The Practical Planner Podcast

Episode: Why Trust Location Matters: Exploring Tax & Asset Protection States
Date: September 29, 2025
Hosts: Thomas Kopelman, Anne Rhodes, and Dave (Last name not specified)

Episode Overview

This episode dives deep into the critical—though often overlooked—topic of trust location or "jurisdiction" and why it matters so much for advisors and high-net-worth clients considering irrevocable trusts. The hosts break down how specific states offer distinct tax advantages, asset protection opportunities, and flexibility in trust duration. Most importantly, they deliver tactical guidance and practical takeaways that advisors can immediately use to serve clients more effectively.

Key Discussion Points & Insights

1. Why Does Trust Location Matter?

• Irrevocable vs. Revocable Trusts:
  • Revocable trusts generally aren't affected by jurisdiction choice for tax/protection purposes during the grantor’s lifetime (01:11).
  • Location becomes crucial for irrevocable trusts due to income tax, estate tax, and asset protection planning (02:19).
• State Differences:
  • States like Nevada, Delaware, Alaska, Texas, South Dakota, New Hampshire, North Dakota are particularly favorable for certain trusts.

2. What Makes a State "Good" for Trusts?

• Key Factors (02:35):
  • State-Level Income Tax:
    • States with zero or low income tax for trusts are desirable (Nevada, Alaska, Texas).
  • Asset Protection Statutes:
    • Robust statutes that shelter trust assets from creditors or litigants (Alaska was first, now others).
    • Example: If a beneficiary is sued in their home state, an Alaska trust may protect assets from seizure.
  • Duration Rules:
    • Some states have abolished or extended the "rule against perpetuities," allowing trusts to last for hundreds of years—or even “forever”—which maintains tax and asset protection benefits for future generations (04:33).

Notable Quote:

“Some states say in about 100 years … all the trust assets come out and not be in the trust anymore. … But other states make trusts last almost forever. … That way any asset protection or tax planning objectives your client had remain.”
— Anne Rhodes (04:40)

3. Putting State Choice into Practice

• How do you implement this as an advisor? (05:34)

  • Common to see terms like NING/DING (Nevada/Delaware Incomplete Gift Trusts).
  • Critical question: Who will serve as your trustee, and where are they located?

• Legal/Practical Considerations:

  • For optimal effect, the trustee should reside in the favorable state (08:20).
  • Attorneys:
    • Out-of-state attorneys often draft the trust, but collaboration with a local attorney or corporate trustee is needed to ensure adherence to local laws (09:50).
  • Sometimes, you’ll have several lawyers involved—advisors should prepare clients for this kind of coordination.

Notable Quote:

“You always have to have an attorney locally sign off on the documents, look at them, actually kick the tires on them, charge the client some sort of fee.”—Anne Rhodes (09:48)

4. Special Considerations for Different Asset Types

• Real Estate Exception:
  • Real estate is governed by the laws where it’s physically located, not by trust situs (07:57). California real estate stays under California law—even if the trust is Delaware-based.

Notable Quote:

“Real estate is kind of always carved off as a special class.… It really should not be, like, Delaware law imposing itself on something having to do with California land.”
— Anne Rhodes (08:07)

5. Common Use Cases for Out-of-State Trusts

A. State Income Tax Mitigation:

• Especially relevant for clients in high-tax states (11:30).
• Advisors must note that home states are vigilant; compliance is critical to avoid penalties. States like California, New York have closed loopholes.

B. Asset Protection:

• Set up self-settled asset protection trusts (you’re both creator and beneficiary) in states that allow it (New Hampshire, South Dakota, Alaska, Nevada).
• Waterfall concept: Most protection is for trust beneficiaries not creating the trust; protection decreases if you are settlor and residency isn’t in the trust’s state.

Notable Quote:

“The two most common are state income taxes... and people who have high liability risks.”
— Dave (11:30)

6. Tax Loopholes, Legislative Changes & Advisors’ Cautions

• “Nings and Dings:”
  • Historically, vehicles like NINGs (Nevada) and DINGs (Delaware) could be used by residents of high-tax states to avoid local tax.
  • But: Recent changes closed these strategies in places like California and New York around 2021 (15:47).
• QSBS Planning (Qualified Small Business Stock):
  • Occasionally, trusts can be used to “stack” (multiply) capital gains exclusions, but states like California don’t recognize QSBS benefits; strategy works elsewhere (16:28).

7. Practical Planning Tips for Advisors

• Drafting Documents:
  • Flexibility Matters:
    • Ensure trust documents grant power to change both the governing law and the trustee (17:09).
    • This allows future moves or changes in light of better state laws or family moves.
• Trustee Considerations:
  • Lack of flexibility can mean high fees and poor service, as beneficiaries can get “stuck” (19:11).
  • Good practice: Include a clear process (a “waterfall” of individuals) for trustee removal/replacement.

Notable Quote:

“Add as much flexibility as you can while still getting the benefits you want when possible.”
— Thomas Kopelman (21:26)

8. Family Mobility & Ongoing Monitoring

• Life Changes as Tax Planning Triggers:
  • Beneficiary relocation can create unexpected opportunities (21:41).
  • Advisors: Ask about where heirs live, e.g., moving to Florida can open new planning strategies.

Memorable Quotes & Timestamps

• "For all those reasons, you might want to situate your trust somewhere other than where your client lives."
  — Anne Rhodes (02:19)

• "Real estate is kind of always carved off as a special class. ... It really should not be like Delaware law imposing itself on something having to do with California land."
  — Anne Rhodes (08:07)

• "If you don't build in any flexibility, there could be the chance that you're somewhat stuck. Unless the judge thinks otherwise."
  — Dave (20:09)

• "Children changing states is actually a really good thing and a great thing for advisors to be aware of."
  — Anne Rhodes (22:00)

Timestamps for Important Segments

• Why trust location matters, state advantages: 00:51–05:31
• Implementing state selection, attorneys & trustees: 05:34–11:21
• Case studies: income tax and asset protection use cases: 11:21–15:06
• Legislative clampdowns on trust-based tax avoidance: 15:06–17:06
• Practical drafting tips for flexibility: 17:06–20:37
• Beneficiary relocations & ongoing planning: 21:41–22:18

Summary Table: Key Factors for Choosing Trust State

| State Feature | Why It Matters | Example States | |----------------------|--------------------------|-----------------------------| | Low/No Income Tax | Reduces trust tax drag | Nevada, Texas, Alaska | | Asset Protection | Shields from creditors | Alaska, South Dakota, Nevada| | Extended Duration | Multi-generational wealth| South Dakota, Delaware |

Final Practical Takeaway

Advisors should:

• Recognize when choosing trust situs is relevant (mainly for irrevocable trusts).
• Build flexibility for future changes into all trust documents.
• Stay aware of state law changes—especially in high-tax states.
• Consider collaboration between in-state and out-of-state attorneys and trustees.
• Use trust strategies ethically and carefully—state authorities are closing loopholes and increasing scrutiny.

Hosts promise more on specific trust types (NING, DING, QSBS stacking) in future episodes.

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