HigH net wortH
and you establish a trust in Alaska,
what happens if the client is sued in
his or her home state?
The claimant will have to take
the judgment to Alaska and seek to
have it enforced. If Alaska says no,
the claimant will have to appeal to
the Supreme Court and argue that
Alaska should recognize the judgment of the New York courts under
Article IV, Section 1 of the Constitution, commonly referred to as the
Full Faith and Credit Clause.
And since there are no cases
addressing this issue, the reality is
that no one can really say for sure
what will happen.
If your focus is on reducing estate
taxes, it may seem that you have little
Some SuggeSt that
No more thaN
of clieNt aSSetS
Should go iNto
a Self-Settled truSt.
1/3
agreement”) as to what distributions
the client may receive. If the receipt
of distributions from the trust is no
more than a mere “expectancy,” it
would appear that a creditor should
not be able to reach the property —
and that, by extension, the property
should be out of the estate.
trust. In the fall of 1995, Sessions
made a pledge of $1.5 million to the
Rush University Medical Center for
the construction of a new president’s
house on the university’s campus in
Chicago. Relying on his pledge, the
medical center built the house and
even held a public dedication honoring Sessions, who executed several
codicils to his will reflecting that
any portion of the pledge that was
unpaid at his death should be paid
from his estate.
Sessions died on April 25, 2005,
and on Dec. 15, 2005, Rush filed a
complaint against Sessions’ estate to
enforce the pledge. The third count
in the complaint contended that if a
settlor creates a trust for his own ben-
If your client isn’t comfortable making a gift without being a beneficiary,
self-settled trusts may be the only option.
reason to care about creditor protection issues. But the ability of creditors
to reach trust assets is also the litmus
test for determining whether trust
assets are included in an estate for
estate tax purposes. So for a self-settled
trust’s assets to be excluded from an
estate, creditors cannot have had the
ability to reach the assets in the trust.
If you set up a self-settled trust,
the client cannot retain the right to
amend or terminate the trust. He or
she cannot retain the right to receive
the income from it. The client’s ability to receive distributions should
only be at the discretion of an independent trustee (preferably an institutional trustee).
This should not cause trust assets
to be included in the estate so long
as there is no understanding (the
IRS often uses the phrase “implied
TROUBLE IN ILLINOIS
The Illinois Supreme Court recently
ruled, however, that a self-settled
trust wouldn’t be respected.
In the case, Rush University Medical Center vs. Sessions, a man named
Sessions established a family limited
partnership in Colorado. Later, in 1994,
he established the Sessions Family
Trust in the Cook Islands, in the South
Pacific. The trust was a foreign asset
protection trust.
Most advisors believe this type
of trust to be more secure than the
domestic version since it does not face
the risk of having to respect another
jurisdiction’s court rulings under the
Full Faith and Credit Clause.
Sessions transferred 99% of the
family limited partnership interests
as well as some property in Hinsdale,
Ill., to the foreign asset protection
efit, it is void to existing and future
creditors and that those creditors can
reach his interest in the trust.
