FIDUCIARY INCOME TAX COMMITTEE
ABA SECTION OF TAXATION
2010 ABA MID-YEAR MEETING
JANUARY 21–23, 2010
SAN ANTONIO, TEXAS
RISKS AND OPPORTUNITIES
FOR
PRIVATE TRUST COMPANIES AND FAMILY OFFICES
FROM
STATE & FEDERAL (NON-TAX)
LEGISLATIVE DEVELOPMENTS AND PROPOSALS
SLIDES PREPARED BY:
JOHN P.C. DUNCAN, ESQ.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
CHICAGO, ILLINOIS
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
WHAT IS A PRIVATE TRUST COMPANY?
 A trustee designed expressly to exercise discretion according to
Strategic Family’s values and in pursuit of its Strategic Plan
 A perpetual entity—a corporation or LLC—that is


Legally qualified to act as trustee of family trusts
Owned, controlled and serving a single family and the family’s
related entities
 A Private Trust Company is empowered to


-1-
Act as trustee with full control over fiduciary assets
Exercise comprehensive financial services powers to provide a
full range of family investment and other financial services
© 2004-2010 Duncan Associates A&C, P.C.
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DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
TWO TIERS OF PTCS
 Tier One—Regulated Private Trust Company



Most potent form of family office—broad geographical,
product and services powers
Families use as strategic solutions but also as strategic structures
for pursuing goals and implementing the Strategic Plans and
decisions of a family over generations
Exempt (properly structured) from registration as investment
advisor with SEC
 Tier Two—Unregulated Private Trust Company




-2-
Cheaper, easier, unsupervised—but less powerful
Strategic solution for one or more major, existing strategic
problems confronting a family (e.g., succession; ownership of
operating company in trust)
Not SEC exempt
Cannot operate interstate offices
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
SINGLE FAMILY PTC FORMATIONS IN KEY STATES
SEPTEMBER 2009 SURVEY
PRIMARY STATES
ALASKA
DELAWARE
ILLINOIS
NEVADA1
NEW HAMPSHIRE
NEW YORK
SOUTH DAKOTA
TEXAS
WYOMING2
TOTAL
REGULATED
PTCs
0
3
2
12
3
3
19
12
3
58
1
Authorizes unlicensed “family trust companies,” for which no data is available.
DAAC has helped set up 2.
2
Authorizes unregulated corporate fiduciaries, for which no data is available.
DAAC has helped set up 5.
-3© 2004-2010 Duncan Associates A&C, P.C.
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DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
THE PURPOSE OF THE PRIVATE TRUST COMPANY
 PTCs exist to achieve Strategic Families’ purposes
 Strategic Families—

Are committed to working together as a matter of preference
but also born of the conviction it is a strategic necessity

Have decided their family purposes, usually including—
i.
Keeping the family sharing and working together
in a meaningful way for generations;
ii. Using wealth to help or at least not harm each family
member’s reaching his/her potential as a human being; and
iii. Pursuing collective and individual charitable objectives,
actively helping their communities and benefiting society
as a whole


-4-
Know wealth is a means, not an end, and know the role
it must play to achieve the family’s purposes
Have substantial wealth beyond consumption’s requirements
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
SURVEY—SUCCESS OF PTCS IN ACHIEVING PURPOSES3
PRIORITY4 SUCCESS5
24 RESPONDENTS:
PURPOSE
Control Purposes
Maximum family control over assets and decisions
Solve trustee succession problem
Coordinate family’s and trusts’ investment management
and family financial services
Other Purposes
Flexible trust administration to meet
changing family needs and circumstances
Federal tax planning
Insulate family members and advisors from liability
Privacy and confidentiality
Risk management for family assets and services
 Tailored family member wealth management roles and
 Family member skill and knowledge development
Exempt investment activities from SEC registration
Access to best trust law and/or tax environments
3.0
2.8
3.0
1.6
1.5
1.9
3.2
5.6
1.5
1.9
4.3
4.3
4.5
5.7
5.8
2.1
N.A.
1.9
1.7
2.0
6.4
6.9
6.9
2.0
1.8
2.1
Survey of 24 PTC representatives on October 2, 2009, by the PTC Association, LLC.
Scored on a 10 point scale, where 1 is the highest priority.
5
Scored on a 5 point scale, where 1 represents the greatest success in achieving purpose.
3
4
-5-
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
IDEAL AND CURRENT BEST STATES’ PTC/FAMILY OFFICE
LEGAL ENVIRONMENTS (SEE EXHIBIT 1)
 Trust company laws






