must also meet the Situs Requirements set out below. Dynasty planning may be included within an Alaska Asset Protection Trust (in which case the grantor will be a beneficiary) or it may stand alone (in which case the grantor will not be a beneficiary).
Alaska Community Property Trusts
An Alaska Community Property Trust is a revocable trust that enables a married couple in a non-community property state to obtain the benefits available to married couples living in community property states. One of the primary benefits is a double step up in basis on the death of the first spouse.
Assuming a decedent owned property which had appreciated prior to death, a "step up" in basis means the tax basis of the property is raised to match the value of the property on the date of the decedent's death, lowering the taxable gain on the later sale of the property. Married couples living in separate property states are allowed a step up in basis only for the deceased spouse's half of jointly owned property. Married couples living in community property states, on the other hand, are allowed a "double" step up in basis - i.e., both the deceased spouse's half and the surviving spouse's half are stepped up.
In addition to authorizing Community Property Trusts, Alaska is unique in the U.S. in that it is the only state to permit couples to selectively choose which of their assets are to become community property. Alaska's community property benefits are available to non-residents if the trust complies with the Alaska Situs Requirements.
Alaska Community Property Trusts are not appropriate for everyone. Couples who might benefit from an Alaska Community Property Trust include couples in long-term stable marriages who own valuable real estate, businesses or stock with low basis. Couples in which one spouse is terminally ill may also benefit if they currently hold joint title to their low basis property or if the ill spouse is anticipated to survive for at least one year.
Irrevocable Life Insurance Trusts
Irrevocable Life Insurance Trusts, when designed as Alaska Asset Protection Trusts or Alaska Dynasty Trusts, provide a powerful way to leverage the advantages of Alaska trust law. This is particularly true given that general powers of appointment are fully protected from claims that creditors may have against the beneficiaries who hold the powers.
Alaska Situs Requirements
Statutory requirements necessary to bring a trust within the jurisdiction of Alaska law are set out in [A.S.13.36.035(c)] and are summarized as follows:
Alaska Limited Liability Companies
Alaska's LLC statutes are among the top-rated in the country for use in conjunction with estate planning and asset protection. Alaska revised its LLC statutes in 2000 to improve the protection that LLC members would have from their individual creditors. Among other things, the legislation made the charging order the exclusive remedy for such creditors. [A.S.32.11.340, A.S.10.50.380] The statutes also expressly prohibit the foreclosure of an LLC interest. Furthermore, a court cannot order the judicial dissolution of an LLC unless the court finds it impossible for the entity to carry on the purpose of the enterprise.
Other benefits of utilizing Alaska LLCs are the ease and low cost of setting up and maintaining them and the fact that Alaska has no state personal income tax. Given their advantages, Alaska LLCs are frequently used in conjunction with Alaska Asset Protection Trusts, Alaska Dynasty Trusts, and Alaska Community Property Trusts to provide an extra layer of protection and/or as a mechanism for controlling the investments of the trusts.
The Alaska Limited Liability Company Act is [A.S.10.50]. More information about LLCs in Alaska can be found at the Division of Corporations, Business, and Professional Licensing website.
Private Placement Life Insurance
In addition to its very favorable trust and LLC laws and lack of a state income tax, Alaska has one of the lowest premium taxes in the United States (1/10th of 1%) on premiums over $100,000, making it one of the premier jurisdictions for the purchase of private placement life insurance. [A.S. 21.09.210(m)]
State of Alaska Division of Insurance.
Trust Protectors and Trust Advisors
Both Trust Protectors and Trust Advisors are authorized by Alaska statutes and given limited liability.
Alaska USA Trust Company's Services as Trustee