Asset protection and dynasty trusts

b. Personal Property Trusts

The administration of a trust of an interest in movables is governed as to matters which can be controlled by the terms of the trust:

(1) by the local law of the state designated by the settlor to govern the administration of the trust, or

4. Issues Relating to Trust Construction

An instrument creating an interest in property, whether of land or of movables, is construed in accordance with the rules of construction of the state designated in the instrument for this purpose. In the absence of such a designation, the instrument is construed (i) in the case of interests in land, in accordance with the rules applied by the courts of the situs, and (ii) in the case of an interest in movables, in accordance with the rules of construction of the state whose local law governs the administration of the trust as to matters pertaining to administration or of the state which the settlor would probably have desired to be applicable as to matters not pertaining to administration."'

5. Conflict-of-Laws Principles Governing Anti Alienation Clauses

a. Real Property Trusts

Whether a beneficiary's interest in a real property trust is assignable and reachable by creditors is determined by the law that would be applied by the courts of the situs as long as the land remains subject to the trust.112 The situs courts would apply their own local law to determine this question.173

b. Personal Property Trusts

Whether a beneficiary's interest in a personal property trust is assignable and reachable by creditors is determined:

(1) in the case of a testamentary trust, by the local law of the testator's domicile at death, unless the testator has manifested an intention that the trust be administered in another state, in which case it is governed by the local law of that state; and

D. Application of Conflict-of-Laws Principles to Claims That Asset Transfer Was Fraudulent

If an action challenging a transfer of assets into an Alaska, Delaware, Nevada, or Rhode Island trust is brought in another state's court, the forum state must decide whether to apply the law of the asset protection state, the law of the forum state, or the law of another state. 115 Several commentators have concluded that trust conflict-of-laws principles do not apply in determining what law governs a fraudulent transfer claim because this claim is unrelated to trust validity, construction, or administration."6 Rather, the fraudulent transfer cause of action is described as a tort or quasi-tort claim because the creditor is challenging the transfer of assets into the trust and not the internal affairs of the trust itself. "' Furthermore, the commentators concluded that settlors of a trust cannot bind third-party creditors to the settlors' choice-of-law.178

1. Enforceability of Settlors' Choice-of-Law

Because the choice-of-law clauses authorized or mandated by asset protection states provide generally that the law of the asset protection state governs only the validity, construction, or administration of the spendthrift trust, a forum court likely will not enforce settlors' choice-of-law clauses in cases involving fraudulent transfer claims. Although Delaware's asset protection statute specifically states that fraudulent transfer claims can only be brought against a qualified disposition pursuant to Delaware's fraudulent transfer law, a court in another state may refuse to enforce this provision based on the theory that settlors cannot bind third-party creditors to the settlors' choice-of-law.