Dynasty Trust Services
Dynasty trusts are long-term trusts created specifically for descendants of all generations. In most states, dynasty trusts can survive at least 21 years beyond the death of the last beneficiary alive when the trust was written – in South Dakota we have no “rule against perpetuities,” which means if a dynasty trust established in the state meets certain other requirements, it could last forever.
Dynasty Trusts in South Dakota
In addition to no rule against perpetuities, South Dakota has no state income tax. The lack of an income tax allows for greater accumulation of capital in a dynasty trust and creates significantly more wealth for future generations than if the trust were located in another state.
South Dakota law also provides protection of trust assets from claims of creditors of the beneficiary. South Dakota “spendthrift” laws would shield the trust’s assets in the event of the beneficiary’s financial difficulties.
In a recent study by one of the foremost experts on trust jurisdiction, it was determined that South Dakota has the best discretionary trust legislation, regardless of the situation. When ranking trust jurisdictions, the primary factors to be considered include: (1) Rule Against Perpetuities (RAP), (2) State Taxation, (3) Advanced Trust Laws, (4) Asset Protection, and (5) Trust Migration.
(1) Rule Against Perpetuities (RAP) – South Dakota allows for Dynasty Trusts that can result in estate tax savings for many future generations.
(2) State Tax – South Dakota does not have a state income tax on trust income. Therefore, income generated by the trust will never be taxed in South Dakota. You do not have to live in South Dakota to take advantage of this; you just need a South Dakota Trustee, like The First National Bank in Sioux Falls.
(3) Advanced Trust Law – Privacy for all family members is a very important factor when establishing a trust. South Dakota is the only state that ensures all trust cases will be sealed in perpetuity.
(4) Asset Protection – One of the most common attacks made by creditors to reach trust assets is to claim improper dominion and control. South Dakota law is considered to have the strongest law against this attack.
South Dakota also offers asset protection from irresponsible beneficiaries. Quiet trust statutes are extremely important if a grantor does not want the beneficiaries of the trust to know about the trust or trust assets until they are mature enough to handle it. South Dakota has the most comprehensive quiet trust statute, allowing for the expansion, restriction, elimination, or modification of the rights of beneficiaries to receive trust information.
(5) Trust Migration – One of the major problems created by the Restatement Third of Trusts is that beneficiaries may be treated unequally when changing trust situs (the legal jurisdiction). South Dakota is one of only two states to specifically address this issue with state law.
To obtain the benefit of South Dakota law for a dynasty trust, the situs of the trust must be established in South Dakota. This would require that the trust’s instrument provide that South Dakota law would govern the terms of the trust; that the trustee is a resident of South Dakota; and that the assets of the trust are situated in South Dakota.
With nearly 130 years of stability and family ownership, The First National Bank in Sioux Falls is an excellent choice for dynasty trusts. Our exceptional personal service and expertise, plus the benefits of an asset protection trust statute, ensure long-term success.
For a copy of this comprehensive report, please email Dick Corcoran, JD, CFP® or call (605) 335-5180.