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How
did the Alaska Trust Act come into existence?
The Trust Act bill was sponsored by Rep. Al Vezey
(R-North Pole) and co-sponsored by Gene Therriault (R-North Pole) in
1997 as House Bill 101.
When can I create
an Alaska Trust?
The Alaska Trust Act was signed into law on April 1,
1997. Anyone in the United States can now create an Alaska Trust.
What
does the Alaska Trust accomplish?
The statute allows a maker of an Alaskan Trust (called the Trustor) to
place money in a trust which can last forever, protect it from the
Trustor’s creditors, and (if drafted properly) exclude the money from
the Trustor’s taxable estate, even if the Trustor is an eligible
beneficiary of the trust.
Why is this
significant?
Prior to the Alaska Trust Act, in order for a Trustor to
be able to protect assets from creditors and to be eligible to receive
the money from the trust, the Trustor had to create such trusts
offshore, in places like Cook Island, Cayman Islands and Bermuda.
Now, anyone can create a perpetual trust in Alaska and obtain those same
benefits without having to transfer the assets offshore.
Who
are likely candidates to do an Alaska Trust?
Anyone with significant assets (in excess of $2.5 million
dollars) who wants to protect their assets and provide for themselves
and their loved ones.
Can
I change my mind later if I create an Alaska Trust?
No. The trust is irrevocable.
The Trustor of an Alaska Trust can be a discretionary beneficiary of the trust and have no right to the
property. As long as the Trustee of the trust is a reliable person, the
Trustor can receive assets from the trust, in the discretion of the
Trustee.
Why
is Alaska such a great place to have a trust?
Alaska has no state income tax, so income that is accumulated by the
trust is free from state tax. An
Alaska Trust can exist forever. (The “rule against perpetuities” no
longer exist in Alaska for discretionary trusts). This can be an
enormous tax savings because there will not be any gift or estate taxes
as the trust passes from one generation to the next.
Will an Alaska
Trust save me estate taxes?
As long as the trust is irrevocable, and the Trustor has
no right to veto distributions to other beneficiaries and no right to
control the disposition of the property upon his or her death, the
assets in the trust will avoid estate taxes.
Will the Alaska
Trust avoid gift taxes?
Since every U.S. Citizen has a one time gift tax
exclusion of $1,000,000 (over $2.0 million per couple) and a annual
exclusion of $11,000 per person each year, a transfer to an Alaska Trust
can avoid gift tax if these exclusions are used. Should a transfer in
excess of those amounts be made, a gift tax would be imposed. BUT,
transfers to the trust can be made periodically and the appreciation on
these assets will be fully excluded from your estate and thus avoid all
estate taxes. For example, if you place $600,000 worth of assets in an
Alaska Trust, those assets will continue to generate income. If at the
time of your death the $600,000 has grown to $5 million dollars, that
appreciation would avoid estate taxes of $2,390,800!
Will
the IRS really let me do this?
In a number of rulings, the IRS has determined that if a
Trustor transfers assets to a trust, the Trustor has made a gift and the
assets are removed from the Trustor’s estate, if 1) the Trustor has no
right or power over the assets, and 2) under the State law governing the
trust, the assets are not available to your creditors (i.e. the Alaska
Trust). A Private Letter Ruling has been issued regarding the general
validity of the Alaska Trust Act and how the IRS intends to treat an
Alaska Trust for estate tax purposes. Look for the ruling in our
website.
What does the Alaska Trust
Act require?
- The
trust must state that Alaska law will apply.
- Some of the
trust assets must be deposited in Alaska.
- At
least one trustee must be an Alaska resident or be a bank or trust
company with a principal place of business in Alaska.
- The
Alaska-based trustee must have the power to maintain the trust records,
prepare income tax returns, and otherwise administer the trust.
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