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Domestic US Trusts

Rhode Island Self Settled Trust

Many of the states have adopted similar conditions imposed upon Self Settled Trusts.  Rhode Island statutes closely follow the Delaware statutes.  The states enacted self-settled trust law for lower and middle income Americans.  However, it is unknown whether federal law will trump the creditor protection outlined by these states by enforcing the Full Faith and Credit Clause of the US Constitution or if the bankruptcy courts will prevail in authority.

Delaware enacted legislation for self-settled trusts in 1997 and Rhode Island followed in 1999 with almost identical legislation.  From the settlor’s perspective, two aspects make Rhode Island and Delaware trusts inferior to Alaska trusts.  In Delaware and Rhode Island, a person who is entitled to child support or spousal support can pierce the trust.  Second, persons who suffer wrongful death, personal injury or property damage on or before the date of inception of the trust can also pierce the trust.

In comparing these states to Alaska, Alaska has clearly created a situation with the interests of the state in mind.  Alaska gives great power to the trustees and trust companies by requiring several things such as some of the assets by housed in Alaska and requiring that an Alaskan trustee maintain the records and file the income tax of the trust.

Delaware and Rhode Island law require that a trust instrument conforming to the Qualified Dispositions in Trust Act “shall be deemed to be a restriction on transfer of the transferor’s beneficial interest in the trust that is enforceable under applicable bankruptcy law within Section 54 (c)(2) of the Bankruptcy Code…or any successor provision thereto.  Clearly, the legislatures knew that there would be some impact upon the bankruptcy code when enacting this legislation.  The problem is that not enough cases have been litigated to determine absolute and definite interpretations on these issues.

Concerns of specialists in Asset Protection address the sympathy of the Delaware and Rhode Island statutes toward creditors and feel that Nevada and Alaska have taken a much less sympathetic approach toward creditors.