Why South Dakota Beats Nevada for Domestic Asset Protection Trusts
Nevada has done an exceptional job marketing itself as the premier jurisdiction for domestic asset protection trusts. And to be fair, Nevada does have excellent DAP trust laws.
But here’s what most people don’t realize: South Dakota is actually the superior choice.
When you do a pure side-by-side comparison of the laws themselves, Nevada and South Dakota are nearly identical. The technical differences are so minor that they rarely apply to real-world situations. In fact, I’ve never had a single client or prospective client where those nuances actually mattered.
So if the laws are essentially the same, what makes South Dakota the better jurisdiction?
It comes down to three critical advantages.
Court-Tested Protection
South Dakota’s domestic asset protection trust laws have been proven in court—all the way up to the state Supreme Court.
The key question with any DAP trust isn’t whether it’s legitimate. The question is whether someone in a different state can establish a trust in South Dakota and have it protected from creditor claims originating in other jurisdictions.
South Dakota law is clear on this point. If a personal creditor claim arises in a foreign jurisdiction and someone attempts to enforce that claim against the trustee, the trustee is required to resign from their position for that particular trust. This renders the enforcement attempt completely null and obsolete—there’s simply no one left to enforce the claim against.
Nevada law doesn’t include this protection.
Even more significant is the South Dakota Supreme Court case known as In re Cleopatra. When a creditor attempted to enforce a California judgment against a South Dakota trust, the Supreme Court refused to even consider the claim because it didn’t originate from South Dakota courts.
That decision established binding case law confirming that South Dakota does not honor creditor claims from foreign jurisdictions.
Superior Privacy Protections
South Dakota offers privacy protections that Nevada simply cannot match.
Quiet Trusts
First, South Dakota allows for what’s called a quiet trust. This means you can restrict the amount of information that flows to beneficiaries.
If you have children who haven’t quite gotten their lives together, you may not want them knowing about the trust at all. You want to protect the assets from the beneficiaries and protect the beneficiaries from the assets. A quiet trust eliminates their ability to even know these assets exist.
This is a feature unique to South Dakota that other jurisdictions don’t offer.
Perpetual Sealing of Court Records
The second—and arguably more important—privacy advantage involves court proceedings.
South Dakota law mandates that if any court hearing involves a trust, the details of that trust are immediately struck from public record and never become part of the public domain. This seal is perpetual. It never gets lifted.
Nevada handles this completely differently. In Nevada, the judge has discretion over whether to seal trust information. And even when a seal is granted, there’s no guarantee it will remain in place permanently.
A Cautionary Tale
One of the most famous examples of Nevada’s privacy failures involves Rupert Murdoch, the billionaire media owner. He established a Nevada trust, and when his children challenged certain aspects of the trust structure, all the details came out in open court.
The irony? Fox News—which Murdoch owns—ended up reporting on their owner’s private trust information because it had become public record.
That simply wouldn’t happen in South Dakota.
Family Governance and Control
The third major advantage South Dakota offers is superior family governance through what’s called a Special Purpose Entity.
While people use the term SPE generically across the estate planning world, South Dakota actually has specific laws on the books governing these entities.
Here’s how it works: with a South Dakota trust, you can build out a committee-style governance structure for your assets. You can determine how distributions are made, who oversees different aspects of managing and administering the trust, and how decisions get made across generations.
This governance structure exists in an operating agreement outside the trust itself. Within that agreement, you can create a family constitution, articulate a family mission or vision statement, and define the purpose of your wealth.
Having these details in a separate document provides an additional layer of privacy while creating the infrastructure your family needs to carry forward your legacy.
Nevada doesn’t offer these governance structures at all.
The Bottom Line
Nevada has built a strong reputation through effective marketing. But when it comes to actually protecting your assets and your family’s privacy, South Dakota delivers what Nevada cannot:
- Court-tested protection validated by the state Supreme Court
- Perpetual privacy with automatic sealing of court records
- Family governance structures codified in state law
If you’re considering a domestic asset protection trust, don’t let marketing hype drive your decision. Look at what actually matters—and what the courts have actually proven.
This is not legal advice. Use this for educational purposes only.