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Basic Questions and Answers about Alaska Trusts
by
Jo A. Kuchle, Esq.

  
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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The information contained in this site is for informational purposes only.  Nothing contained herein should be construed to be legal advice.
  
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