10-May-21
Michigan and Delaware Trust Law Rankings
Take-Away: Each year noted Nevada attorney Steve Oshins publishes a list or ranking of state trust laws that identifies the ‘best’ jurisdiction in which to situs a trust. Michigan’s rankings suggest that it is not viewed as much of a ‘trust haven’ compared to other states, including our immediate neighbors to the south. Delaware fares pretty well in these rankings.
Domestic Asset Protection Trust Statutes: Michigan is ranked 13th while Delaware is ranked 6th. Factors that are weighed in this state ranking include: (i) whether the state has adopted the Uniform Voidable Transactions Act (yes); (ii) the short statute of limitations on future creditor claims (2 years); (iii) the statute of limitations on preexisting creditors (2 years, or 1 year from the date of discovery); (iv) the number of exception creditors (child support only in Michigan); (v) preexisting tort exception creditors (none); (vi) an affidavit of solvency is required prior to funding the trust (yes in Michigan, no in Delaware); (vii) the high evidentiary standard that must be met to set aside fraudulent transfers (clear and convincing evidence); and (viii) the existence and flexibility of the state’s decanting statute (Michigan’s is 25th, Delaware’s is 7th in the rankings.)
State Trust Decanting Statutes: As noted, Michigan is ranked 25th while Delaware is ranked 7th. Factors that are weighed in this state statute ranking include: (i) can the trustee decant with an ascertainable standard? (yes;) (ii) does the statute require notice of intent to decant to beneficiaries (Michigan yes, Delaware no;) ((iii) can the trust be decanted from an ascertainable standard to a discretionary trust (Michigan no, Delaware yes;) (iv) can a trust be decanted with a mandatory income interest (Michigan no, Delaware yes;) (v) can a trust be decanted to give a power of appointment in the second trust to a non-beneficiary (Michigan, unclear, Delaware yes;) (vi) the ability through a decanting to accelerate a remainder beneficiary’s interest (Michigan yes, Delaware yes;) (vii) the state’s dynasty trust rank (Michigan unranked, Delaware 8th😉 and (viii) the state’s asset protection trust rank (Michigan 13th, Delaware 7th.)
Dynasty Trust State Statute: As noted, Delaware’s statute is ranked 8th, while Michigan’s rule against perpetuities statutes (360 for personal property, 90 years for real estate) do not apparently merit making the state statute rank.
Neighbors to the South: For Midwest comparison purposes, Ohio is listed 7th in the dynasty trust ranking, 3rd in the domestic asset protection trust ranking, and 6th in the trust decanting statute. Indiana is ranked 10th in both the trust decanting and domestic asset protection trust rankings.
Conclusion: These state rankings are a bit misleading as there is probably some bias from Mr. Oshins, since Nevada, his home state, usually appears near the top of each of these state rankings. With that caveat, there still is a long way for Michigan to go if it wishes to be viewed as a place where someone would want to situs their trust for flexibility purposes. Clearly constantly updating trust (or probate) laws is not a high priority for Michigan legislators, as indicated by the tortuous multi-year journey simply to adopt an entireties trust statute, the Bill for which will once again had to be reintroduced after the new Legislature convened earlier this year.