-6-
Limited PTC regulation with authority to provide wide range of
services to broad range of “family members” and affiliated entities
Moderate PTC capital requirements, investable under Prudent
Investor Rule
No trust income taxes; modest trust company taxes
Broad and express authority to use affiliated advisors and
investments, including related private investment funds
Interstate office and activities authority for PTCs
Strong confidentiality for trusts, family clients and PTC
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
IDEAL AND CURRENT BEST STATES’ PTC/FAMILY OFFICE
LEGAL ENVIRONMENTS (CONTINUED)
 Trust laws
 Statutory support for settlors’ choices in trust instrument

Robust Prudent Investor Law
 Support for asset concentrations
 Strong authority to delegate (prudent delegation)

Specialized trusts







-7-
Dynasty trusts
Purpose trusts
Quiet trusts
Asset protection trusts
Decanting authority
Judicial/Non-judicial trust modification/termination
Directed trustee and other “excluded fiduciary” protection
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
IDEAL AND CURRENT BEST STATES’ PTC/
FAMILY OFFICE LEGAL ENVIRONMENTS (CONTINUED)
 Public policy contexts


Flexible, supportive, competent and responsive regulator
Jurisprudence (in at least one metropolitan area)
 Capable trust bar
 Accessible, specialized trust/probate courts

Proactive and responsive legislature for
 Trust law
 Trust company law
 Limiting trust taxes


-8-
Private/Public working group(s) to keep trust and trust
company laws current
Skilled professionals and other infrastructure to support
charter offices of PTCs
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
IMPORTANT NEW PRIVATE TRUST COMPANY/
TRUST LAW DEVELOPMENTS (SEE EXHIBIT 2)
 New Hampshire


Decanting, dynasty purpose trust
Statutory declaration that Prudent Investor Act is
“administrative” and applies to NH-administered trusts
 Robust protection for directed trustees
 Balanced asset protection trusts
 Duty to communicate among fiduciaries
(trustees, advisors, protectors)
 Authority to require beneficiaries to maintain confidentiality
regarding trust assets/strategies
 Quiet trusts
 Wyoming

-9-
Strongly favors, in determining “most significant” relationship for
governing law purposes, principal place of administration and
location of assets, not location of settlor/beneficiary
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
IMPORTANT NEW PRIVATE TRUST COMPANY/
TRUST LAW DEVELOPMENTS (CONTINUED)
 Nevada

Licensed and unlicensed “family trust companies” with
 Broad powers, broad range of “family members” served
 Choice of no or limited regulation
 All capital investable under Prudent Investor Act

Distribution (and more?) discretion standard—liable only for
dishonesty, improper motive or failure to act

Adopted many provisions modeled on New Hampshire law
 South Dakota


- 10 -
Distribution (and more?) discretion standard—liable only for
dishonesty, improper motive or failure to act
Broad new decanting power to trusts with same or other
beneficiaries; 20 days prior notice to beneficiaries
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
POLITICAL RISKS AND OPPORTUNITIES FOR PRIVATE
TRUST COMPANIES—THE NEED FOR VIGILANCE
 State legislative and regulatory initiatives




