1. Roadblocks to Utilizing Delaware Trusts Thomas M. Forrest U.S. Trust Company of Delaware Presented by: Robert W. Eaddy The Bryn Mawr Trust Company of Delaware Daniel F. Hayward Gordon, Fournaris & Mammarella, P.A. Elizabeth W. King J.P. Morgan Trust Company of Delaware Anne Schumeyer PNC Delaware Trust Company

2. I.Issues with the Trust Document Issue: The Delaware trustee receives a copy of the trust document, and critical language has been crossed out and initialed, but no original trust instrument has been provided or can be found – Options / Points of Discussion:  Accept the trust document “as is”  Locate and contact drafting attorney  Court proceeding for instructions

3. I.Issues with the Trust Document Issue: The trust document contains language conditioning distributions on confirmation of no drug/alcohol abuse, a minimum GPA, marriage within a particular religion, or similar provisions – Options / Points of Discussion:  Engage in confirmation required by the trust document as written  Create/appoint other fiduciary positions to handle  Obtain additional guidance from Grantor

4. I.Issues with the Trust Document Issue: The trust document contains investment restrictions such as requiring that no more than 30% of the trust assets by value can consist of equity investments – Options / Points of Discussion:  Delegate responsibility to Investment Direction Advisor or other fiduciary  Create appropriate internal checks and balances to comply with requirement

5. I.Issues with the Trust Document Issue: The trust document contains investment restrictions such as requiring that no more than 30% of the trust assets by value can consist of equity investments – Options / Points of Discussion:  Delegate responsibility to Investment Direction Advisor or other fiduciary  Create appropriate internal checks and balances to comply with requirement

6. I.Issues with the Trust Document Issue: The Delaware trustee receives a trust document in which a single pot trust should have previously been divided into multiple trusts (but wasn’t), and there have been disproportionate distributions among beneficiaries since the mandated time for division – Options / Points of Discussion:  Require that previous trustee divide trust before accepting  Exercise discretion and divide trust  Nonjudicial settlement agreement  Court proceeding

7. I.Issues with the Trust Document Polling Question #1

8. II.Situs, Governing Law and Jurisdictional Issues Issue: The Court is the transferring state asks if the Delaware trustee is qualified to do business in the transferring state, and will not approve the move to Delaware unless qualified – Options / Points of Discussion:  If Delaware trustee is a National Association (“N.A.”)  If Delaware trustee is state chartered Issue (related): Beneficiary of a Virginia testamentary trust wants to move trust to a Delaware trustee that is a Delaware limited purpose trust company – Options / Points of Discussion:  Determine if Delaware trustee has an office or branch in Virginia

9. II.Situs, Governing Law and Jurisdictional Issues Polling Question #2

10. II.Situs, Governing Law and Jurisdictional Issues Issue: The Delaware trustee is asked to serve as successor to another Delaware trustee; the trust contains language stating that it is a California trust [or from any other jurisdiction] trust with no mechanism to appoint successor trustees, and there is no evidence relating to how the trust initially got to Delaware. – Options / Points of Discussion:  How did the trust get to Delaware without a court proceedings, NJSA, decanting, etc.?  Possible state tax return issues  Application of Delaware law to administration  New court proceeding to resolve?

11. II.Situs, Governing Law and Jurisdictional Issues Polling Question #3

12. II.Situs, Governing Law and Jurisdictional Issues Issue: Delaware trustee is to receive a self-settled asset protection trust created in another jurisdiction and previously administered under the laws of that jurisdiction; trust would not qualify as a self-settled asset protection trust under Delaware’s Qualified Dispositions in Trust Act, 12 Del. C. sec. 3570, et. seq. – Options / Points of Discussion:  Why does trust not qualify as a self-settled APT under Delaware law?  Possible relief under the Qualified Dispositions in Trust Act  Transfer by decanting  Creditor statute of limitations period maintained?

