Moving A Trust To Delaware? Follow The Trail Of Peierls

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Explore:  Estate Planning Trusts

Delaware has a rich history of providing guidance and innovation in corporate law and trust matters and to that end has become a jurisdiction of choice for the creation and migration of trusts. Recently, Delaware's Court of Chancery and Supreme Court each issued a set of three landmark opinions, the Peierls family trust cases, significantly affecting Delaware trust law and providing substantial guidance for those considering the placement of trusts in that state.

Traditionally, the preferred method to migrate trusts to Delaware has been filing consent petitions in the Court of Chancery. In Peierls, that Court denied the "routine" relief regularly requested through consent petitions, causing many to believe an end was near to Delaware's status as a trust destination of choice. However, though the Delaware Supreme Court affirmed much of the Court of Chancery's holdings, its opinions made clear that Delaware will remain an advantageous and preferred destination to transfer trusts. Through these opinions, Delaware's Courts expounded on important issues germane to transferring trusts between jurisdictions while also eliminating much of the uncertainty of the consent petition process.

Importantly, the Delaware Supreme Court clarified the application of conflicts of laws when transferring trusts from one jurisdiction to another—an area with little prior guidance. The opinions explained: (1) how to determine which state's law controls the administration of a trust; (2) which court had jurisdiction over a trust; and (3) which law governs judicial modification. Some of the "routine" relief previously sought in these consent petitions was eliminated; an example of which being the Court's acceptance of jurisdiction over the incoming trust and approving trustee resignations and successor trustee appointments. But the Supreme Court provided clear guidelines concerning what relief is available. The Supreme Court's opinions reflect how the Chancery Court will apply conflicts of laws going forward and when Delaware law governs a trust's administration. In summary, the Delaware Supreme Court held:

Trust Provisions for Change of Situs and Governing Law for Administration

Delaware law will govern if

  • a Delaware trustee is appointed;
  • if the trust's administrative provisions allows for the appointment of a successor trustee without geographic limitations on the trustee's location; or
  • if there is no choice of law provision explicitly stating another jurisdiction's laws must control the trust's administration in perpetuity.

When Delaware Courts Have Jurisdiction Over a Trust's Administrative Matters

The Court of Chancery has jurisdiction to hear trust administration issues when it possesses jurisdiction over all parties, including trustees. But when another court has reserved "primary jurisdiction" over a trust, then the Court of Chancery will yield to the court of "primary jurisdiction" and not exercise its jurisdiction to determine administrative matters. If no other court retains "primary jurisdiction" over a trust, then the Court of Chancery can exercise its jurisdiction.

Judicial Modification of Trusts

The same law that controls a trust's administration will govern whether the Chancery Court can modify or reform the trust, whether all interested parties consented to the jurisdiction of the Court of Chancery or not. But for Delaware law to apply to reformation or modification, a Delaware trustee must administer the trust prior to filing a consent petition with the Court of Chancery.

If The Relief Sought May Be Fulfilled Under the Trust's Terms, the Court Will Not Issue Advisory Opinions

The Court of Chancery will no longer enter Orders blessing conditional appointments and resignations of trustees (Delaware and foreign) when the trust instrument requires no court's involvement to facilitate changes in trustee—eliminating this formerly "routine" prayer for relief. The Supreme Court affirmed the Chancery Court's holding such Orders are impermissible advisory opinions. This shift will likely have the reciprocal effect of increasing the reliance of Delaware's Non-Judicial Settlement Statute (12 Del. C. §3338) when a trust is to be moved to Delaware and modified (e.g. modifying a trust into a directed trust). View the Supreme Court opinions here, here and here.

Many compelling reasons exist for trust beneficiaries and trustees to move trusts to Delaware. Polsinelli's team of experienced legacy planning and trust attorneys, on-site in a local Delaware office, can assist in moving a trust to that state so it can avail itself to Delaware's advantages, including: (i) favorable trust administration and tax laws; (ii) the renowned Court of Chancery's exclusive jurisdiction over trust matters; (iii) creditor protection; (iv) the ability to create perpetual trusts (Dynasty Trusts); and (v) statutory authority for trust decanting and mergers, virtual representation, and non-judicial settlement agreements.

Topics:  Estate Planning, Trusts

Published In: Civil Procedure Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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