- 11 -
Two state near-disaster stories (SD, NV)
State disaster contingency plan (move PTC)
Nevada, South Dakota, New Hampshire? Others?
 Upsetting the balance between trustees and beneficiaries
 Only a problem for families without PTCs
New York Fiduciary Income Taxation Proposal
 Eliminate tax exemption for resident trusts domiciled outside
of New York
 Make all testamentary trusts resident trusts
 Tax resident, non-testamentary trusts with no NY source
income based on percentage of ascertainable beneficiaries in
New York
 Constitutionality issues
 Major impacts on corporate fiduciaries “domiciled” outside of
New York
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
POLITICAL RISKS AND OPPORTUNITIES FOR PRIVATE
TRUST COMPANIES—THE NEED FOR VIGILANCE
 Federal legislative and regulatory initiatives



- 12 -
Proposals eliminating exemptions from Investment Advisers Act
registration commonly used by family offices
Proposal eliminating “100 or fewer” (3(c)(1)) and Qualified
Purchaser (3(c)(7)) exemptions from Investment Company Act
Application of fiduciary standards to all investment professionals
(to be defined/redefined by SEC)
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
H.R. 4173—“WALL STREET REFORM AND CONSUMER
PROTECTION ACT OF 2009”
 Introduced by Rep. Barney Frank (D-MA) on December 2, 2009
 Passed the House of Representatives on December 11, 2009
(on 223–202 vote)

- 13 -
Investment Advisers Act of 1940 Amendments
 Would require “private fund” investment advisers to register with
the SEC, maintain records (which are subject to periodic SEC
examination) and make reports on systemic risk data
 “Private fund” defined as “an issuer that would be an investment
company under section 3(a) of the Investment Company Act of
1940 but for the exception provided from that definition by either
section 3(c)(1) [fewer than 100 investors] or 3(c)(7) [only
qualified purchasers as investors] of such Act.”
 Proposes to exempt from registration venture capital fund
advisers and any investment adviser of a private fund with assets
under management in the United States of less than $150 million
 There is no family office exemption
 PTC (bank) exemption unaffected
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
H.R. 4173—“WALL STREET REFORM AND CONSUMER
PROTECTION ACT OF 2009” (CONTINUED)

Investment Company Act of 1940 Amendments

No relevant amendments survived House
 Note that 3(c)(1)- and 3(c)(7)-exempt investment
companies would be classified as “private funds” and their
advisers required to register under the Investment
Advisers Act of 1940, as described earlier

