Can you set up a trust in a state that you do not reside in? The answer is yes. You can set up a trust in a country you do not live in. As a resident of Ohio, I can establish a trust in Delaware or Alaska or the Cook Islands or almost anywhere else. There are of course a number of factors to consider in deciding whether or not that makes sense. And when you do set up a trust in a state other that the state you reside in, there can be issues as to which state law applies to the trust. Attorneys refer to this as a “conflict of laws” issue. This issue frequently arises when a creditor tries to reach assets in a trust.
Section 273(b) of the Restatement (Second) of Conflicts of Laws says that the applicable state law should be the law of the state that the settlor has manifested an intention to apply. Comments to this Section says that naming as trustee a trust company of a particular state would indicate that state law should apply. Other “contacts” with a particular state would also be evidence of which law applies.
There can also be “public policy” issues. If your state has a strong public policy (for example, in favor of certain creditor or debtor rights), that can become relevant in a conflict of laws dispute.
For Ohio residents interested in asset protection, all of this is now much less of a concern than it used to be. We used to recommend that our clients consider setting up trusts and limited liability companies in Delaware and other states for asset protection purposes. But Ohio now has an excellent asset protection trust statute; an excellent LLC statute; and numerous statutory provisions that are debtor-friendly. So in most cases there is currently no need for an Ohio resident to set up a trust (or an LLC) in another state for asset protection purposes.