The “situs” is the technical legal term for where a trust is located. It’s typical for the situs of a land trust to be located in the home of the settlor (the trustor). Under certain conditions, it can be to the advantage of the settlor to establish the situs of the trust outside of their home state.
For instance, changing the situs of a trust to a different state can have a profound impact on how the trust is processed. Administrative efficiency will differ from state to state, as will taxes. When the situs of a trust is changed to another state, the laws that govern that trust are shifted alongside it.
It’s a powerful tool for trustees to have at their disposal. What would be the sense of establishing a trust if it’s not going to behave in the manner that you want it to? If your state’s laws don’t meet your goals, changing the situs of the trust to another state is the last option available to you.
Protecting the Trust from Lawsuits
Another advantage of shifting the situs of a trust to another state is that it makes it more difficult to sue. When a trust is established in an individual’s home state, it’s easier and less expensive for those within the state to sue the trust. There’s less legal legwork involved and lawyers would not need to cross jurisdictions.
Moving the situs of a trust can be beneficial regardless of how friendly your state is to your personal goals. In addition, a trust can have multiple situses. A trust can be under the jurisdiction of one state while being taxed under the laws of another state.
Types of Situs
Situs can be divided into 4 types:
- Administrative situs that defines where the trust is administered
- Locational situs where the property held in the trust is located
- Tax situs that determines which state can collect taxes from the trust
- Jurisdictional situs that defines which state’s courts and laws govern the trust
The administrative situs is particularly important because that will determine the jurisdictional situs as well. Any individual that wants to sue the trust would have to take their case to whichever state in which the trust is administered.
The tax situs is also quite important. Every state will have different laws concerning how income from a trust is taxed. Moving the tax situs can thus protect the trust from overly greedy states. In addition, some states tax trusts based on where they were created. Others will tax based on the location of the trustee. Other states have no trust income tax at all. Having a financial advisor or lawyer who can sort these kinds of things out can help a great deal. Obviously, you don’t want multiple states making tax claims against your trust. On the other hand, you do want your trust to be insulated from being an easy target in a lawsuit.