“Uniform” Fiduciary Standards


- 14 -
Would amend Securities Exchange Act of 1934 and the
Advisers Act to direct the SEC to promulgate a fiduciary
standard of conduct for a broker or dealer when providing
personalized investment advice about securities to a retail
customer
Applicable standard of conduct for a dealer or broker is to be
same as “best interests of the customer” standard applicable to
an investment adviser
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
SENATE DISCUSSION DRAFT—“THE RESTORING
AMERICAN FINANCIAL STABILITY ACT”
 Introduced by Sen. Christopher Dodd (D-CT)
 Still in draft form with the Senate Banking Committee
 Sen. Dodd negotiating with Sen. Richard Shelby (R-AL) in an effort to
morph the draft into bi-partisan legislation.
 Investment Advisers Act of 1940 Amendments
 Amends the Act to require “private fund” investment advisers to
register with SEC, maintain records (which are subject to periodic SEC
examination) and make reports on systemic risk data
 “Private fund” defined as one that
 Would be investment company under section 3 of Investment
Company Act but for section 3(c)(1) [fewer than 100 investors]
or 3(c)(7) [qualified purchaser investors]; and
 Either is
o Organized or otherwise created under the laws of the United
States or of a State or
o Has 10% or more of outstanding securities owned by US
persons
- 15 -
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
SENATE DISCUSSION DRAFT—“THE RESTORING
AMERICAN FINANCIAL STABILITY ACT” (CONTINUED)
 Includes two registration exemptions not in the House bill
 Any family office, as defined by rule, regulation, or order of the
SEC, would not be considered to be an Investment Adviser
 Private equity fund advisers exemption
 The SEC would be required to issue final rules to identify and
define “private equity fund” within six months of enactment
 Investment Company Act of 1940 Amendments
 Would clarify that the SEC may promulgate rules designating
documents or information that a registered investment company
must provide to a purchaser of its securities
 Note that 3(c)(1)- and 3(c)(7)-exempt investment companies
would be classified as “private funds” and their advisers required to
register under the Investment Advisers Act of 1940, as described
earlier
- 16 -
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
SENATE DISCUSSION DRAFT—“THE RESTORING
AMERICAN FINANCIAL STABILITY ACT” (CONTINUED)
Fiduciary Standards
 Would mandate uniform standards for anyone providing investment
advice, eliminating different standards for broker-dealers and
investment advisers
 Extends a fiduciary duty to broker-dealers by eliminating the brokerdealer exemption from registration under Investment Advisers Act
- 17 -
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All rights reserved.
MAKING TAX-SENSITIVE TRUST DECISIONS—
PRACTICAL GUIDANCE
 Problem—
 A family desires a level of involvement in the governance and
management of a PTC that could create adverse tax consequences
for family trusts
 Adverse income, estate, gift and generation-skipping transfer
taxes are all possible as a result of the possible exercise of “tax
sensitive powers” by tainted” individuals
 Solution—
 Irrevocable provisions that “wall-off tainted individuals” from
tax sensitive powers (i.e., “firewalls”)
 Getting taxpayer-families and the IRS in agreement as to what
those firewalls need to look like
- 18 -
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All rights reserved.
IRS’ ORIGINAL RULING POSITION—
HIGHLY RESTRICTIVE FIREWALLS (PRE-2005)
 IRS’ Original Position
 Prevented any family involvement in discretionary decisions and
required term limits on all members of the “discretionary decision
committee”
 Placed restrictions on family ownership/control (no more than
50% in any one branch
 Families’ Responses


- 19 -
Most families, including those who sought PLRs, adhered to the
IRS position on restrictions
Some families, however, allowed limited family involvement on
Discretionary Decisions Committees (“DDCs”) based on wellsettled precedents applicable to individual trustees
© 2004-2010 Duncan Associates A&C, P.C.
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PROPOSED REVENUE RULING—NOTICE 2008-63 (2008)
 Laudable objective— that tax compliance requirements for PTC
trustees be no more restrictive than for individual trustees
 Alternative fact patterns


Situation 1—Posits statutory firewalls (currently non-existent)
Situation 2—Posits firewalls within PTC governing documents
 Mandates workable, acceptable restrictions (assuming minor
clarifications)
 Disqualifies individuals from participating on the “DDC” if they
individually could not have served as a trustee (for transfer tax
purposes)—but non-tainted family members may now participate
- 20 -
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All rights reserved.
DAAC COMMENTS ON NOTICE 2008-63 (NOV. 2008)
 Generally—excellent, but revisions and clarifications needed
 Modifications to completely fulfill IRS’ and families’ goals



Personnel Decisions—restriction on personnel decisions should only
apply to owners and/or only apply with respect to members serving
on Discretionary Decisions Committee
Amendment Committee—arguably necessary for income tax issues,
it may not conform to state law but can be made workable
Term Limits—“related and subordinate party” definitional
problems can be addressed with use of term limits
 Miscellaneous—
i.
acknowledges use of LLC PTC structure, independent nondirector committee members and perpetual trusts
ii. expands definition of Discretionary “Decisions” (from
“distributions”)
iii. provides and acknowledges safe harbor disqualification rules
for income tax issues
- 21 -
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
JANUARY 2010 STATUS REPORT ON PROPOSED REVENUE
RULING 2008-63 AND STRUCTURING COMPLIANT PTCS
 Proposed Revenue Ruling status
 On the IRS “business plan”–Treasury expects it to be done 2010
 IRS actively working on it currently and drafting a Final Ruling
 Problems responsible for delays


