By Morgan D Neff, Senior Vice President and Wealth Management & Trust Director, First National Bank of Alaska.
Alaska is not California. Alaska has no state income tax, capital gains tax, estate tax, or gift tax.
Most states don’t allow you to protect your assets in a trust and retain beneficial interest even if it is irrevocable.
There are 7 states that are generally considered the best place to form a new trust or move an existing trust: Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming; but none stand out like Alaska.
Wealthy citizens are moving their assets to Alaska because our trust laws provide more asset protection, our tax treatment is more favorable, and our fishing is better. A lot better.
And things are about to get busier because the amount you can transfer without gift tax or generation-skipping tax is set to be cut in half effective January 1, 2026. Clients have a window of opportunity to utilize their higher exemption amount now, or they risk losing half of it.
When passed, the Alaska Trust Act of 1997 offered the greatest flexibility in the administration of trusts. Not surprisingly, the act – not unlike the impact of Delaware’s 1981 Financial Center Development Act – led to an influx of trust clients to Alaska, including many from Delaware.
The benefits and opportunities for individuals and families preparing to set up trusts are many, especially if you reside in a high-tax state like California. We don’t burn fossil fuels in front of them (“Our offices are heated with renewable, environmentally friendly whale oil…”); but we are a match made in tax heaven. Investible assets within an Alaska trust can grow significantly without the burden of state income tax payments for generation after generation.
The Best ‘Off Shore’ Jurisdiction Is Now Onshore
Escalating tax and reporting pressures are forcing America’s wealthiest families to take a closer look at domesticating non-US trusts. In the past, wealthy international families looked to Switzerland, Luxembourg, New Zealand, Singapore, and the Cook, Channel, Cayman, and Virgin Islands for asset protection and wealth management but that changed when new international disclosure requirements like the OECD’s “Common Reporting Standards” took effect. The times they are a-changin’ and the tax havens of old don’t offer the privacy that they used to; but the U.S. and Alaska is exempt from these new international disclosure requirements.
I underlined that in case you weren’t paying attention.
The benefits are so great that wealthy non-U.S. citizens are now moving assets from offshore jurisdictions to Alaska.
The privacy of non-resident aliens can still be protected in Alaska via Alaskan Foreign Grantor Trusts. What is a Foreign Grantor Trust? It’s a trust with features that allow for a special tax status within U.S. law. When a foreign grantor trust is established by a non-U.S. person, the trust and its trustees are not subject to U.S. taxation on non-U.S. sourced income. Further, Alaska has no state income tax. Therefore, the advantages of Alaska trust law and the stability of the U.S. legal system can be obtained by international clients without paying U.S.-related taxes.
Offshore funded trusts, domiciled in Alaska, are not subject to either U.S. capital gains or estate taxes. The Grantor receives tax-free distributions from the foreign grantor trust during their lifetime because, for U.S. tax purposes, they own the assets of the trust. Additional distributions made from the trust to a beneficiary other than the grantor are considered non-taxable gifts from the grantor.
Neither do we.
While many people think of uber-wealthy families establishing trusts to pass down funds to their druggie, aristo children, many trusts are established for other purposes. The state in which you manage a trust is referred to as its ‘situs’ and Alaska is also an excellent fit for clients with moderate sums of money for children, special needs, and philanthropic objectives.
Trusts aren’t just for poncy toffs with triple last names. You don’t have to be rich - or even play golf - to benefit from a trust.
Middle-class people want to make significant gifts now but retain access should they have a need in the future. Spousal Lifetime Access Trusts (SLATs) are a great tool for moderate estates. The usual benefits apply - get assets out of the estate, achieve a freeze in value and accumulate estate-tax-free growth - while maintaining access to the assets through the spouse. If a client isn’t married, has a troubled marriage, or need access to funds in the future, a Domestic Asset Protection (DAPT) - also known as self-settled spendthrift trust - can accomplish the same goals. Alaska was one of the first states to enact DAPT statutes back in 1997 and is the only state that has received a Private Letter Ruling (PLR 200944002) from the IRS that assets placed in self-settled trusts may be excluded from the grantor’s taxable estate even though the grantor is a trust beneficiary.