13. III.Trust Modification Challenges Polling Question #4

14. III.Trust Modification Challenges Polling Question #5

15. IV.Tax-Related Roadblocks Issue: The trust is being transferred from a state in which state income tax returns should have been filed, and in which taxes should have been paid, but prior trustee filed no such returns – Options / Points of Discussion:  Notify beneficiaries of issue  Insist that prior trustee correct  Delaware trustee files

16. IV.Tax-Related Roadblocks Issue: The Delaware trustee discovers that the last 10 years of federal fiduciary income tax returns were filed as grantor trust returns instead of non-grantor trust returns (or vice versa) – Options / Points of Discussion:  Notify beneficiaries of issue  Insist that prior trustee correct  Delaware trustee files  Possible court action to reform due to mistake?

17. IV.Tax-Related Roadblocks Additional tax-related issues:  Co-trustee of trust moving to Delaware lives in a state that taxes trusts based upon location/residence of the trustee  Certain trust beneficiaries are located abroad, possibly implicating the tax laws of another country

18. V.Dealing with Trust Assets Issue: The Delaware trustee discovers several assets that were not listed on the prior trustee’s trust statements, including “special” assets such as real estate, a gas station, artwork, personal property, etc. – Options / Points of Discussion:  How did Delaware trustee discover that trust held the assets?  Place assets in an LLC or other entity  Appoint or add Investment Direction Advisor or a Special Holdings Direction Advisor  Were assets ever properly transferred to the trust (e.g., from a decedent transferring by Will)?

19. V.Dealing with Trust Assets Polling Question #6

20. V.Dealing with Trust Assets Issue: The Delaware trustee discovers several assets that were not listed on the prior trustee’s trust statements, including assets such as real estate and a gas station – Options / Points of Discussion:  How did Delaware trustee discover that trust held the assets?  Place assets in an LLC or other entity  Add Investment Direction Advisor or a Special Holdings Direction Advisor  Were assets ever properly transferred to the trust (e.g., from a decedent transferring by Will)?

21. V.Dealing with Trust Assets Issue: The Delaware trustee is asked to serve for a self-settled asset protection trust funded 5 years ago, and the fair market value of the trust assets constitutes over 90% of the value of all of the Grantor’s assets. – Options / Points of Discussion:  Determine value of trust assets compared to Grantor’s total assets when original funded (Affidavit of Solvency?)  Possible fraudulent transfer issues

22. V.Dealing with Trust Assets Additional asset-related issues:  Delaware trustee received a directed trust with 80% of the trust assets consisting of loan receivables from the trust beneficiaries  Trust assets include real property with substantial environmental risks

23. VI.Working with Trust Beneficiaries Issue: One or more trust beneficiaries will not sign a consent or otherwise agree to the change of situs to Delaware or the modification of the Trust (e.g., to make it a directed trust as to investment decisions) – Options / Points of Discussion:  Reason for beneficiary’s non-consent  Is judicial action required for the transfer?  File a civil action in Delaware to resolve?

24. VI.Working with Trust Beneficiaries Issue: The Delaware trustee discovers that one or more trust beneficiaries has potential criminal issues – Options / Points of Discussion:  What is the classification of the beneficiary (sole trust beneficiary, discretionary beneficiary of a pot trust, remainder beneficiary)? Does it matter?  Determine the type of criminal issue involved  Possible reputational risk

25. VII.Overcoming Additional Roadblocks Issues:  Silent trusts – What is a reasonable amount of time for the trust to remain “quiet”? Do the 2015 changes to section 3303(a) and new 3339 change the analysis?  QDOT/GRAT – Delaware trustee receives a QDOT/GRAT with the only asset being an LLC, and trust is 100% directed  Unitrusts – Interested parties would like to convert a discretionary trust to a unitrust

26. VII.Overcoming Additional Roadblocks Polling Questions #7 and #7A

27. Roadblocks to Utilizing Delaware Trusts Tom Forrest