Income Tax Issue—Whether Amendment Committee will be
effective and work under state law to control “related and
subordinate party” participation
Procedural Problem—If final ruling varies significantly from the
Proposed Ruling, does IRS issue new Proposed Ruling or go to a
Final Ruling?
 Current Bottleneck—“Some calls need to be made by Treasury.”
 New Comments Welcome—DAAC offered new comment with a
structure developed since comment period to make Amendment
Committee workable and state-law-compliant
- 22 -
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DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
LEGAL
Any discussion of U.S. tax matters contained herein, including crossreferenced materials, is not intended or written to be used, and cannot be
used, in connection with the promotion, marketing or recommendation
by anyone unaffiliated with Duncan Associates Attorneys and
Counselors, P.C. of any of the matters addressed herein or for the
purpose of avoiding U.S. tax-related penalties.
© 2004-2010 Duncan Associates A&C, P.C.
All rights reserved.
DUNCAN ASSOCIATES
EXHIBIT 1
ATTORNEYS AND COUNSELORS, P.C.
EXCLUSIVELY FOR
PTC ASSOCIATION CONFERENCE
OCTOBER 1, 2009
180 North LaSalle Street
Suite 3850
Chicago, Illinois 60601
PRIVATE TRUST COMPANY
IDEAL AND CURRENT BEST STATES’ PTC LEGAL ENVIRONMENTS
FEATURE
IDEAL APPROACH
BEST CURRENT JURISDICTION
OTHER IMPORTANT JURISDICTIONS
Nevada
 Family trust company
(“FTC”) authority
 Requirements meet all the
criteria of the ideal approach
for single- and multi-family
private trust companies
New Hampshire
 Narrower definitions of “family member”
 Relief from many regulatory burdens requires
a petition
South Dakota
 Class I trust companies limit activities to
undefined “private assets”
 Subject to exams half as frequently (36
months) as commercial trust companies
Wyoming
 Allows unregulated (but undefined)
family PTCs
Nevada.
 Minimum Capital may be
invested in any cash
equivalents, marketable
securities or government
securities
 Excess Capital pursuant to
prudent investor rule
South Dakota
Minimum Capital
 $100,000 of liquid securities, e.g. Treasuries
(pledged for benefit of accounts)
 Balance per Prudent Investor Rule
Excess Capital
 Prudent Investor Rule
1. Private Trust
Company Authority
Express PTC Authority




Investment of Capital

Exh 1 Ideal-Best PTC Laws 100109.doc
Authorizes regulated multi-family and
regulated and unregulated single-family
trust companies
Regulated family trust companies have
lower capital requirements and
supervisory burdens than commercial
trust companies
Grants all trust companies full range of
fiduciary, agency and advisory powers
except family trust companies can only
serve family members
“Family members” clearly defined and
includes broad range of blood and
consensual relations, spouses and their
relations, related entities and charities,
and trusts for or by family members
Trust company may invest entire capital
pursuant to prudent investor rule
© 2000–2009 Duncan Associates A&C, P.C.
All Rights Reserved.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
FEATURE
IDEAL APPROACH
BEST CURRENT JURISDICTION
OTHER IMPORTANT JURISDICTIONS
2. Taxation
State Personal Income
None
State Resident/
Non-Resident Trust
Income
None
State Corporate Income
None
State Business/Franchise
Nominal
South Dakota, Nevada,
Wyoming, Tennessee and
others
None
South Dakota and Nevada
None
South Dakota and Nevada
None
Nevada
 2% of wages
 Business license fee–$100
 Local business license
required (varies by location;
can be several thousand
dollars)
New Hampshire
 5% on dividend and interest income of NH
residents
New Hampshire
 5% on dividends and interest income of a NH
resident beneficiary’s share of trust)
 None on “non-resident beneficiaries”, but
residency definition issue
New Hampshire
 8.5% of business profits
New Hampshire
 0.75% of employee compensation–may be
offset against business profits tax
South Dakota
 Annual minimum franchise tax of up to
$25,000 per year
3. Application/
Regulatory
Supervision
Directors/
Directors’ Meetings





