The New Hampshire legislature recently enacted the “Qualified Dispositions in
Trust Act” (Senate Bill No. 465) to, among other things, permit domestic asset
protection trusts to be created in New Hampshire on and after January 1, 2009.
Once signed into law by Governor Lynch, the provisions of the new law will be
found in New Hampshire Statute 564-D. The legislation also addresses
trust protectors and decanting.
Domestic Asset Protection Trusts. In permitting the creation of asset
protection trusts, the New Hampshire legislature joins nine other states
(Alaska, Delaware, Missouri, Nevada, Rhode Island, South Dakota, Tennessee,
Utah, and Wyoming) which have enacted similar legislation permitting
self-settled “spendthrift” trusts. The New Hampshire law is patterned after the
Delaware statute, the “Qualified Dispositions in Trust Act”, Delaware Code §§
3570 – 3576 (which was enacted in 1997). The major benefit of asset protection
trusts is the settlor’s ability to shield assets placed in a qualified trust
from creditors. Transfers made to the trust are irrevocable, but the transferor
may retain significant benefits and control, including the receipt of trust
income, control over dispositions, and control over investment decisions.
To qualify as an asset protection trust under New Hampshire law, the trust
instrument must comply with several statutory provisions. First, the instrument
must expressly incorporate New Hampshire law regarding the validity,
construction, and administration of the trust. Second, the instrument must
explicitly state that assets transferred to a New Hampshire trust cannot be
further transferred, assigned, pledged, or mortgaged (whether voluntarily or
involuntarily) by the grantor before the trustee distributes trust property to
beneficiaries. Third, the instrument must provide that the trust is irrevocable.
The trust will not be deemed revocable (and thus loose its protective value)
if the trust instrument provides that (1) the transferor retains a power to veto
trust distributions, (2) the transferor retains a testamentary special power of
appointment over trust assets, (3) the transferor receives trust income or has a
right to retained trust income, (4) the transferor retains a right to income or
principal from a charitable remainder unitrust or charitable remainder annuity
trust, (5) the transferor receives annually either an annuity or unitrust
interest not in excess of five percent, (6) the transferor receives trust
principal through either the actions of the qualified trustee in his sole
discretion or based on an ascertainable standard contained in the trust
instrument, (7) the transferor retains the right to remove the trustee and
appoint a new one, (8) the transferor uses real property held under a New
Hampshire personal residence trust as a personal residence, (9) the transferor
receives qualified annuity interest, or (10) the trustee uses trust assets to
pay the transferor’s debts outstanding at the time of the transferor’s death
including estate administration and tax expenses. Thus, the transferor, as in
the other asset protection states, can retain significant benefits and control
while gaining protection from creditors for trust assets.
To qualify under the New Hampshire statute, the trust must be administered by
a qualified trustee. A qualified trustee can be any natural person, other than
the transferor, who is a New Hampshire resident. The qualified trustee can also
be a federally chartered bank or trust company having a place of business in New
Hampshire that is authorized to do trust business there. Some or all of the
trust property must be maintained by the trustee in New Hampshire. The trustee
must maintain records in the state, prepare fiduciary income tax returns, or
otherwise materially participate in administering the trust in the state. These
requirements are basically identical to the requirements in the domestic asset
protection trust states other than Missouri.
Although the transferor cannot be a qualified trustee of his or her own asset
protection trust, the transferor can be a trust advisor. A trust advisor is
granted his or her authority under the terms of the trust instrument and does
not have to be a New Hampshire resident. As trust advisor, the transferor’s
rights are limited to a veto power over trust distributions and the right to
consent to the trustee’s investment decisions. The transferor’s rights as trust
advisor are limited to only those powers that are stated in the trust
Creditors are generally restricted from reaching trust assets. With certain
exceptions , no action of any kind, including enforcement of a judgment, may be
brought to attach trust property. Creditors seeking to reach qualified trust
property are limited to only those actions available through the New Hampshire
Uniform Fraudulent Transfer Act. Thus, if a transfer to a New Hampshire domestic
asset protection trust is found to be a fraudulent transfer, the assets can be
A creditor’s claim is extinguished unless it is brought within the applicable
limitations period. For claims arising before the date of a qualified
distribution, the claim must be initiated within four years or, if later, within
one year after the disposition was or could reasonably have been discovered by
the creditor. If the claim arises at the same time or later than the
disposition, the limitations period is four years. Similar to the Delaware law,
a tacking rule provides that the amount of time that trust assets are held in a
predecessor trust may be added to the time the assets are considered held as a
qualified disposition trust. This tacking provision could be important in cases
involving dispositions that are otherwise still within the applicable
limitations period but were generated by previous dispositions from a qualified
Even if a creditor is able to reach trust assets, a qualified disposition is
avoided only to the extent necessary to satisfy the transferor’s debt plus
costs. If part of the disposition is avoided, the qualified trustee has a first
lien against the trust property providing the trustee has not acted in bad faith
in accepting trust property. Notwithstanding other provisions of the law, there
is a complete bar against actions brought by creditors against a qualified
trustee or trust advisor. This bar extends to claims against persons who provide
counseling, drafting, preparation, execution, or funding of the trust. The same
limitations periods applicable for claims against trust assets apply to claims
brought against the trustee, trust advisor, or other counselors.
As in the Delaware statute, two classes of creditors are exempted from the
provisions protecting trust assets. Child support obligations and those stemming
from alimony or spousal support are outside of the statute’s protections.
Importantly, the statute defines “spouse” or “former spouse” as a person to whom
the transferor was married at or before the time of the qualified distribution.
Thus, dispositions in trust made before marriage are protected by the statute.
The second class of exempted creditors are those who suffered death, personal
injury, or property damage on or before the date of the qualified disposition if
the transferor’s act or omission was a cause of the death, injury, or damage.
Decanting. Senate Bill 465 will also amend the
New Hampshire Uniform Trust Code by permitting trustees to decant a New
Hampshire trust. The new provision, New Hampshire Statute 564-B:4-418, provides
that unless expressly prohibited in the trust instrument, a trustee with the
discretion to distribute trust property to or for the benefit of trust
beneficiaries may exercise that discretion by transferring trust property to a
second trust for the benefit of some or all of those beneficiaries.
Beneficiaries of the second trust must all be beneficiaries of the first, and
the second trust cannot reduce the current fixed income, annuity, or unitrust
interest for any beneficiary of the first trust. New Hampshire will join Alaska,
Delaware, Florida, New York, South Dakota, and Tennessee in having statutes that
Trust Protectors. Senate Bill 465 also clarifies
New Hampshire law regarding trust advisors and trust protectors. Included in the
bill is an amendment to New Hampshire Statute 564-B:12-1201 (Trust Advisors and
Trust Protectors as Fiduciaries) which expressly defines trust advisors and
protectors as fiduciaries with respect to powers granted to them by the trust
instrument. Trust advisors and protectors are thus required to act in good faith
and are liable to the beneficiaries for any losses stemming from a breach of
duty. Alaska, Idaho, South Dakota, and Wyoming also have specific statutes
addressing whether a trust protector is a fiduciary. Those states that have
enacted Section 808 (d) of the Uniform Trust Code have also addressed this
The developments in New Hampshire should be seen as part of a trend across
the country by some states seeking to modify their laws to provide greater
protection from creditors to the settlors of trusts as well as greater
flexibility in trusts through specific rules governing trust protectors and the
ability of trustees to decant. Kentucky and Ohio, for example, are considering
domestic asset protection trust legislation. Often this type of legislation is
being enacted or considered as a way to retain business or attract more business
for corporate fiduciaries in the state.
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