Trusts can be set up to perpetually assist nonprofits or charities of your choice. While it may seem like splitting hairs, Alaska’s long-term trusts can be perpetual while Wyoming’s are a measly 1000 years. Of course, it matters. Everything matters. You don't need to live in Alaska to set up a trust in the state but it’s a good idea to visit the situs of your trusts at least annually. Perhaps do some fishing. Do those little trout in Wyoming even count as fish? If you want to chase fishlings on the North Platte River, you be you. When you’re ready to get your swagger on and go after 100+ lb. halibut and King Salmon, move your trust to Alaska where everything’s bigger and our trusts can last forever.
A comprehensive comparison of the various trust jurisdictions would require a spreadsheet and I don’t do computers; thank goodness they’re just a fad like rap music. Migrating an existing trust to Alaska is an excellent way to compound the growth of your assets:
- Alaska allows non-resident couples to opt into community property for some or all their assets, by using an Alaska Community Property Trust.
- Alaska is a leading jurisdiction for trusts and LLCs that hold large life insurance policies, because our insurance premium rates are some of the lowest in the nation.
- Alaska statutes enforce a no-contest provision in trusts, whether or not any probable cause exists for a proceeding brought about by a challenging beneficiary.
- Alaska trust documents are not required to be filed publicly, shielding assets from potential creditors, lawsuits, and prying eyes. Other states often require disclosure of trust details, making them vulnerable to scrutiny.
- Alaska specifically states that trustees following the advice of an adviser or protector won’t be held liable for following their directions, relieving trustees from liability for the actions of advisors with discretionary power under the trust agreement.
- Alaska trusts are inexpensive and avoid the burden and expense of Foreign Account Tax Compliance Act (FATCA) compliance.
- Alaska's trust laws also allow for a unique concept called "trust decanting," which enables the modification of an existing trust to meet changing circumstances or to take advantage of new laws.
There’s too much to list…
Bring your money bags to Alaska! Our trust-friendly laws and jaw-dropping scenery are hard to beat.
Where to find us: Go to your map, find Washington State, and then run your finger off the upper left edge another six inches. Alaska is closer to Russia than California. In fact, the notion surfaced recently that Russia wants Alaska back by suggesting the land – like the Ukraine - was once part of the Russian empire. We see it differently. Alaska is still mostly wilderness. Most of us own more than one gun and many are expert marksmen. If Putin wants it back, we have 4 words for him: Come and Get It.
Who Ya Gonna Call?
Attorneys with specialist practices focusing on the advantages of Alaska’s perpetual trusts, self-settled discretionary spendthrift trusts, limited liability companies, and optional community property system:
Sarah Prater and Brogan Kirkman of Ario Law.
Chris Lauer and Maribeth Conway of Manley, Brautigam, Bankston.
One of the O.G.s who helped write the law is David B. Shaftel, J.D., L.L.M of Shaftel Delman.
William M. Pearson, Chelsea R. Riekkola, and Melanie Iverson Kaufman at Foley & Pearson, PC.
Leonard Anderson and Nora Barlow of Barlow Anderson Law.
Paula Jacobson: Of Counsel to Barlow Anderson (specializing in Estate Planning for families with Special Needs family members.)
Karl A. Kaufman, Michelle Boutin and Joshua D. Hodes of Landye, Bennett & Blumstein, LLP
Trust Companies:
Founded 37 years before Alaska became a state, First National Bank of Alaska is the epitome of a solid institution. If you want to make sure that your trustee survives until the zombie apocalypse – and beyond – this is the choice for you. This conservative old bank is still run by the Cuddy family and offers services a la carte, so clients can pick just what they want, and not more than they need.
The R.H. Buchanan Trust Company is a very sophisticated modern trust company with institutional experience as well as ultra-high net worth.
If you have any questions, feel free to reach out to any of us.
About the Author:
Mr. Neff brings more than 22 years of executive-level investment and financial experience to First National Bank of Alaska. As the Wealth Management & Trust Director, Mr. Neff relies on his previous experience of leading multiple investment organizations where he managed and directed the investments of multi‐billion‐dollar diversified portfolios of equity, fixed income, and private equity. Throughout his career, Mr. Neff and his firm earned a repeated spot on the World’s Best Money Manager rankings by Nelson-Lipper. Mr. Neff also has a significant background in originating investments in distressed credit situations where he managed complex turnarounds, pre-packaged, out-of-court, Chapter 11, and Chapter 7 restructurings. Mr. Neff has sat as a board director for multiple publicly traded and privately owned organizations that include oil and gas exploration, development, production and acquisition company Approach Resources Inc. and Gibson Guitar, an American manufacturer of guitars and other musical instruments based in Nashville, Tennessee.
WealthMgmtOfficers@FNBAlaska.com
