Delaware Trust Act 2023

Delaware Trust Act 2023 (the “Act”) was signed into law on August 31, 2023 by Governor Carney. Below is a brief summary of some key provisions of the Act.

• Clarification that a Former Spouse is Deemed a Creditor: Section 3536(a)(4) of Title 12 was amended to clarify the status of a former spouse relative to any property rights held by a trust beneficiary. The former spouse of a trust beneficiary is to be treated as that beneficiary’s creditor. As a creditor, the former spouse’s rights as to any claims against the beneficiary themselves, their property rights, or their estate are limited pursuant to the terms of the governing instrument of the trust and the laws of the State of Delaware. It is important to note that this amendment to the Delaware Code is distinguishable from the “spouse” and factual situation addressed by Garretson v. Garretson, 306 A.2d 737 which held that a current spouse of a trust beneficiary who has a claim against such beneficiary is not considered a creditor of such beneficiary. The distinction between the rights of a current spouse and a former spouse is significant.

• Spousal Notice Option with Qualified Dispositions: Section 3573 of Title 12 has been amended to provide an option for the use of a notice to allow a current spouse to waive future claims with regard to a transfer in trust. This addition to the Qualified Dispositions in Trust Act allows a transferor spouse to provide a written notice of the transfer to his or her spouse, along with the following: (1) a copy of the trust instrument of the receiving trust, (2) a list of the property being transferred, (3) a disclosure of all material information relating to the value of such property, and (4) a disclosure of the estimated value of the property (and the basis for this estimate). If such spouse consents to the transfer in writing, the limitations of Section 3572 which allow the avoidance of future claims by such a current spouse, do not apply.
  The form of the required notice is included in Section 3573(c)(2)(a) and reads as follows:
  YOUR SPOUSE IS CREATING OR HAS CREATED AN IRREVOCABLE TRUST INTO WHICH PROPERTY IS BEING TRANSFERRED. A COPY OF THE TRUST INSTRUMENT THAT WILL GOVERN OR GOVERNS SUCH IRREVOCABLE TRUST IS ANNEXED HERETO AS AN EXHIBIT. THE PROPERTY THAT IS TO BE TRANSFERRED TO THE IRREVOCABLE TRUST, WHICH IS THE SUBJECT OF A PROPOSED DISPOSITION UNDER DELAWARE’S QUALIFIED DISPOSITIONS IN TRUST ACT (12 Del. C. §§ 3570 et seq.), IS AS FOLLOWS: _______________. THE ESTIMATED VALUE OF SUCH PROPERTY IS _______________. YOUR CONSENT TO YOUR SPOUSE’S TRANSFER TO THE TRUST DESCRIBED HEREIN IS IRREVOCABLE AND YOUR RIGHTS TO THIS PROPERTY AS A SPOUSE OF THE TRANSFEROR WILL BE AFFECTED DURING YOUR MARRIAGE, UPON DIVORCE (INCLUDING THE PAYMENT OF ALIMONY OR A DIVISION OR DISTRIBUTION OF PROPERTY IN A DIVORCE), OR AT THE DEATH OF YOUR SPOUSE.

• Entities Qualifying for a Charitable Deduction: amends § 61-604(a)(5) of Title 12 to: (1) include limited liability companies and statutory trusts as entities whose ownership by certain types of charitable trusts will be treated in the same way as partnerships owned by such trusts; and (2) make it clearer that any of those types of entities will receive such treatment even if such entities are disregarded for federal income tax purposes.

• Third Person Trusts not Marital Property: Title 13, Section 1513(b)(1) and the related sub-sections have been amended with regard to the disposition of marital property in a proceeding for divorce or annulment. Language has been added to this section to make it clearer that a spouse’s beneficial interest in a trust created by third person is not included within the definition of the term “marital property.” Such an interest instead falls within the statute’s existing exclusion of “gifts” from the term “marital property.” In addition, consistent with § 3315(b) of Title 12, language has been added to §1513 confirming that a discretionary interest in a trust is not a property interest under existing Delaware statutory law and, therefore, is not included in the definition of “property acquired” by a spouse (as such term “property acquired” is used in § 1513 of Title 13).

• Addition to the Definition of Trust-Owned Life Insurance Policy: Title 18, Section 2704(e)(4) of has been amended such that the term “trust-owned life insurance policy” now includes a policy owned by an entity that is disregarded for federal income tax purposes and that is wholly owned by a trust (in addition to such a policy that is directly owned by a trust).

Please click here to access Delaware’s Trust Act 2023.

Commonwealth Trust Company is pleased to provide this article as a guide. Commonwealth Trust Company is not engaged in the practice of law and is not providing legal advice by the provision of these materials. Commonwealth Trust Company recommends that clients seek the opinion of their attorney regarding the specific legal and tax issues addressed in this article.