Asset protection and dynasty trusts

3. Nevada

4. Rhode Island

Rhode Island's asset protection statute resembles Delaware's asset protection statute in that it requires settlors of self-settled spendthrift trusts to incorporate Rhode Island law expressly to govern the validity, construction, and administration of the trust."57 Rhode Island's trust laws further provide that Rhode Island law governs the validity, construction, effect, and administration of all trusts holding personal property if the trust instrument contains a Rhode Island choice-of-law clause, and either (i) the personal property is located in Rhode Island when the trust is created and the trust is administered in Rhode Island; (ii) a trustee is a Rhode Island resident or a domestic corporation or national bank located in Rhode Island and authorized to act as trustee and the trust is administered in Rhode Island; or (iii) the trust is created by a Rhode Island resident.158

C. Conflict-of-Laws Principles Governing Trusts Under the Second Conflict of Laws Restatement

Most states have adopted the Restatement (Second) of Conflict of Laws (the "Restatement").'"9 The general rules contained in the Restatement focus on the significance of a state's contacts to the trust and on the settlor's intention concerning the law that should govern the trust. Chapter 10 of the Restatement contains conflict-of-laws principles relating to trusts. The introductory note to Chapter 10 states that

[t]he chief purpose of making decisions as to the applicable law is to carry out the intention of the [settlor].... It is important that his intention... not be defeated, unless this is required by the policy of a state which has such an interest in defeating his intention, as to the particular issue involved, that its local law should be applied."

1. Distinctions

a. Real Property vs. Personal Property

The primary distinction is between interests in real property and interests in personal property, which the Restatement refers to as "movables" and which includes chattels, rights embodied in documents, such as bonds or shares of stock, or rights not so embodied. As discussed more fully below, the state in which real property is located (the "situs" of the property) often is treated as having a sufficient interest in issues relating to the property that the law of the situs is applied to such issues. Such considerations are much less important in determining which state's laws to apply to interests in movables.

b. Secondary Distinctions

Within each of the primary categories of interests in land and interests in movables, the Restatement separately discusses conflict-of-laws principles applicable to (i) the validity of a trust, (ii) issues arising under the administration of a trust, (iii) construction of a trust instrument, and (iv) restraints on alienation of a beneficiary's interest under a trust.

2. Issues Relating to Validity

a Real Property Trusts

The law that the courts of the sites would apply determines the validity of a trust of an interest in land."' In most situations the courts of the state of the sites will apply local law.?62