Why New Hampshire still rocks!

New Hampshire continues to be a premier location for establishing and administering trusts. The state's progressive trust code, revised frequently to remain relevant and at the forefront of trust law, is often cited as the primary reason individuals and families choose New Hampshire as the location for their trusts.

Since the authors last shared why New Hampshire is a great place to establish and administer trusts, 1 the state has continued to strengthen its trust code. The most significant enhancements include the following:

(1) New Hampshire provides greater creditor protection than ever before.

(2) Self- settled trusts are now are easier to create.

(3) New Hampshire is the first state to allow for the establishment of civil foundations.

(4) Private family trust companies may be formed without having to register or be regulated by the state's banking commission.

Importantly, New Hampshire continues to offer significant flexibility and a welcoming environment: offering perpetual trusts, allowing trustee functions to be bifurcated (directed and divided trusts), providing useful tools for fixing "broken" trusts, and ensuring that the state continues to be a tax friendly venue for trusts. Many who consider creating a dynasty trust take comfort in one of the bedrock principles of the New Hampshire Trust Code, recognized by the New Hampshire trust court: the sanctity of the settlor's intent in creating a trust. When disputes arise, the settlor's intent, as expressed in the terms of the trust, cannot be overridden. While in all cases, all fiduciaries must act in good faith, in accordance with the terms and purposes of the trust, and in the interests of the trust's beneficiaries, the intent of the settlor is of paramount importance.

So, what's new and improved?

Enhanced creditor protection and asset protection trusts.

New Hampshire has narrowed the class of creditors who have access to assets held by irrevocable trusts governed by New Hampshire law. These trusts do not protect against a state or federal claim against a beneficiary if state or federal law so provides, 2 but otherwise, the only creditors who may at some point benefit from trust assets are those that existed at the time of the creation of the trust and a limited group of the following "exception creditors:" (i) an individual to the extent that there is a judgment or court order against the settlor or a trust beneficiary for child support or (ii) a spouse or former spouse to the extent that there is a judgment or court order against the settlor or a trust beneficiary for basic alimony. 3

Importantly, even for an exception creditor, the only remedy is to seek a court order to attach present or future distributions. The rights of creditors that existed at the time of trust funding are limited by one of two very narrow windows in which to bring a claim against the trust. Specifically, a current creditor who received notice of the trust funding may only bring a lawsuit against the settlor for one year after the creditor knew or reasonably should have known of the transfer to the trust. 4 Other existing creditors are precluded from bringing a lawsuit against the settlor four (4) years after the transfer of assets to the trust. 5 Thus, four years after the settlor has transferred assets to the trust (and merely one year if notice is provided), the settlor of a trust should be fully protected from most creditor claims.

These limitations on creditors' rights also apply to self-settled "asset protection trusts" ("SSTs"). In part because of this, SSTs have moved into the mainstream in New Hampshire, and are now specifically authorized by provisions of the New Hampshire Trust Code, rather than by a separate statutory scheme. Previously, the Qualified Dispositions in Trusts Act ("QDTA") permitted asset protection trusts, but with significant constraints. 6 The QDTA has been repealed and new provisions of the New Hampshire Trust Code allow future creation of a more robust form of SST. It is no longer required by law that each trustee of a New Hampshire SST be a New Hampshire resident or trust company, although in order to establish a strong nexus with the state and limit the number of states in which creditor claims may be brought, it may still be advisable to use only New Hampshire trustees. 7

Self-settled trusts have also become more attractive trusts because the settlor can be a beneficiary and still shield trust assets from creditors, provided that the trust instrument includes a spendthrift provision.

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1 Why the Granite State Rocks at Trust Administration, Estate Planning Journal, Volume 43 Number 6 (June 2016).

2 New Hampshire Revised Statutes Annotated ("NH RSA") 564-B:5-505A(o) (2017). In addition, a spendthrift provision in a New Hampshire irrevocable trust is considered "a restriction on the transfer of the settlor's beneficial interest that is enforceable under nonbankruptcy law within the meaning of 11 U.S.C. section 541(c)(2)11 U.S.C. section 541(c)(2)." NH RSA 564-B:5-505A(p) (2017).

3 NH RSA 564-B:5-505A(q)(1)(A) (2017).

4 NH RSA 564-B:5-505A(f)(2) (2017).

5 NH RSA 564-B:5-505A(f)(1) (2017).

6 Under the Qualified Dispositions in Trust Act, "a qualified trustee is any person, other than the transferor, who in the case of a natural person, is a resident of this state or who, in all other cases, is a state or federally chartered bank or trust company having a place of business in New Hampshire, is authorized to engage in a trust business in this state, and maintains or arranges for custody in this state of some or all of the property that is the subject of the qualified disposition, maintains records in this state for the trust on an exclusive or nonexclusive basis, prepares or arranges for the preparation in this state of fiduciary income tax returns for the trust, or otherwise materially participates in this state in the administration of the trust." NH RSA 564-D:3 (2014).

7 The Qualified Dispositions in Trust Act was previously codified in NH RSA 564-D. NH RSA 564-D was repealed in 2017 and the provisions providing asset protection moved into the New Hampshire Trust Code, codified at NH RSA 564-B:5-505A. See NH RSA 564-B:5-505B (2017).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.