Advantages of South Dakota Trust Laws

If you’re considering establishing a personal trust, or an advisor working with a client to establish their trust, you’ll find you have options when it comes to selecting what jurisdiction to use.

In most instances, you do not need to be a resident of the state or jurisdiction you wish to utilize. There are a handful of U.S. states with favorable trust laws and you can employ the charter of a corporate trustee to take advantage of these benefits. South Dakota has become a highly favorable jurisdiction for traditional wealth and asset protection.

Trusts are established in South Dakota largely due to, but not limited, to the following provisions:

• No state income tax.
• Asset protection benefits.
• Statute of limitations.
• No rule against perpetuities.
• Flexibility benefits.
• “Quiet” trust laws.

No state income tax

There is no state tax on capital gains, dividends, interest income or intangible property. South Dakota is one of a handful of states that have no individual income tax. This is not entirely unique, but less common and highly favorable.

Asset protection benefits

There are provisions in place for trusts to be shielded from claims of creditors, helping to protect your assets. Protection from ex-spousal claims such as alimony can be granted within a South Dakota trust. Furthermore, you’re protected from judicial foreclosure and creditor attachment on beneficial interests in trusts powers of appointment held by beneficiaries and reserved powers by a beneficiary. Power of appointment in a trust is specifically excluded as a property interest.

Statute of limitations

The statute of limitations in South Dakota for an existing creditor against a trust is six months – for new creditors, it is two years. In most other jurisdictions these limitation periods are four years and even as high as 10 years in some states. South Dakota provisions cut the time a creditor has to act on a trust at least in half.

No rule against perpetuities

South Dakota has abolished the rule against perpetuities, per SDCL Section 43-5-8 codified law. Trusts can have unlimited duration providing continued protection for generations to come.

Flexibility benefits

You’ll find more flexibility in the courts of South Dakota than most other jurisdictions. There’s no limit on the funds or property that can be transferred into a trust, no requirement that the grantor be a South Dakota resident and no requirement that the property in the trust be located in South Dakota. Trust grantors can also name themselves as the beneficiary in what’s called a self-settled trust.

“Quiet” trust statute

South Dakota’s “quiet” trust statute authorizes the restriction of the disclosure of information to beneficiaries. While a few states have similar statutes to South Dakota, it is widely regarded that South Dakota has the most robust yet flexible silent trust laws in the country. SDCL Section 21-22-28 states the privacy of those who have established a court trust or other trust shall be protected in any court proceeding concerning the trust.