I’m the founding and managing attorney of Stuart Green Law, a boutique estates, trust, and tax planning law firm focused exclusively on high-net-worth clients. Today’s video is all about South Dakota trust planning, why it’s important, and why South Dakota is the best jurisdiction in the United States—one of the best in the world—for clients to domicile their trusts.
There’s an interesting discrepancy I’ve noticed: businesses and corporations shop around for jurisdictions that offer the best business, corporate, and tax laws. Yet, we don’t see individual clients and families taking the same approach, though it’s starting to happen more now. Many attorneys aren’t working with their clients to ensure they’re taking advantage of the best trust and tax laws available. That’s why I believe it’s my obligation to offer clients not only the best legal services but also optimal trust and tax law options for their estate planning.
So, without further ado, let’s talk about 10 reasons why South Dakota is the best choice for trust planning—even if you don’t live in South Dakota or even in the United States. You should be considering South Dakota as the jurisdiction for your trust planning. I’m not located in South Dakota; I don’t live there, and I don’t even have an office there. But I’m convinced that offering clients these premier trusts and tax laws is the best service I can provide.
1. Dynastic Trust Planning
South Dakota eliminated the rule against perpetuities long ago. The rule against perpetuities means that a trust has a shelf life—it can only exist for so long before the assets must be distributed to beneficiaries, triggering estate tax issues for families. In South Dakota, however, dynastic trust planning means these trusts can exist forever. The assets never have to leave the trust, avoiding estate taxes indefinitely for future generations.
2. No State Income Tax
Any assets inside a South Dakota trust are not subject to state income tax. There are some nuances here, but it’s important to note that not every state offers this benefit. South Dakota has eliminated its state income tax, so any activity within the trust will not incur state income tax in South Dakota.
3. Community Property Trust
Different states have different property laws. There are only about 10 community property states in the U.S. In these states, when the first spouse dies, the surviving spouse gets a full step-up in basis on all community property, significantly reducing capital gains taxes. South Dakota allows non-residents to opt into its community property statutes via a Community Property Trust. So, even if you live in a state like New York or Pennsylvania, which don’t have community property laws, you can use South Dakota’s laws to your advantage.
4. Domestic Asset Protection Trust
Typically, you can’t set up a trust for your own benefit with your own assets and have those assets protected from creditors. However, 20 states, including South Dakota, have passed asset protection statutes that allow individuals to set up an irrevocable trust for their own benefit and protect those assets from creditors, divorcing spouses, lawsuits, and other obligations. South Dakota’s asset protection statutes are particularly robust, making it an excellent jurisdiction for this type of planning.
5. Trust Protector
A trust protector is like a super trustee who oversees the trustee’s actions, ensuring they align with the intent of the person who set up the trust. South Dakota’s laws define the trust protector role very well, allowing them to fire or replace a trustee or even decant a trust—moving assets from one trust to another if the original trust no longer serves its purpose.
6. Decanting
Decanting allows you to essentially start over with an irrevocable trust if it’s no longer working as intended. You can kick out the assets from the original trust and move them into a new trust. This is particularly useful if you want to move a trust from another state to South Dakota, taking advantage of its superior trust statutes.
7. Directed Trust
South Dakota’s directed trust statutes are incredibly well-defined. A directed trust bifurcates trustee responsibilities, breaking them into multiple roles such as investment advisor, distribution committee, or family advisor. This allows you to select the best people or organizations for each role, providing more tailored and effective trust management.
8. Privacy
South Dakota has the best privacy laws of any jurisdiction. If a trust becomes involved in a court proceeding, there is an automatic, permanent seal on all details related to that trust. No one will ever be able to access this information. South Dakota also offers “quiet trust” laws, allowing the person setting up the trust to decide how much, if any, information the beneficiaries will know about the trust.
9. Special Purpose Entity
Unique to South Dakota, a Special Purpose Entity helps trustees and other roles maintain a clear, exclusive relationship with South Dakota, severing any ties to other states that might interfere. It also protects individuals in these roles from personal liability while directing the trustee’s administrative duties.
10. Family Advisor
A family advisor is a unique role to South Dakota, acting as a kind of “trustee light.” They oversee various roles within the trust to ensure the family’s intent is being carried out across generations. This is especially useful for maintaining continuity in trust management.
So, those are the 10 reasons South Dakota is the premier jurisdiction for trust planning. Some other states may offer similar benefits, but when you put all of these together, South Dakota stands out as the best choice. If you have any questions, please reach out. Like this video, and subscribe to our channel for more content. I’ll be diving into more detail on each of these topics in future videos. Thank you!
