9079 / What are the requirements under Delaware law for establishing a Delaware dynasty trust that limits the ability of creditors to reach the trust assets?

A Delaware dynasty trust can often be used as an asset protection trust in order to protect the trust assets from the creditors of the beneficiaries. Under Delaware law, the ability of creditors to reach trust assets is limited if a qualified disposition to a qualified trustee has been made.

A qualified disposition is a transfer of property to a qualified trustee of an irrevocable trust that expressly provides that Delaware law will govern. There may be multiple trustees, so long as one of the trustees is a qualified trustee.¹

A qualified trustee is an individual, other than the transferor, who is a Delaware resident or a financial institution that is authorized to act as a trustee under Delaware law. A portion of the trust property must be maintained under Delaware law and the trustee must materially participate in the trust administration. The trust may also provide that a trust protector or trust advisor may be appointed, and the transferor may hold the trust advisor position so long as he or she does not have any additional authority over the trust.²