Delaware is the first state, but it’s also among the smallest. With limited land for development and few natural resources, its economy was built on legal and financial services. This focus on what it could do, instead of dwelling on what it could not, led to the creation of a core element of America’s success story. With its proximity to major population centers, the Delaware legislature and courts developed a robust legal system that adjudicated nuanced questions of law and provided corporations with an extremely high level of legal certainty. With this bedrock in place, America’s corporations built the dynamic economy that benefits us all today.
Being first is valuable, but it’s not a foregone conclusion that a jurisdiction will retain pole position forever. In recent years, high profile disputes in the Delaware Court of Chancery, combined with increased competition from other states, have led many business leaders, corporations, and high net worth families to question whether Delaware should remain the default jurisdiction for their business or trust. When it comes to modern estate planning in particular, there is less reason for doubt. Delaware offers many of the features associated with modern estate planning, but without the statutory and case law certainty to fully support them. Instead of situsing you trust in Delaware, you should situs in South Dakota.
South Dakota often edges out Delaware on the margins that matter most. It has effectively combined the benefits of no tax jurisdictions like Nevada or Wyoming with the legal sophistication historically associated with Delaware, all within a single state. Where many statutes merely allude to an idea or protection, South Dakota puts it into clear statutory language. This is the same type of certainty that made Delaware a corporate and financial powerhouse for decades, now delivered for the benefit of grantors and settlors.
Delaware’s long dominance in judicial strength is an asset for corporations, but a weakness for family wealth. Taking advantage of certain aspects of trust law in Delaware often requires judicial intervention, while South Dakota’s approach trends toward a statute-centric framework. A clear example of this distinction is privacy. South Dakota provides an automatic and permanent seal for trust matters, while Delaware offers a limited three year seal that may only be extended by court order. Although Delaware courts have unmatched tenure and depth of case law, requiring families to enter the court system to assert basic rights such as privacy adds unnecessary time, expense, and the risk that motions may ultimately be denied, exposing intimate details of family wealth to public view. Privacy is essential for families and trusts, and the jurisdiction in which a trust is sitused should share that view.
Both South Dakota and Delaware offer Domestic Asset Protection Trusts, often described as the Goldilocks solution that meets most families’ needs most of the time, and our Wyoming domestic asset protection trust lawyer is here to help you. Delaware was among the first states to enact DAPT legislation. A DAPT is valuable because it is self settled, allowing a grantor to fund the trust with personal assets that gain protection after a statutory lookback period. South Dakota provides a two year window during which transfers may be challenged, balancing creditor protection with a clear statute of limitations. Delaware, by contrast, doubles that window to four years, during which creditors may attempt to reach trust assets. A lookback period is intended to operate as a statutory foreclosure on creditor claims. While South Dakota’s period is materially shorter than Delaware’s, the more meaningful distinction is that Delaware preserves broader procedural pathways for creditors to exploit.
In modern estate planning, it is common for settlors to situs a trust in a state where they do not reside. Taking advantage of the best available law and the benefits of the federalist system allows families to avoid being constrained by the laws of their home state. This flexibility is especially important because many states have chosen not to allow DAPTs for public policy reasons. A grantor who lives in a state without DAPT legislation can still benefit from one by establishing the trust in a state that permits it.
The primary risk in a non-resident settlor trust arises when the settlor is sued in their home state and that court attempts to apply its own law instead of the law of the trust’s situs. In the 2013 case In re Huber, a Washington court applied Washington law and set aside an Alaska DAPT on public policy grounds. To answer this type of outcome, South Dakota statute directs trustees to refuse enforcement of judgments based on non applicable law, resign if necessary, and transfer all trust assets to a successor trustee. This statutory mechanism renders enforcement practically impossible and ensures that South Dakota law remains the exclusive governing authority for South Dakota trusts. Delaware offers no comparable protection, leaving its trusts vulnerable to non-resident settlor challenges. This ambiguity can create prolonged legal disputes involving conflicting orders, questions of precedent, and unresolved jurisdictional issues that may take years to settle. South Dakota’s statutory framework eliminates this risk.
When evaluating privacy, decanting, directed trusts, and other modern estate planning tools, Delaware offers many of the same features as South Dakota. The difference lies in clarity and refinement. South Dakota expressly authorizes statutory trust roles, including non fiduciary advisors, trust protectors with enumerated powers, and family governance through Special Purpose Entities. While these roles are not expressly prohibited in Delaware, they are also not clearly enshrined in statute. This interpretive approach is common in many areas of law, but it exposes settlors to the risk that future legal shifts may erode core trust protections. That risk is especially pronounced in dynasty trusts, which must operate across generations and changing political and public policy environments.
Where Delaware provides a framework, South Dakota fills in the blanks Delaware and its specialized courts excel at resolving disputes; South Dakota is designed to prevent them. For families seeking confidence in how their trust will operate and how its provisions will be interpreted over time, South Dakota is the trust jurisdiction of choice.
Contact Stuart Green Law, PLLC today to schedule a consultation.