I recently decided to do a side-by-side comparison of the best trust jurisdictions within the United States. When I did the original video that looked at the overall picture of the best trust jurisdictions, we examined Wyoming, South Dakota, Nevada, Alaska, and Delaware. These are really known as the five best trust jurisdictions—some for actual good reasons, and some for reasons that might not justify their top-five status.
When I was going through that list in the video of top jurisdictions, we looked at the entire spectrum. Now, I’m going to focus on more specific aspects that are important to the makeup of a strong trust jurisdiction. We’re going to look at domestic asset protection trusts. So, let’s get started.
I’m going to share my screen with you because I want you to be able to see this chart that I’m looking at. Throughout these videos, when I’m talking about trust jurisdictions and doing a side-by-side comparison analysis, I find it useful to look at other people’s work who have put together analyses of all these things that make up these strong trust jurisdictions.
There’s an attorney in Las Vegas named Steve Oshins. Steve is known for being a very capable asset protection trust attorney. He focuses on Nevada trust planning and has done a great job marketing Nevada as a strong jurisdiction, along with other attorneys and trust companies there. I believe his father started the law firm, and he himself was an asset protection attorney who did a lot of work in that space. They have a long history of working in different jurisdictions and comparing them.
Steve Oshins comes out with what’s called the “Annual Domestic Asset Protection Trust State Rankings Chart.” I don’t know if he actually comes out with it every single year, but this is the most recent one—the 11th annual—and you can find it on his website at oshins.com. We’ll include that website link in the about section and comments.
As you can see here, taking a quick look, we have 19 states listed on this chart. These are the 19 states that, at the time of this chart, have domestic asset protection trust laws. What does that mean? It means that you can set up an irrevocable trust for your own benefit, move your own assets into that trust, and have those assets protected from lawsuits, creditor claims, divorcing spouses, etc. Not every state allows someone to do that. Historically, you had to rely on someone else to set up an irrevocable trust for your benefit, usually moving an inheritance into that trust when, for example, your parents passed away and left it to the kids in trust. But now, we have this opportunity to set up a trust for our own benefit for asset protection purposes.
I have videos about how these trusts are structured, but we want to focus on what makes a good asset protection trust jurisdiction. Here we see Nevada is ranked number one, and South Dakota is number two. As we go through this, you’ll learn that there’s almost no difference between Nevada and South Dakota. I’ll also talk about a few things not listed on this chart that I believe push South Dakota above Nevada.
Ohio is ranked third. A lot of people aren’t familiar with Ohio as a strong trust jurisdiction, but they’ve made great strides in the last five to ten years and now have strong asset protection trust laws. Then we have Missouri, Connecticut, Delaware, and Tennessee. A lot of people think Delaware is the best trust jurisdiction, but it really isn’t. At one point, it might have been, but they haven’t continued to update their trust laws like other states have. The same goes for Alaska, ranked eighth. Alaska was at the forefront of updating trust laws 20, 30, or 40 years ago, but they’ve really fallen behind since then.
Scrolling down, we see Wyoming at number 12. Wyoming has a great reputation, but it’s not really deserved. We can go into the reasons why, but for now, let’s scroll back to the top and start going through the details.
We’ll start with the statute of limitations for future creditors. There’s a balancing act between when a person can move assets to the trust without defrauding a creditor. So, what is that statute of limitations for a future creditor? Let’s say you move assets into a trust, and later, you end up with a personal creditor claim against you. A creditor can challenge this by bringing a claim that you fraudulently conveyed assets to that trust to defraud the creditor. A future creditor has two years to bring a suit against you, claiming that you fraudulently conveyed these assets to the trust to avoid a personal creditor claim. In Nevada and South Dakota, this statute of limitations is two years. In Ohio, it’s one and a half years, which is the shortest statute of limitations you’ll see. Other states have four years or two years; Delaware has four years, which is one of the reasons it’s not ranked higher. Wyoming also has a four-year statute of limitations.
Next is the statute of limitations for pre-existing creditors. If you already have a pre-existing creditor, you still have the ability to do asset protection trust planning. For Nevada and South Dakota, the statute of limitations is similar—two years, or if the creditor is given notice, they only have six months to bring a suit against you after discovering the transfer. Delaware and Alaska have a four-year statute of limitations, or one year if you give the creditor notice. Wyoming is the same—four years or one year. This is not advantageous when you have options like two years or even one and a half years.
