Exploring the Advantages of Trust Situs in the Rushmore State

During the formation of a trust, it is very important to consider the situs (or location) in which the trust will be governed. Factors such as tax regulation, asset protection, and privacy levels can all vary depending on a trust’s situs. Therefore, choosing the right situs can significantly impact the effectiveness and efficiency of a trust. Although it may seem like an interesting choice to many outsiders, a South Dakota situs has become very popular among many grantors. South Dakota is renowned for its advantageous trust laws, positioning the state as a premier jurisdiction for trust formation and administration. With quality asset protection, privacy provisions, and a 0% state income tax, South Dakota is an attractive location for both domestic and international settlors.

Asset Protection

Asset protection is often a concern for clients, as they are wanting to preserve their wealth for generations to come. South Dakota’s asset protection laws offer safeguards relating to the protection and preservation of assets. These include, but are not limited to, the creation of Domestic Asset Protection Trusts and inclusions of Spendthrift provisions within a trust. South Dakota law also allows Dynasty Trusts, since there is no rule against perpetuities. This allows a trust to essentially “live forever” which can preserve assets over many generations and will not force the trust into unwanted distributions. These safeguards help protect assets from creditors, as well as allow a trust to hold assets long after a grantor’s passing, and potentially forever.

Privacy and Confidentiality

Privacy and confidentiality issues are always a concern for wealthy families. South Dakota has accounted for this within its trust privacy laws, with the total-seal provision and the creation of quiet trusts. The total-seal provision prevents the release of key trust information to the public during potential trust litigation. It also ensures an automatic and permanent seal of trust court proceedings post-litigation. The quiet trust statutes allow a trust to be “hidden” from a beneficiary at the discretion of the settlor, Trust Protector, Investment Trust Advisor or Distribution Trust Advisor. This can prevent a potential “leak” of trust information and curb any potential disputes over the splitting of trust assets during potential distribution. 

Tax Advantages

South Dakota is one of eight US states that holds a 0% state income tax. This includes a 0% state tax on capital gains, dividends, and interest, as well as no LLC or LLP state taxes. The absence of this tax can be advantageous for trusts as it allows trust assets to grow at a compounding rate without being subject to state taxation. In addition to a 0% state income tax, South Dakota also provides no inheritance or estate tax. These beneficial tax laws create an appeal for the state as a trust situs for individuals or entities looking to preserve wealth while also minimizing tax liability.

These are just a few benefits of a South Dakota trust situs. If you have further questions on this topic or are questioning what a South Dakota situs can do for you, give us a call!

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