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What the Price of Oil Might Mean for Trusts

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When creating trusts for wealthy clients attorneys do not merely set up the trusts in the states in which those clients live. Instead, they look for states that have the most friendly laws and taxes for the trusts.

One of the more popular trust haven states is Alaska.

Not only does it have laws that are considered trust friendly, Alaska also does not have a state income tax. Instead of relying on taxes for revenue, the government of Alaska has traditionally relied on revenue from oil.

However, there are now problems on two fronts.

Alaska's natural oil reserves are beginning to dwindle at the same time that oil prices are very low. This has left the state in a very large financial hole. As Forbes reports in "Embattled Oil Creates Slippery Slope For Alaskan Trusts," the state is now considering an income tax.

The proposed income tax law does not make an exception for trusts. If it passes any trusts administered in Alaska that make money and do not distribute it to beneficiaries would have to pay income tax. Additionally, any beneficiaries would have to pay income tax to Alaska on trust distributions whether or not the beneficiaries live in Alaska or have even ever been to the state.

Obviously, if Alaska does pass an income tax, the state will no longer be considered a trust haven and many trusts administered there now will be moved to other states.

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