If you have done any research on trusts and trust laws, odds are you have read that South Dakota is one of the best trust states in the nation. This comes as a surprise to many across the nation and the world. But every state has its claim to fame and South Dakota’s is being the preeminent trust state. What makes South Dakota special?
1. Unparalleled Tax Efficiency
South Dakota has no state income, capital gains, dividend/interest, or intangible tax. South Dakota also has no state inheritance or estate tax. As such, assets held in a South Dakota trust are taxed under South Dakota tax law and not subject to other state’s high tax rates.
2. No South Dakota Residency Required
Your trust can be administered and located in the state of South Dakota without the need for you or your loved ones to reside in South Dakota. This affords many people the advantages of South Dakota trust laws without the need to move across state lines, across the country, or even into the country.
3. Lowest Insurance Premium Tax
South Dakota has the lowest insurance premium tax of any state in the nation (8 basis points or 8/100ths of 1%). Not only is South Dakota more tax efficient with insurance, but it also arguably has the best insurance laws and legislation.
4. Superior Asset Protection
South Dakota’s self-settled trust and third-party discretionary trust laws are excellent and allow for superior asset protection. One of the key differences in South Dakota compared to less favorable trust states, is that South Dakota states that a discretionary interest in a third-party trust, a limited power of appointment, and remainder interests in trust assets are not considered property interests. This distinction along with a potent sole remedy charging order law provide a powerful shield protecting assets for businesses and for your loved ones from divorce, creditors, taxes, nursing homes, and lawsuits for generations to come. Asset protection may sound complicated and be hard to understand due to its technical nature, but it is easy and often simple to include in your planning.
5. No Required Termination
Trusts created in South Dakota can last as long or as short of a time period as you need and desire. The assets are never forced out of a trust to a beneficiary when they are in the middle of a divorce or in the nursing home. Rather, South Dakota’s favorable dynasty trust laws allow trusts to last forever. Of course, not all trusts will last forever (or need to), but depending on your goals and the lifestyles of your beneficiaries, it may be more advantageous for your beneficiaries to inherit through a South Dakota trust.
If you are building dynasty trusts into your planning with the intention that the trusts last forever, it is important you also consider building flexibility into the trust as well. This is often done through various trust provisions such as having a Trust Protector and including appropriate limited powers of appointment. No one has a crystal ball and providing your beneficiaries or trustee much needed flexibility to account for changes in the world often makes a big difference on whether or not your trust functions in the manner intended for generations to come.
The tax efficiencies and asset protection provided by setting up a South Dakota trust allows for unparalleled growth of trust assets. This is the South Dakota Trust Advantage. Of course, not every trust is created equal and the quality of your estate plan and skill of your attorney will greatly impact your planning options. Not to mention, saying trust is like saying car…there are hundreds of different types of makes, models, features, and colors. They are not a one-size-fits-all and they are not even needed or appropriate for every estate plan. You will need to visit with a qualified estate planning attorney to discuss your specific situation and what plan best fits your individual goals to ensure you leave a lasting legacy for your loved ones.