Why South Dakota Is the Best Trust Jurisdiction: Special Purpose Entities (SPEs)
This is the next installment in our video series on why South Dakota is the best trust jurisdiction in the United States. So far, we’ve explored powerful features like directed trusts and trust protectors—tools that provide unmatched flexibility in trust design and administration. Today, we’re focusing on something exclusive to South Dakota that further enhances that flexibility and legal strength: Special Purpose Entities (SPEs).
What Is a Special Purpose Entity (SPE)?
While the term special purpose entity (or SPE) is sometimes used generically in other legal and business contexts, in South Dakota, SPEs are formally recognized and regulated by law—specifically for trust planning purposes. This is a unique legal structure only available in South Dakota and serves two primary purposes in the trust context:
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Liability Protection
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Establishing a Stronger Tie to South Dakota Jurisdiction
Let’s explore each benefit in more detail.
1. Liability Protection for Advisors
When setting up a directed trust, different individuals are often appointed to serve in various advisory roles:
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Investment Trust Advisor
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Distribution Trust Advisor
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Trust Protector
These roles come with significant fiduciary responsibility, and with that comes potential personal liability. If, for example, you name your CPA, attorney, or financial advisor in one of these roles, they may hesitate due to the legal risk involved.
Here’s where the SPE becomes a game-changer. Instead of naming these individuals directly, you form an LLC—a Special Purpose Entity—under South Dakota law, register it with the South Dakota Division of Banking, and assign the SPE to these roles within the trust. Inside the SPE’s operating agreement, you designate who within the entity is responsible for which advisory function.
By doing so, those individual professionals are now acting on behalf of the LLC, not in their personal capacity—shielding them from direct liability. This encourages top-tier professionals to serve in trust roles they might otherwise decline due to risk concerns.
2. Reinforcing South Dakota Jurisdiction
The second, and arguably more strategic, advantage of using an SPE is that it creates an additional legal tie to South Dakota—which is essential in preserving the jurisdictional integrity of the trust.
Here’s why that matters: Suppose you’re a California resident and you’ve set up your trust under South Dakota law. You then appoint California-based individuals as your investment advisor, trust protector, and distribution advisor. While the trust is technically domiciled in South Dakota, those advisory functions being performed in California can weaken the jurisdictional link—potentially opening the trust up to California tax and legal scrutiny.
However, if those same advisors serve through a South Dakota-registered SPE, then the trust’s administration remains entirely within South Dakota. This helps you:
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Avoid state income tax in high-tax jurisdictions like California
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Strengthen asset protection by keeping all fiduciary activity within South Dakota’s legal framework
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Sever any potential jurisdictional tie to other states
This structure provides a clean and effective solution to preserve the benefits of South Dakota law.
No Other State Offers This
To date, no other state has codified anything like South Dakota’s SPE framework for trust planning. Other jurisdictions simply do not provide the same level of protection for individuals serving in advisory roles, nor do they offer a mechanism to fully eliminate jurisdictional exposure to other states.
Conclusion: SPEs Are a South Dakota-Only Advantage
South Dakota’s Special Purpose Entity laws give clients and advisors unmatched flexibility and protection. Whether you’re:
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Looking to shield your professional advisors from liability
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Trying to ensure full South Dakota jurisdiction for maximum tax and asset protection benefits
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Or seeking to create a cutting-edge trust structure that other states simply can’t match
—SPEs are a unique and powerful reason to choose South Dakota for your trust planning.
This is just one more way South Dakota continues to lead as the top trust jurisdiction in the country.