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Delaware is long known to be a leader in corporate law, but Delaware is also a trailblazer in trust law. In 1988, Delaware was the first state to adopt a legal framework governing trust law, with the passage of the Delaware Business Trust Act, which governs the Delaware Statutory Trust. While other states have adopted similar legislation, the Delaware version has evolved over the years. Today, the Delaware Statutory Trust is considered the preferred vehicle for trust activities that involve financial transactions.
In an ordinary trust relationship, a fiduciary would hold legal title on a property on behalf of another, who held the equity title. These trusts are governed by a Common Law framework. The Delaware Business Trust Law allows for the creation of a Delaware Statutory Trust. The Delaware Statutory Trust is considered a separate entity which can in many ways behave like a corporate entity, with a body of trustees and a group of beneficial owners.
This structure offers a number of advantages. The trust can have multiple trustees and beneficial owners, who receive the same liability protection afforded to stockholders of a Delaware corporation. As an independent entity, the Delaware Statutory Trust can enter into contracts while still protecting beneficial owners, and even provides beneficial owners protection in the event of bankruptcy. Finally, the Delaware Court of Chancery, widely considered one of the best corporate and trust courts in the world, has jurisdiction over the Delaware Statutory Trust.
Forming a Delaware Statutory Trust is an easy process, requiring a certificate of trust to be filed with the Delaware Secretary of State, along with the Trust Agreement. There are no annual maintenance requirements (franchise tax or annual report) for a Delaware Statutory Trust. A Delaware resident must be named as a trustee.