The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
By Richard W. Nenno, Esq. Wilmington Trust Company, Wilmington, DE
Creditors of non-Delaware residents as well as Delaware residents may not reach assets of accounts in Delaware banks. The current statute provides as follows (10 Del. C. § 3502(b)):
Banks, trust companies, savings institutions and loan associations … shall not be subject to the operations of the attachment laws of this State.
This protection is not new. In fact, the earliest predecessor of the statute was enacted in 1871 (14 Del. Laws 90). Over the years, Delaware courts have read the protection broadly as follows:
• Sterling v. Tantum, 94 A. 176 (Del. Super. Ct. 1915)--Funds in trust department of corporation having banking powers are exempt from attachment even though trust department is distinct from banking business
• Provident Trust Co. v. Banks 9 A.2d 260 (Del. Ch. 1939)--Filing of creditor bill in equity court does not enable creditors to reach assets of self-settled trust at Delaware trust company
• Bank of Delaware v. Wilmington Housing Authority, 352 A.2d 420 (Del. Super. Ct. 1976)--Wages of employee of Delaware bank are not subject to garnishment
• Delaware Trust Co. v. Partial, 517 A.2d 259 (Del. Ch. 1986)--Request for temporary restraining order to enjoin withdrawal of funds from bank denied
However, the Delaware Supreme Court held in Garretson v. Garretson, 306 A.2d 737, 742 (Del. 1973), that “the seizure by sequestration of spendthrift trust income in the hands of a bank as Trustee at the suit of a wife seeking maintenance from a husband is not an attachment within the meaning of § 3502.” Nevertheless, in the nonmarital context, a Delaware or non-Delaware resident may obtain substantial protection from creditors by placing funds in a checking, savings, trust, or other account at a Delaware institution. Even in the marital context, an individual will be no worse off by so doing than he or she would have been by holding funds elsewhere and might be better off because, in Delaware Trust Co. v. Partial, 517 A.2d 259, 261 (Del. Ch. 1986), the Delaware Court of Chancery indicated that Garretson has limited application:
It has been held that Section 3502 does not directly exempt Delaware banks from the operation of our sequestration process. The statute authorizing sequestration, however,--and the Garretson case construing it--is limited to the seizure of property to compel appearance and thus has no application to the case at bar.
In addition, mandatory or discretionary distributions from a marital-deduction trust, a charitable-remainder trust, a revocable trust, an asset-protection trust, etc., Delaware or otherwise, into an account in a Delaware bank or trust company will insulate the funds from creditor claims.
Whereas the statute prohibits attachment of assets in a non-bankruptcy context, it will not apply upon the filing of a petition under the United States Bankruptcy Code unless the account fits within one of the limited exemptions or exclusions provided by the Bankruptcy Code.
For more information, in the Tax Management Portfolios, see Rosen and Rothschild, 810 T.M., Asset Protection Planning.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)