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A BUNDLE OF MAGIC STICKS (Beneficiary Controlled Trusts Now Authorized in Louisiana)


10 August, 2016

A BUNDLE OF MAGIC STICKS (Beneficiary Controlled Trusts Now Authorized in Louisiana)

(La. R.S. 9:2114.1 (Effective August 1, 2015))

“THE WAND CHOOSES THE WIZARD, MR. POTTER. 

 IT IS NOT ALWAYS CLEAR  WHY.”  

~J. K. Rowling, Harry Potter and the Sorcerer’s Stone


Law School of Wizardry

In the first year of law school, students are introduced to the concept that property rights are like a bundle of sticks. Each stick in the bundle represents a distinct property right, like the right of use, control, benefit, transference, or exclusion.

One person does not necessarily have to hold all the sticks.  For example, one person may own surface rights to a piece of land, while another person owns the mineral interests.  Another good example in Louisiana is the concept of a usufruct, where one person enjoys the use and fruits (use + fruits = usufruct) of property that is vested in another person (called the “naked owner”).

The division of property rights is a powerful concept because each stick in the bundle can be wielded like a magic wand.

The Louisiana Sorcerer’s Stone

Louisiana recently enacted a new statute premised in part on this bundle of sticks theory that creates new planning and asset protection opportunities in the world of Louisiana trusts.  Property held in trust is governed by the trustee, who owes certain duties to the beneficiary, but generally has full control over whatever property is held in trust. In other words, the trustee usually holds the entire bundle of sticks.

The new Louisiana statute now allows the division of trustee “powers” like a bundle of sticks.  La. R.S. 9:2114.1 (effective August 1, 2015).  The statute reads as follows:

“A trust instrument may confer different powers upon different trustees, in which case each trustee acts independently with respect to those powers conferred upon him. As to powers not conferred upon him, he shall have no duties or liabilities as to the actions or inactions of the other trustees.”

Now a Louisiana trust can have multiple trustees, each with his or her own distinct powers and no trustee is liable or responsible for the acts of another trustee.

The Louisiana Chamber of Secrets

This seemingly small change has a huge effect in the world of asset protection.  There are two primary goals in the world of asset protection: (1) zero ownership; and (2) ultimate control, which is a difficult balance to accomplish.  But with the stroke of a pen and two sentences, the Louisiana legislature just made it a whole lot easier.

Assume a trust owns everything of importance to the beneficiary of the trust.  Now imagine two trustees, one of whom holds the golden stick, which is the power to make distributions from the trust, while the other trustee holds all the administrative powers, including the power to buy, sell, invest, vote business interests, and generally manage all the assets of the trust.

A beneficiary can be the trustee of his or her own trust in Louisiana.  However, if the beneficiary holds the golden stick – the power to make distributions -- then a future creditor of a beneficiary can compel a distribution from the trust, which destroys any potential asset protection.

Under the new statute, a beneficiary can hold all administrative powers, including the power to manage, vote and control the assets of the trust, except the power to make distributions, which is held by an independent “distribution trustee.”  This is referred to as a “beneficiary controlled trust.”

The Order of the Phoenix

A beneficiary controlled trust coupled with an independent trust protector and an independent distribution trustee (whose only job is to make distribution decisions), is a formidable combination.

For testamentary planning purposes, establishing a beneficiary controlled trust for a child in lieu of an outright distribution could provide a child with both control and a lifetime of protection from unforeseen liabilities.

For individuals who seek to protect their own assets from unforeseen liabilities, a beneficiary controlled trust layered with a carefully drafted limited liability company could afford an individual with both control and protection.

The key is the division of trustee powers pursuant to the new statute.  In Louisiana, anyone can be a wizard now.

Theus Law Offices provides a complete range of estate and business planning services with integrated asset protection techniques, including domestic asset protection trusts (a/k/a domestic asset preservation trusts). If you are facing an estate planning, business planning or asset protection issue and need help from a Louisiana asset protection lawyer in Alexandria, Lafayette, Lake Charles, Baton Rouge, New Orleans, Shreveport, Monroe or elsewhere, let our estate planning, business planning and asset protection attorneys help you and your business.

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