Alaska Trust Fund

Traditional three-party trust funds are also referred to as “spendthrift” trusts because they are established to ensure that the beneficiary is unable to spend the money until a certain event has passed.  In the case of a child trust fund, this event is the child coming of age and thus presumably having built the maturity to wisely manage the money.  In the meantime, the assets are managed by a trustee.

One of the fringe benefits of a trust is that it is protected from creditor erosion.  In eight states – Alaska, Delaware, Missouri, Nevada, Oklahoma, Rhode Island, South Dakota and Utah – this benefit can also be applied to money that is not entrusted to a beneficiary, but retained for one’s self.  While these so-called “self-settled” trusts of the other seven states carry certain provisions potentially granting at least some access to creditors, those of Alaska do not.  In Alaska, it is possible to set up a trust in which the beneficiary and the grantor are the same person, thus retaining for one’s self the benefit of the most friendly trust laws in the nation. 

Alaska trust funds are not only open to Alaska residents.  Anyone in the country can open an Alaska trust, provided that they meet specific criteria.  For one, while the grantor does not need to be in Alaska, the trustee does.  The trustee for an Alaska trust fund must not only be an Alaska resident, but also a “qualified person” such as a bank professional.  This person will prepare the income tax returns, maintain the trust records and generally manage the trust.  Moreover, the trust cannot be established in an effort to hinder or defraud creditors.  Third, the grantor cannot be in default on child support payments at the time of establishment of the trust.  Fourth, the grantor cannot terminate the trust without consent of another beneficiary. 

Beyond protection from creditors, Alaska trusts offer considerable additional advantages to the grantor or beneficiary.  An Alaska trust does not require that principal or income distributions be made to the grantor.  It also carries no state income tax on investment income as well as no gift tax for the transfer of assets into the trust.  The assets are included in the grantor’s taxable estate; however, when the assets are distributed back to the grantor as the beneficiary, the transfer can be considered a gift and the assets can be removed from the taxable estate.  This benefit is referred to as a “dynasty” or “perpetual” trust and has the effect of reducing or eliminating estate taxes. 

It is possible to transfer existing trusts to an Alaska trust fund provided that conditions are met and that the trustee is located in Alaska.  It is also possible to protect assets in Alaska trust funds from a divorced spouse.  Their benefits and accessibility make Alaska trusts an attractive and popular alternative to offshore accounts.  The majority of grantors who take advantage of these benefits are wealthy individuals with at least a couple of million dollars to invest.
 
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