Gray's Ghost - a Conversation About the Onshore Trust

Abstract

This Article explores avenues that a creditor might use to attack the onshore self-settled spendthrift trust. The Article assumes that state courts (other than the courts of Alaska, Delaware, Nevada, or Rhode Island) will be offended at the notion of a self-settled spendthrift trust, and, therefore, the creditor will want the enforceability issue to be resolved by a court in a jurisdiction other than the four identified states. Using a hypothetical, the Article addresses whether a non-Alaska court (using a Washington state court as the example) could rule on the enforceability of tort and contract creditors' judgments against the trust, despite the Alaska spendthrift provision. Before the court reaches the issue, however, the hypothetical creditors will face jurisdictional and choice of law hurdles, and full faith and credit problems as to whether Alaska will respect the Washington court's judgment. There are also other methods of attacking the trust. The Article further addresses whether the self-settled spendthrift trusts will serve their secondary goal of federal estate tax savings. Finally, the Article addresses whether the self-settled trust has any place in the United States legal system, discussing this issue from the historical perspective of the original controversy over spendthrift trusts and in light of the current justifications for these trusts.

Keywords: Trust, spendthrift trusts, spendthrift, estate, estate tax, tax, gift tax, grantor, full faith, full faith and credit, tax savings, Alaska, Delaware, Nevada, Rhode Island, personal jurisdiction, choice of law, contempt, bankruptcy, contract, remedy, trustee, creditor

JEL Classification: H2, H24, H26, K34, K4