3 Benefits of a New Hampshire Trust

Mar 21

For standard revocable trusts, Massachusetts offers virtually everything a family needs in terms of streamlining your estate plan. However, for wealthier clients with multi-generational goals, a New Hampshire trust (meaning a trust governed and managed by a trustee located in New Hampshire) has a few distinct advantages over a Massachusetts trust.

3 Benefits of a New Hampshire Trust:

No state income or capital gains tax

Although New Hampshire does have an interest and dividends tax for individuals, in 2013 they updated the law so qualified New Hampshire trusts are exempt from interest and dividends tax. This allows certain investments the ability to compound state tax free if held within the trust. However, the trust may still be subject to federal income tax and trusts have a lower threshold for net investment income tax (which is 3.8%) so the appeal of setting up a New Hampshire trust for income tax savings alone only makes sense in limited circumstances. But if you are doing a complex trust anyway, then New Hampshire has a clear advantage to Massachusetts here.

2. New Hampshire Allows Perpetual “Dynasty” Trusts

In many states, including Massachusetts, there is something called a rule against perpetuities. This means that most trusts need to terminate after 21 years after the death of a life in being at the time of creating the trust. But New Hampshire doesn’t have a rule against perpetuities.

Why is that important?

If you structure the trust and make contributions to the trust correctly, you can in effect create a system that avoids generation skipping transfer tax (40%) forever (or at least until public policy / law makers change their mind). This is a huge deal for clients focused on building multi-generational wealth and also for control freaks (like myself), because you can provide instructions for how to manage assets for not only your kids, but your grandchildren, great grandchildren, and so on. The best part is that if the trust is structured correctly, the absence of a rule against perpetuities also allows indefinite asset protection on assets that remain in trust (through something called a spendthrift clause) creating a powerful and risk controlled cash machine for generations to come.

On a side note: if you do a dynasty trust for your family then you’ll need to make sure you balance the opportunities that such money provides with the risk of turning future generations into “trust fund kids” . For more information on this thought, check out “How do I pass money onto my children without spoiling them.”

3. Trust Decanting and other helpful New Hampshire Trust statutes in place

New Hampshire has their act together when it comes to building a trust meant to last forever. While some states lack statutory authority or rely on ambiguous case law to inform the architecture of a trust, New Hampshire has solid and clearly stated laws in place to make sure your trust is iron clad.

Trust decanting is one of the major ones because it grants additional flexibility to trusts.

What is trust decanting?

Under 564-B:4-418 Trustee's Power to Decant Trust. – “….a trustee has the power to decant a trust. The power to decant is the power to appoint some or all of the trust property of a trust (‘first trust') to another trust (’second trust’).”

In plain english, this means that a trustee can shift all assets to a new trust if he or she deems it aligns with the material purpose of the first trust (material purpose meaning the Grantor’s intent).

In addition to trust decanting, there are also trust modification laws (applicable in situations where a trust needs a more minor fix and avoids having to do a full re-titling of assets), non-judicial settlements laws, and directed and divided trusts (helpful for separation between admin and investment responsibilities).