- Eric N. Mann and Gina Shkoukani
Why the jurisdiction of choice for trust planning with digital assets has to be Wyoming
The popularity of digital assets has enhanced the need for advisors and fiduciaries to quickly become well versed about them in order to assist their clients in protecting and administering this relatively new asset class. A critical step in protecting and administering digital assets is determining which jurisdiction should govern trust planning. Wyoming is often selected due to 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. Thus, it's no surprise why many individuals are utilizing Wyoming-based trust companies for managing their digital asset portfolios.
1. Tax Friendly
According to Kiplinger, Wyoming has one of the lowest overall tax burdens in the U.S., making it an attractive jurisdiction for generational wealth planning. Wyoming has no state income or capital gains tax, and no gift or estate tax either. The income tax benefits are not limited to Wyoming residents and can in fact be utilized by non-residents who transfer assets to a Wyoming non-grantor trust.
2. Innovative trust laws and structures
Wyoming offers a variety of powerful tools for a trustee to address ever-changing circumstances relating to beneficiaries and their individual needs as set forth below.
Wyoming specifically grants trustees of discretionary or mandatory trusts the authority to decant, avoiding the need to rely on the trust instrument or common law for authority. Decanting can be used to (1) improve trust distribution provisions, (2) expand the class of permissible appointees for limited powers of appointments and (3) address changed circumstances. Although many states have decanting statutes, Wyoming's statute is expansive, stating:
"[A trustee may] [d]istribute all or any portion of trust income or principal in future trust for the benefit of the trust beneficiaries pursuant to authority granted in the trust instrument to make discretionary or mandatory distributions of trust income or principle to the trust beneficiaries, whether or not the discretionary or mandatory distributions are pursuant to an ascertainable standard."
This state statute is one of a minority of statutes that are broad enough to include trustees with only a mandatory distribution power. This power allows for 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 corporation formed to act as a fiduciary for trusts created to benefit members of a single family and does not provide trust services to the general public. Private family trust companies are commonly formed when a family has large holdings in a concentrated asset class, such as digital assets, or when the goal of the family is to gradually introduce the younger generation to the family's wealth management strategy.
Private family trust companies are typically established in only a few states, with Wyoming being very popular due to the benefits mentioned above and the fact that it offers both regulated and unregulated options with different capitalization requirements.
3. Privacy and creditor protection
In general, clients often prioritize keeping their estate planning and trusts private while creating structures that protect a beneficiary from creditor claims, including a spouse of a beneficiary in the event of divorce. Wyoming's laws provide some of the strongest privacy and creditor protection laws in the country.
Most state laws require trustees to keep current and presumptive remainder beneficiaries of a trust informed on their beneficial interest in such trust. This generally includes the trustee providing the beneficiaries with information regarding the existence of the trust, a copy of the trust instrument, and a regular trust accounting.
Wyoming is one of seven states that permit what is referred to as a "silent trust," which often prevents the trustee and other fiduciaries from disclosing the existence of the trust until a specific point in time. Some clients like to form silent trusts for their children so their children do not rely on the trust funds but instead live more productive lives in society.
A silent trust, like all other Wyoming trusts, is equipped to hold crypto assets and is a perfect mechanism to park digital assets until a later date in time, usually when the beneficiary attains a certain age, or maybe when the trust funds accumulate to a specified value.
Asset protection trusts
Similar to silent trusts, Wyoming is one of a few states that authorize the use of self-settled asset protection trusts. Asset protection trusts are irrevocable trusts that allow the settlor to be named as a beneficiary, maintain the authority to control the trust's investments and are generally protected from attachment by the beneficiary's creditors after a certain time period has elapsed.
Wyoming has two statutory asset protection trusts: the Qualified Spendthrift Trust and the Discretionary Asset Protection Trust. These trusts are well suited to hold digital assets, especially if the settlor/beneficiary wants to not only serve as an investment advisor but also receive distributions.
4. Comprehensive legal framework for digital assets
Since 2019, Wyoming has passed 24 laws addressing digital assets, becoming the first state to pass blockchain-enabling legislation and establishing the treatment of digital assets as intangible property under Article 9 of the Uniform Commercial Code (UCC). According to W.S. 34-29-101, a digital asset "means a representation of economic, proprietary or access rights that is stored in a computer readable format and is either a digital consumer asset, digital security or virtual currency."
By passing such legislation, Wyoming has formally recognized digital assets as intangible property that is subject to the same general Wyoming scheme of property rights, property protection and any form of disposition of property available to other forms of intangible property.
In addition, Wyoming offers Chancery Court, a specialized court of limited jurisdiction focusing on business and trust cases. Chancery Court paired with Wyoming's advanced legal framework for digital assets creates a favorable working environment for blockchain and cryptocurrency companies.
5. Putting it all together
Wyoming not only has 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-chartered trust company, is the first company to receive a letter issued by a state or federal regulator, in this case, the Wyoming Division of Banking, acknowledging it as a qualified custodian of cryptocurrency.
Planning with digital assets is still an uncharted territory, and Two Ocean Trust, along with Anchorage Digital Bank, created the COIN Trust, or the Crypto Optimized Irrevocable Non-grantor Trust. At its core, COIN Trust creates a customized vehicle for holding, administering and protecting digital assets while combining elements of estate planning and professional management.
Some of the features and benefits specifically customized for a crypto-investment environment include:
multi-signature private key management;
institutional-grade trade execution;
systematic performance and tax reporting;
qualified custody of digital assets; and
access to favorable trust, estate planning, and tax laws deliberately designed into a pro-crypto regulatory and legal framework.
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 state income taxes, legislation that recognizes the use of digital assets, and an active trust company market supporting digital assets makes it a great choice for planning with cryptocurrency and other digital assets.
Eric N. Mann is a regular contributing columnist on trusts and estates law for Reuters Legal News and Westlaw Today.