Exh 1 Ideal-Best PTC Laws 100109.doc
No more frequent than quarterly
No location requirement
Attendance by phone/video
Resident directors not required
No more than 3 directors required
Nevada
 Consistent with ideal (for
FTC)
-2-
South Dakota
 Requires resident director
© 2000–2009 Duncan Associates A&C, P.C.
All Rights Reserved.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
FEATURE
Confidentiality/Privacy
Interstate Trust Offices/
Interstate Fiduciary
Activities
IDEAL APPROACH
Robust confidentiality protections for:
 Identity of owners and managers
 Application materials
 Customer accounts
 Company financials
 Permits
 Permits
BEST CURRENT JURISDICTION
OTHER IMPORTANT JURISDICTIONS
Nevada
New Hampshire
South Dakota
All attractive PTC jurisdictions have similarly
strong protections
Most states (approximately 30)
Delaware, Colorado, California, South
Carolina, Florida, Arizona and Wyoming
 Are among states not permitting interstate
trust offices
 California does not permit most interstate
fiduciary activities
 Wyoming does not permit interstate offices
but remains attractive for unregulated PTC
authority
Important variations by state with respect to duty
to diversify, standards for delegation and duty of
loyalty (see below)
Delaware
 Enhanced standard
New Hampshire, Nevada, South Dakota
 Limited liability
Problem states include Illinois and New York
Various states have more limited approaches
4. Trust Law
General Investment
Standard
Uniform Prudent Investor Act standard
provisions (“UPIA Standard”)
All attractive PTC jurisdictions
have adopted
Duty to Diversify

