Why the Jurisdiction of Choice for Trust Planning with Digital Assets Must Be Wyoming

October 19, 2022 – The popularity of digital assets has reinforced the need for advisors and trustees to quickly learn about them in order to help their clients protect and administer this relatively new asset class. A critical step in protecting and administering digital assets is determining which jurisdiction should govern the planning of the trust. Wyoming is often selected because of its favorable tax, trust, and privacy laws.

But when it comes to assets like cryptocurrency, Wyoming is the only state with a comprehensive legal framework specifically designed for digital assets. So it’s no surprise that many people use Wyoming-based trust companies to manage their digital asset portfolios.

1. Taxation

According Kiplinger, Wyoming has one of the lowest overall tax burdens in the United States, making it an attractive jurisdiction for generational wealth planning. Wyoming has no income or capital gains tax, nor gift or estate tax. The tax benefits are not limited to Wyoming residents and can in fact be used by non-residents who transfer assets to a non-granting Wyoming trust. (https://bit.ly/3VnWjoU).

2. Innovative Trust Laws and Structures

Wyoming offers a variety of powerful tools for a fiduciary to deal with ever-changing circumstances relating to beneficiaries and their individual needs, as outlined below.

Settling

Wyoming specifically grants trustees of discretionary or mandatory trusts the power to settle, thereby avoiding having to rely on the trust instrument or the common law for authority. Decanting can be used to (1) improve trust distribution arrangements, (2) broaden the class of authorized persons for limited appointing powers, and (3) respond to changing circumstances. Although many states have settling statutes, Wyoming’s statute is expansive, stating:

“[A trustee may] [d]Distribute some or all of the income or principal of the trust into a future trust for the benefit of the beneficiaries of the trust in accordance with the authority granted in the trust indenture to make discretionary or mandatory distributions of the income or principle of the trust to the beneficiaries of the trust, whether or not it is discretionary or not. mandatory distributions conform to a verifiable standard.”

This state law is one of a minority of laws broad enough to include trustees with only mandatory power of distribution. This power allows older trusts to be upgraded to include modern provisions regulating digital assets.

Private family trust companies

A private family trust company is a limited liability company or company incorporated to act as a trustee of trusts set up for the benefit of members of the same family and does not provide trust services to the general public. Private family trust companies are typically formed when a family holds large holdings in a concentrated asset class, such as digital assets, or when the family’s goal is to gradually introduce the younger generation into the strategy. family wealth management.

Private family trust companies are typically only established in a few states, with Wyoming being very popular due to the advantages mentioned above and the fact that it offers regulated and unregulated options with different capitalization requirements.

3. Privacy and protection of creditors

In general, clients often prioritize the confidentiality of their estate planning and trusts while creating structures that protect a beneficiary from claims by creditors, including a beneficiary’s spouse in the event of a divorce. Wyoming laws provide some of the strongest privacy and creditor protection laws in the country.

Silent trusts

Most state laws require trustees to notify actual and alleged residual beneficiaries of a trust of their beneficial interest in that trust. This typically includes the trustee providing beneficiaries with information regarding the existence of the trust, a copy of the trust deed, and proper accounting of the trust.

Wyoming is one of seven states that allow what is called a “silent trust,” which often prevents the trustee and other trustees from disclosing the existence of the trust until a specific time. Some clients like to form silent trusts for their children so that they do not depend on the trust funds, but rather live more productive lives in society.

A silent trust, like all other trusts in Wyoming, is equipped to hold crypto assets and is a perfect mechanism for storing digital assets until a later date, usually when the beneficiary reaches a certain age, or perhaps when trust funds accumulate to a specified value.

Asset protection trusts

Similar to silent trusts, Wyoming is one of the few states that allows the use of self-established asset protection trusts. Asset protection trusts are irrevocable trusts that allow the settlor to be named beneficiary, retain the power to control the trust’s investments, and are generally protected from seizure by the beneficiary’s creditors after a certain period of time.

Wyoming has two statutory asset protection trusts: the Qualified Spendthrift Trust and the Discretionary Asset Protection Trust. These trusts are well suited for holding digital assets, particularly if the settlor/beneficiary wishes to not only serve as an investment advisor, but also to receive distributions.

4. Complete legal framework for digital assets

Since 2019, Wyoming has passed 24 digital asset laws, becoming the first state to pass legislation enabling blockchain and establishing the treatment of digital assets as intangible property under Section 9 of the Uniform Commercial Code ( UCC). According to WS 34-29-101, a digital asset “means a representation of economic, ownership, or access rights that is stored in a computer-readable format and that is either a consumer digital asset, digital security, or currency Virtual”.

By passing such legislation, Wyoming formally recognized digital assets as intangible property subject to the same general Wyoming regime of property rights, property protections, and any form of ownership disposition available to others. forms of intangible property.

Additionally, Wyoming offers Chancery Court, a specialized court with limited jurisdiction that focuses on business and trust matters. Chancery Court, coupled with Wyoming’s advanced legal framework for digital assets, creates a favorable working environment for blockchain and cryptocurrency companies.

5. Put it all together

Wyoming doesn’t just have the laws supporting digital assets and trust planning; it has commercial companies taking the lead in this space. For example, Two Ocean Trust, a Wyoming-licensed trust company, is the first company to receive a letter from a state or federal regulatory agency, in this case the Wyoming Division of Banking, recognizing it as a qualified trustee. of cryptocurrency.

Planning with digital assets is still uncharted territory, and Two Ocean Trust, together with Anchorage Digital Bank, has created the COIN Trust, or the Crypto Optimized Irrevocable Non-grantor Trust. At its core, COIN Trust creates a customized vehicle to hold, administer and protect digital assets while combining elements of estate planning and professional management.

Some of the features and benefits specifically tailored for a crypto investment environment include:

•management of multi-signature private keys;

• institutional quality trade execution;

•systematic performance and tax reporting;

•qualified custody of digital assets; and

• Access to favorable trust, estate planning and tax laws deliberately designed within a pro-crypto regulatory and legal framework.

Conclusion

Wyoming has positioned itself as one of the leading states to facilitate planning with digital assets. A combination of strong trust and creditor protection laws, no income taxes, legislation that recognizes the use of digital assets, and an active market of trust companies supporting digital assets makes it a great choice for planning with cryptocurrency and other digital assets.

Eric N. Mann is a regular columnist on trusts and estates law for Reuters Legal News and Westlaw Today.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Thelma J. Longworth