WEALTH MANAGEMENT - In New Hampshire We Trust

For years bucolic New Hampshire punched above its political weight by being first among U.S. states when it came to presidential primary elections. Local officials now hope to replicate that success in the realm of private wealth management. In June, New Hampshire enacted sweeping new legislation designed to reposition the Granite State as the nation’s friendliest jurisdiction for personal trusts, kicking off a multiyear effort to join the ranks of Delaware, South Dakota and Alaska, which have become havens for trust assets. The goal is to attract a slice of the trillions of dollars that baby boomers are expected to inherit over the next few decades.

“There is an enormous opportunity for us in terms of the wealth that’s likely to be passed on,” says Paul Montrone, a New Hampshire businessman who lobbied for passage of the legislation and now heads Perspecta Trust, a company he recently helped establish in Hampton, New Hampshire, to take advantage of the new law.

Like many other states, New Hampshire won’t tax the trust assets it attracts. Instead, the new legislation is designed to boost the state’s financial and legal communities and create high-paying jobs.

The Trust Modernization and Competitiveness Act, as the legislation is known, introduces several trust law innovations. Grantors who create trusts are not required to inform beneficiaries that they will inherit assets, a provision that holds particular appeal for parents who fear that children awaiting inheritances will lose their drive and ambition. In addition, the New Hampshire law allows families to set up so-called perpetual purpose trusts to support specific goals — such as maintaining a home, business or art collection — without naming a specific beneficiary. In most states accomplishing these goals requires a charitable trust, which is subject to interference from state attorneys general.

The New Hampshire law also makes it easier to skirt traditional requirements to prudently diversify trust assets, an option that appeals to families with privately held businesses or large concentrations in a single stock. Although most states enable grantors to avoid this requirement by writing instructions into their trust documents, the New Hampshire legislation lets trustees off the hook without their even taking that step, as long as the decision is made in good faith.

New Hampshire is also making a unique play for trust assets owned by ultrawealthy individuals by simplifying the rules for setting up family fiduciary services companies, private trust entities that afford greater control over assets than do conventional trusts. It is a niche market: There are roughly 125 regulated private trust entities nationwide, many of them with $1 billion or more in assets, according to John Duncan, founder of Chicago law firm Duncan Associates Attorneys and Counselors, who helped draft the New Hampshire law. The new rules enable trustees of family fiduciary services companies to petition the state banking department for exemption from just about any regulatory burden.

Of course, New Hampshire won’t be-come a personal trust powerhouse overnight. Since the legislation took effect last summer, Perspecta is the only trust company to have set up shop to take advantage of the new law. (In the preceding five years, only six trust companies applied to do business in the state.) Nonetheless, some leading trust experts are bullish on the state’s prospects. “With this law you’re going to consider New Hampshire one of the main contenders,” says Ryan Harding, an attorney with McDermott Will & Emery, a Chicago-based law firm known for its trust- and estate-planning practice. “These changes won’t filter out to the rest of the country immediately,” he adds.

If history is any guide, however, rival state legislatures are sure to take notice. In the early 1980s, South Dakota began permitting trusts to exist in perpetuity, a change aimed squarely at knocking Delaware from its perch atop the list of trust-friendly jurisdictions. Some 20 states have since followed suit — including Delaware. Then, in 1997, Alaska changed its rules to enable grantors to protect trust assets from creditors. Delaware quickly mimicked the move, as did eight other states.

“We’re all always looking at what the others are doing,” says Bradley Grossenburg, an attorney at law firm Woods Fuller Shultz & Smith in Sioux Falls, South Dakota, and a member of a state task force that advises the governor on trust law reform.

That raises the stakes for New Hampshire: Not only must it win over wealthy baby boomers and their advisers, it must do so before other states steal its thunder.