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.
FAQs
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.
What are the disadvantages of a South Dakota trust? ›
The primary drawbacks to establishing a South Dakota dynastic trust are the restrictions on your financial flexibility once the trust is established and the limited flexibility imposed on beneficiaries. Responsible estate planning requires an appreciation of the potential results of a South Dakota dynastic trust.
How long can a trust last in South Dakota? ›
In South Dakota, there is no time limit, so a trustee will never be forced to distribute assets to a beneficiary due to time expiration. Dynasty Trusts are trusts with perpetual existence.
Do South Dakota trusts pay federal taxes? ›
A South Dakota Dynasty Trust is a very powerful planning tool that preserves family wealth over generations because it avoids federal estate taxation in perpetuity. Driven by state law, South Dakota law allowed for the first Dynasty Trust in the nation in 1983 by abolishing the Rule against Perpetuities.
What is the major disadvantage of a trust? ›
The major disadvantages that are associated with trusts are their perceived irrevocability, the loss of control over assets that are put into trust and their costs. In fact trusts can be made revocable, but this generally has negative consequences in respect of tax, estate duty, asset protection and stamp duty.
What is South Dakota advantage? ›
South Dakota ADVANTAGE PROGRAM
Get an out-of-state college experience with an in-state price. The South Dakota Advantage Program offers in-state tuition to all residents of South Dakota's neighboring states. You could save thousands on your education in South Dakota if you live in: Colorado.
How much does it cost to set up a South Dakota trust? ›
A basic Revocable Living Trust generally ranges from $1,000 to $3,000. More complex trusts can cost several thousand dollars more.
Can a trust own an LLC in South Dakota? ›
Additionally, South Dakota has a “sole member” statute allowing for the trustee to be the sole owner of the LLC.
How do I avoid probate in South Dakota? ›
For smaller estates, South Dakota provides a simplified process via small estate affidavits. If you're a legal heir, you can claim and transfer both real and personal property without undergoing the formal probate process by filing an affidavit asserting your entitlement to a particular asset or real property.
Which state is best to set up a trust? ›
Nevada, South Dakota, Delaware, Alaska and Wyoming are generally recognized as the states with the most favorable trust laws and regulations. These states generally have a favorable tax environment, strong asset and privacy protection laws, and flexible decanting provisions and trust modification options.
South Dakota's purpose trust statute is the country's broadest, allowing creation of a trust for any purpose so long as that purpose does not violate the law and is not in violation of public policy.
How often can you withdraw from a trust? ›
So once the trust is created and assets are transferred, they generally can't be taken out again. You can still act as the trustee but you'd be limited to withdrawing money only on an as-needed basis to cover necessary expenses.
Is setting up a trust in South Dakota really worth it? ›
Your trust allows you to bypass probate in any states in which you own property. South Dakota uses the Uniform Probate Code, so its probate procedures are somewhat streamlined if you choose to use probate. There is also a faster small estate procedure available for estates valued at less than $50,000.
Why open a trust in South Dakota? ›
South Dakota combines top rated trust, privacy, tax and asset protection laws with a dedicated workforce, strong economy and supportive state government.
What is not taxed in South Dakota? ›
Some goods are exempt from sales tax under South Dakota law. Examples include gasoline, purchases made with food stamps, and prescription drugs.
What is the best state for a trust? ›
Nevada, South Dakota, Delaware, Alaska and Wyoming are generally recognized as the states with the most favorable trust laws and regulations. These states generally have a favorable tax environment, strong asset and privacy protection laws, and flexible decanting provisions and trust modification options.
What type of trust has the best tax benefits? ›
Using an irrevocable trust allows you to minimize estate tax, protect assets from creditors and provide for family members who are under 18 years old, financially dependent, or who may have special needs.