The next column looks at the spouse/child support exception creditors. What does this mean? Some state laws will honor a creditor claim against you in certain instances, known as exception creditors. Nevada is very strong in this, saying there are no exception creditors—they won’t honor a claim from a divorcing spouse, alimony, or child support if you’ve moved your assets into a trust. I personally have a problem with this because if you have an existing divorce or child support claim, I believe you should be responsible for that. South Dakota, on the other hand, says they have exception creditors, but only if you are indebted to a personal creditor (e.g., divorcing spouse, alimony, or child support) at the time of the transfer. If you aren’t subject to any personal creditor claim when you transfer assets into the trust, then there’s no problem. Delaware, Tennessee, Alaska, and Wyoming all have exception creditors, so someone with a personal creditor claim related to divorce, alimony, or child support can pierce the trust.
The next column looks at pre-existing torts and exception creditors. If you have a pre-existing creditor not related to divorce, alimony, or child support, can they pierce your trust? In Nevada, South Dakota, and Ohio, the answer is no—there are no exception creditors whatsoever. But in Delaware, Tennessee, Alaska, and Wyoming, there are exception creditors, meaning they can pierce the trust if there are pre-existing torts.
The next column is about ease of use: is a new affidavit of solvency required for every new transfer? Anytime you transfer assets into a trust, you may have to fill out a new affidavit of solvency, which states that you are not insolvent and that making these transfers won’t make you insolvent. Some states require an affidavit only when you initially fund the trust, while others require a new affidavit for every transfer. Nevada and South Dakota do not require a new affidavit for every transfer. Ohio does, with a few exceptions. Delaware does not require an affidavit, which is good. However, Tennessee, Alaska, and Wyoming require a new affidavit every time you make a transfer, which adds paperwork and administrative work.
The fraudulent transfer standard is the next aspect Steve Oshins looks at when ranking domestic asset protection trust laws. This is pretty uniform across states, with the standard being clear and convincing evidence—not beyond a shadow of a doubt. This means that there has to be clear and convincing evidence that you made a transfer to defraud a creditor, even if the transfer was made within the statute of limitations window.
Finally, we have the decanting state ranking. Decanting is the process of moving assets from one irrevocable trust to another, usually done through a trust protector. This is useful if there’s a change in circumstances, laws, or personal situations. South Dakota is ranked number one in this, and Nevada is ranked number two. South Dakota has very few limitations on when you can move assets to a new trust, while Nevada has some limitations. Delaware is ranked number three, Tennessee is four, and Alaska is ranked eight. Wyoming, again, is ranked low at 13. Wyoming is just not as strong a trust jurisdiction as many people think.
In the total score column, Nevada scores 99, South Dakota scores 98, Delaware scores 83.5, Tennessee scores 83.5, Alaska scores 82.5, and Wyoming scores 78. Focusing on Nevada and South Dakota, they are by far the best jurisdictions. Ohio is a distant third with a score of 85, compared to Nevada’s 99 and South Dakota’s 98. The main difference between Nevada and South Dakota is the possibility of an exception creditor related to divorce, alimony, or child support. But if you don’t have that issue when you set up your trust, then Nevada and South Dakota are the same.
One thing not on this chart that I think should be is privacy laws. If there’s a lawsuit or court proceeding involving your trust, and details about your trust come out during that proceeding, South Dakota has a privacy law that automatically seals those details from the public eye forever. In Nevada, it’s purely up to the judge’s discretion, so you’re taking a bit of a gamble with that privacy aspect. As I’ve said in other videos, if you’re taking the time to look at the most advantageous states, go with the one that is truly the most advantageous—don’t settle if there’s a better option out there. I believe that privacy aspect really pushes South Dakota above Nevada, but it’s not addressed here.
One thing I encourage you to look at is a chart on Bridgeford Trust Company’s website. I mentioned this in my first video about overall rankings regarding trust jurisdictions. Bridgeford is not endorsing my videos, but I like their chart because it provides citations, which is unique compared to other trust companies. We’ll include this in the about section so you can access it. One reason I like this chart is that it cites an article released two years ago, which is still, to my knowledge, the most comprehensive piece of literature out there about the best trust jurisdictions. Go to that and take a look at the article in the WealthManagement.com Trusts & Estates publication. It talks about comprehensive issues related to the best trust jurisdictions. We’ll include that link as well so you can take a look at it. The article is lengthy but very comprehensive in its analysis.