Introduction: A Wyoming Domestic Asset Protection Trust (“WAPT”) is a self-settled, irrevocable trust in which you establish the trust as the “grantor” and are also a beneficiary. You may have other beneficiaries as well. “Irrevocable” is a term defined by the statute and does not have a common sense meaning. We discuss the legally defined term “irrevocable” in this article.
Goals: The primary goal of a WAPT is to deny creditors access to the assets you place in trust. In this respect, the provisions of Wyoming law and, in particular, the Wyoming Uniform Trust Code (“WUTC”) apply. These requirements are not negotiable, but the WUTC was drafted to allow you maximum flexibility over what the trust does with your assets. Remember, through the private trust company, you retain, in large part, control over the assets you place in trust.
The secondary goal most grantors have is to minimize their federal and state income and estate taxes. This is the subject of another article on this web site and is far more complex and requires an understanding of the applicable tax codes. You should seek independent advice on taxes.
WAPT Irrevocability Provisions. Your trust must be irrevocable; however, you're retaining the following rights and powers does not make your trust irrevocable:
- Power to veto a distribution from trust;
- Power during your life or at your death to appoint your assets to whomever you wish;
- Your potential or actual receipt of income;
- Your potential or actual receipt or use of principal when a qualified trustee, including a trustee acting at the direction of a trust advisor other than the grantor, makes such distribution or grants such use in the trustee's sole discretion or pursuant to an ascertainable standard contained in the trust instrument;
- Your right to add or remove a trustee, trust protector or trust advisor and to appoint a new trustee, trust protector or trust advisor, other than yourself;
- Your designating a trust protector who has the power to add beneficiaries to the trust who are not the trust protector, the estate of the trust protector, the creditors of the trust protector or the heirs of the trust protector.
- You right to serve as an investment advisor to the trust;
-
Your potential or actual receipt of income or principal to pay,
in whole or in part, income taxes due on income of the trust if
the potential or actual receipt of income or principal is
pursuant to a provision in the trust instrument that expressly
provides for the payment of the taxes and if the potential or
actual receipt of income or principal would be the result of a
qualified trustee's acting:
- In the qualified trustee's discretion or pursuant to a mandatory direction in the trust instrument; or
- At the direction of an advisor described in subparagraph (F) of this paragraph and who is acting in the advisor's discretion.
You must also take into consideration the tax effects of these powers, which may require a different approach to their inclusion in your WAPT. This requires another discussion, but again, the powers and rights you retain have an impact that must be flushed out with your counsel as you develop your strategy. You need good advice. You need an attorney to discuss the impact of your decisions with you.
These exceptions are the most general we find in our planning, but the list is not exhaustive. As you can see, the common sense understanding of the term “irrevocable” does not square with the statutory definition, which allows you a lot of discretion in what you do with your WAPT.
Good luck out there.