None

Authority to Delegate
Ability to Use/Invest
in Affiliates and
Relaxed Duty of Loyalty
Enhanced UPIA Standard supporting
authority to hold concentrations
Limited liability for discretionary
decisions
UPIA Standard (prudent delegation)
Self-dealing prohibitions replaced with
 Objective standards of fairness, price
and competency and/or
 Disclosure of relationship/fees
requirement
Exh 1 Ideal-Best PTC Laws 100109.doc
Most UPIA states
South Dakota
New Hampshire
Nevada
Delaware
-3-
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DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
FEATURE
IDEAL APPROACH
Statutory Designation of
Statute making key trust laws
Trust Administration Law administrative
Not aware of other states addressing this issue
New Hampshire
Delaware, Nevada and South Dakota
 Are all states with problematical APTs
New Hampshire
South Dakota
Delaware
 Many jurisdictions have less robust
protections than these three
Assures coordination among fiduciaries in
multi-participant trusts
New Hampshire
South Dakota
Most attractive PTC jurisdictions lack such a
provision
Modifies duty to communicate with
beneficiaries regarding sensitive
information, such as financials or strategic
plans of a closely-held business owned by
the trust, by allowing trustee to require a
confidentiality agreement
New Hampshire permits the
exercise of such authority
Most attractive PTC jurisdictions lack such a
provision
Broad Powers to decant
Perpetual, Decanting
Purpose Trust
Authorization for a purpose trust of
perpetual existence and decantable into
trusts with charitable or non-charitable
beneficiaries
Authorization of Asset Protection Trusts
(mindful of public policy considerations and
trustee exposures) (“APT”)
Robust protection for directed trustees
operating within the ambit of the
“direction”
Directed Trustee
Protections
Duty to Communicate
with Other Fiduciaries
(Trustees, Advisors,
Protectors)
Authority to Require
Beneficiaries to Maintain
Confidentiality Regarding
Certain Trust Assets
OTHER IMPORTANT JURISDICTIONS
New Hampshire
Makes Prudent Investor Rules
administrative and applicable to
trusts administered in NH
New Hampshire and Delaware
Permit decanting consistent with
purpose of trust to new trust for
any existing beneficiaries
New Hampshire
South Dakota
Trustee Decanting Power
Asset Protection Trusts
BEST CURRENT JURISDICTION
Exh 1 Ideal-Best PTC Laws 100109.doc
-4-
South Dakota’s new law permits decanting to
new trust with any beneficiary, whether or not of
old trust, after 20 days prior notice to
beneficiaries
Delaware
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All Rights Reserved.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
FEATURE
Quiet Trusts
IDEAL APPROACH
BEST CURRENT JURISDICTION
New Hampshire
Representation of Absent
Beneficiaries
No obligation to make reports to
beneficiaries
Authorization for trust to act on behalf of
absent beneficiaries
Nonjudicial Modification
or Termination of
Irrevocable Trusts
Community Property
Trusts
Standard for Trustee’s
Exercise of Discretion
Expressly authorize to modify and terminate
if not inconsistent with materials purposes
of trust and with consent of beneficiaries.
Allows non-residents to create community
property with state’s trusts
Appropriate balance between trustee
protection and accountability
New Hampshire
Trustee’s Power to Divide
Trust with Some
Modifications
Flexible power to divide trust on
“substantially equivalent” terms
Illinois
New Hampshire
Delaware
Exh 1 Ideal-Best PTC Laws 100109.doc
New Hampshire
OTHER IMPORTANT JURISDICTIONS
Delaware
South Dakota
South Dakota
Delaware
Alaska
None
New Hampshire
Delaware
Nevada
 Where trustee has “unfettered, sole, absolute,
uncontrolled or unrestricted” distribution
discretion (and other discretion?) of “support
trust” or any “discretionary trust” only liable
for, dishonesty, improper motive (undefined)
or failure to act
South Dakota
 No responsibility wherever it has distribution
discretion (and other discretion?) except for
dishonesty, improper motive (defined) or
failure to act
Many jurisdictions permit a trustee to divide a
trust but only if the new trusts are administered
on identical terms as the prior trust
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DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
FEATURE
IDEAL APPROACH
BEST CURRENT JURISDICTION
OTHER IMPORTANT JURISDICTIONS
5. Political Contexts
Regulatory Assessment
State regulatory agency that is flexible,
responsive, professional and favorably
disposed toward PTCs
Nevada
South Dakota
No others known to be fully consistent with this
ideal
Legislative Assessment
Proactive and responsive legislature for
 Trust law
 Trust company law
South Dakota
New Hampshire
Nevada
Tennessee
Judicial Assessment


