It’s 2025, and I want to share my three favorite reasons why I love using South Dakota for trust planning. These priorities can shift year to year depending on client needs and the legal landscape, but right now, these are the top three standout benefits.
1. Asset Protection
One of the most compelling reasons to use South Dakota is its exceptional asset protection laws. What sets South Dakota apart is that it allows for self-settled irrevocable trusts, meaning you can create an irrevocable trust for your own benefit and move your own assets into it. Once in the trust, those assets are protected from personal creditors. Most states don’t offer this kind of planning—not because it’s illegal, but because they lack the legal framework to support it. Even states like Texas, which are known for strong debtor-friendly laws, don’t allow self-settled asset protection trusts. While a handful of other states do permit them, their laws are often rigid and less protective than South Dakota’s. South Dakota and Nevada are widely regarded as the top two jurisdictions for asset protection trusts. While their laws are similar, South Dakota often edges out Nevada due to additional benefits that many overlook. Plus, South Dakota’s flexibility allows for hybrid DAPs (Domestic Asset Protection Trusts), which offer creative structuring options beyond the traditional self-settled approach. This level of versatility makes South Dakota the top choice for comprehensive and strategic asset protection.
2. No State Income Tax
The second reason South Dakota stands out is that it has no state income tax. This might not mean much to residents of tax-free states like Florida or Texas, but for those in high-tax states—such as California, New York, New Jersey, or Hawaii—this is a massive advantage. For example, Hawaii’s top state income tax rate is around 11%, and California’s approaches 14%. Clients in these states can move their brokerage accounts, business interests, or other assets into a South Dakota irrevocable trust. When structured properly, the income generated within the trust avoids state income tax, resulting in significant savings over time. You only pay tax when distributions are made. So, if you use the trust like a financial piggy bank, letting the income accumulate within the trust and only withdrawing when necessary (e.g., for a vacation, home repair, or major purchase), you avoid annual state income tax liabilities. This strategy is a powerful tool for long-term financial efficiency and wealth preservation.
3. Unmatched Flexibility
The third reason I love South Dakota is its flexibility, which is critical in estate planning. This flexibility has two key components:
A. Directed Trust Structure
Traditionally, irrevocable trusts are known for being rigid—once you move assets into them, you’re locked into the terms and structure. But South Dakota’s directed trust laws solve this issue. In a directed trust, you can split responsibilities among different parties. Typically, you appoint a South Dakota-based administrative trustee (usually a trust company) to handle formalities like tax documents, banking, and reporting. But for asset management, you can appoint yourself or someone else as the Investment Trust Advisor. This means you can still manage your investments exactly as you did before, even though the assets are in an irrevocable trust. This feature gives clients the control they want while retaining all the legal benefits of the trust.
B. Decanting Authority
The second aspect of South Dakota’s flexibility is its powerful decanting laws. Decanting allows you to transfer assets from one irrevocable trust to a new one—something you might need to do if the original trust is outdated, poorly written, or no longer fits your family’s situation due to death, marriage, children, or changes in law. While many states have decanting statutes, they often impose strict limitations, such as needing court approval or notifying all beneficiaries. South Dakota, on the other hand, offers the broadest decanting authority in the country, letting you adjust your trust strategy with minimal red tape. This makes it much easier to stay current and aligned with your goals.
Conclusion
So, my top three reasons for loving South Dakota trust law in 2025 are:
- Asset Protection – You can self-settle irrevocable trusts and enjoy unmatched protection from creditors.
- No State Income Tax – You can legally avoid state taxes on trust income for significant savings.
- Flexibility – Directed trust structures and decanting options make South Dakota the most adaptive and client-friendly jurisdiction.
If you’re considering setting up a trust, South Dakota is hard to beat.