Why South Dakota is a Special Place for TrustsAuthors: Director of Trust Services Bonny Hansen & Senior Advisor of Trust Services Karen Miller
Date: September, 2018
A trust plays an important role in helping safeguard the legacy you want to leave for your family. Whether it’s passing down the family business, giving to charity or handing over the family farm, having a trust is a proactive way to approach building, preserving, protecting and transferring your legacy.
When deciding where to have a trust, not all states are equal. Certain states offer more benefits than others. For instance, South Dakota is recognized both nationally and internationally for its advantageous trust and tax laws and you don’t have to be a South Dakota resident to benefit. Let’s take a look at a few of the top trust advantages South Dakota offers.
No Rule Against Perpetuity
One of the main benefits of having a trust in South Dakota is that there is no rule against perpetuity. In fact, South Dakota was the first state to allow perpetual trusts. This means the creator of the trust can determine how long they want the trust to last. Otherwise, trusts are typically subject to a limit on duration based on the lifespan of the people alive when the trust was created plus 21 years. With no required termination date, you’re allowed to protect and grow your assets for future generations. When families want to leave a legacy like family land or an LLC that will last for generations to come, perpetuity is important.
Top Privacy State in the U.S.
South Dakota is rated the top privacy state in the U.S. for trusts. South Dakota, by statute, perpetually seals the court records relating to trust information. This is very important to many families to keep their personal matters and wealth information private. South Dakota laws also allow for the Grantor of a trust to expand, restrict or eliminate the rights of the beneficiaries to information relating to a trust.
State Income Tax Savings
In South Dakota, there is no income or estate tax on trusts. However, that doesn’t mean you won’t pay any taxes. If income from a trust is distributed, beneficiaries are taxed at his or her personal rate in his or her tax residence jurisdiction. Income not distributed is generally taxed to the trust at the trust rate based on the trust’s location. There are also certain exceptions with certain partnership and business interests.
Another reason people like having a trust in South Dakota is their ability to maintain control. If a trust protector is appointed, a trust company will do the administrative work but the family can still have control over investments or distributions.
South Dakota laws also allow changes to be made to trusts. Modifications, reformation, and decanting have gained popularity as a result of new trust laws, changes in family circumstances and a desire to change trust administration. Reformation and modification both result in amending an original trust. Decanting results in the pour over from an existing trust to a new trust. South Dakota law provides that a court may reform the terms of a trust instrument upon receipt of a petition by a trustee or a majority of beneficiaries.
When considering where to have a trust, South Dakota certainly is one of the top locations. FNN Trust Company, a division of First National Bank, is located in South Dakota where we have years of experience with the state’s advantageous trust laws. Plus, we are able to extend the benefits of these laws to our clients and their advisors in any state. Learn more about FNN Trust Company and our services at www.fnntrustco.com.
About the Authors
Bonny joined FNN Trust Company in Mitchell, S.D., in 2006 as a Director. She is responsible for the administration of trusts, estates, conservatorships and investment management accounts. Client segment includes individuals, businesses, foundations and endowments that require investment and trust services.
Karen joined FNN Trust Company in Huron, S.D., in 2007 and her responsibilities include administration of trust, estates, ILITs, conservatorships, agencies, investment management and retirement plan accounts.