South Dakota
Delaware, Florida and Wyoming
 Trust law only
Many other states
 Trust company law only
Varies widely among all states, including
otherwise attractive PTC states
Responsive to PTC considerations
Experience with trust law issues
(SD & NV August 2009; NH December 2008)
Exh 1 Ideal-Best PTC Laws 100109.doc
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-6-
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DUNCAN ASSOCIATES
EXHIBIT 2
ATTORNEYS AND COUNSELORS, P.C.
CREATED FOR
PTC ASSOCIATION, LLC
OCTOBER 1, 2009
180 North LaSalle Street
Suite 3850
Chicago, Illinois 60601
PRIVATE TRUST COMPANY
IMPORTANT NEW PTC/TRUST LAW DEVELOPMENTS
STATE
Nevada
Nevada
South Dakota
LAW
COMMENT
Family Trust Company
 Authorizes regulated multi-family and regulated and unregulated
single-family trust companies
 Regulated family trust companies have lower capital requirements
and supervisory burdens than commercial trust companies
 Grants all trust companies full range of fiduciary, agency and
advisory powers except family trust companies can only serve
family members
 “Family members” clearly defined and includes broad range of
blood and consensual relations, spouses and their relations,
related entities and charities, and trusts for or by family members
Distribution Discretion Standard
Nevada
 Where trustee has “unfettered, sole, absolute, uncontrolled or
unrestricted” distribution discretion (and other discretion?) of
“support trust” or any “discretionary trust” only liable for,
dishonesty, improper motive (undefined) or failure to act
South Dakota
 No responsibility wherever it has distribution discretion (and
other discretion?) except for dishonesty, improper motive
(defined) or failure to act
 Provides statutory certainty as to
qualifications for an unregulated private
trust company (“UPTC”)
 Grants UPTC same powers as retail trust
companies for serving family members
 Broadest definition of “family member” of
any state
Exh 2 - PTC Important New PTC Laws 100109.doc
 Advantage: Trustee has vast scope to
exercise this discretion with little or no
ability of beneficiaries to object or even,
in South Dakota’s case, obtain a day in
court
 Concerns: Leaves trustee with little or no
accountability, beneficiaries with no
redress for what otherwise would be
breaches of fiduciary duty and courts
incentivized to ignore statute when
beneficiaries may be treated unfairly
© 2009 Duncan Associates A&C, P.C.
All Rights Reserved.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
STATE
South Dakota
South Dakota
New Hampshire
New Hampshire
New Hampshire
New Hampshire
New Hampshire
New Hampshire
LAW
COMMENT
Award of Attorneys’ Fees
To prevailing party in any action brought against a trustee of an asset
protection trust
Broad new decanting power; notice requirement
 Implies new trusts do not need any beneficiaries of old trusts
 20 days prior notice but under new discretionary standard
 Unclear beneficiaries will have standing to object
Statutory Designation of Trust Administration Law
Clear statements in statute of which laws are administrative, which
are substantive (governing)
Perpetual, Decanting Purpose Trust
Authorization for a purpose trust of perpetual existence and
decantable into trusts with charitable or non-charitable beneficiaries
Authorization of Asset Protection Trusts
Mindful of public policy considerations and trustee exposures
Robust protection for directed trustees operating within the ambit of the
“direction”
Express authority to terminate and modify trusts by nonjudicial settlement
agreement
Duty to Communicate with Other Fiduciaries (Trustees, Advisors,
Protectors)
Assures coordination among fiduciaries in multi-participant trusts
Exh 2 - PTC Important New PTC Laws 100109.doc
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 Intended to discourage such claims
 Like the new discretionary trustee powers
provision, considerably tilts power away
from beneficiaries and towards trustee
 Unlimited ability to decant may invite
courts to override statute, as they do
statutes limiting duty to diversify
New Hampshire
Makes Prudent Investor Rules administrative
and applicable to trusts administered in NH
 Allows deferral of the “How much to
charity? How much to family trust?”
decision and opportunity, with a PTC, for
each generation to be involved in the
decision.
 More balanced approach than Delaware,
Nevada, South Dakota or Tennessee
 Emulated in 2009 by South Dakota
 Unclear in other UTC states.
 Emulated in 2009 by South Dakota
© 2009 Duncan Associates A&C, P.C.
All Rights Reserved.
DUNCAN ASSOCIATES
ATTORNEYS AND COUNSELORS, P.C.
STATE
New Hampshire
New Hampshire
New Hampshire
Wyoming
LAW
COMMENT
Authority to Require Beneficiaries to Maintain Confidentiality Regarding
Certain Trust Assets
Modifies duty to communicate with beneficiaries regarding sensitive
information such as financials or strategic plans of a closely-held
business owned by the trust by allowing trustee to require a
confidentiality agreement.
Quiet Trusts. No obligation to make reports to beneficiaries
Representation of Absent Beneficiaries. Authorization for trust to act
on behalf of absent beneficiaries
Governing law of trust
Sets priority for determining most “significant relationship” for a trust
as follows
 Principal place of administration
 Where trust property located
 Location of beneficiaries and settlor (“least significant”)
(SD & NV August 2009; NH December 2008)
Exh 2 - PTC Important New PTC Laws 100109.doc
 Unique to New Hampshire
 Particularly robust provision
 Eases application of Wyoming governing
law
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-3-
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All Rights Reserved.