South Dakota was the first state in the nation to abolish the Rule Against Perpetuities – which prohibited unlimited-duration trusts – in 1983, clearing the way for the creation of the Dynasty Trust. A South Dakota Dynasty Trust is a very powerful planning tool that preserves family wealth over generations, allowing a trust to live in perpetuity (forever); therefore, never subjecting the assets to federal estate taxation through a forced distribution.
Because the decision as to where to create a trust is critical, it is important to note that Dynasty Trusts are governed by state law, and many states who tout the Dynasty Trust have merely amended the Rule Against Perpetuities to extend the time when a trust must terminate or do not have the myriad of other progressive modern trust laws available in South Dakota (see below). Understanding the vital importance of selecting the proper trust situs in the planning process, Nevada attorney, Steve Oshins, produces an annual rankings chart of Dynasty Trust states. In the most recently published comparison chart, South Dakota continues to rank as the top Dynasty Trust state in the nation – for the ninth consecutive year.
Understanding South Dakota’s Dynasty Trust
South Dakota Dynasty Trusts are available to residents and non-residents. The only requirement is that the trustee be a South Dakota resident and that South Dakota laws apply to the trust.
South Dakota allows trusts to continue in perpetuity, avoiding federal transfer taxes for generations.
South Dakota does not impose any form of taxation (income, dividend interest, capital gains) on these trust assets, so there can be additional compelling tax savings for clients and their families; particularly under the Supreme Court’s ruling in Kaestner, where it was held that it is unconstitutional for a state to tax undistributed trust income properly sitused and administered in a no income tax state, like South Dakota (learn more about the Kaestner case).
Through the use of the Dynasty Trust, families can reduce the tax burden on successive generations of beneficiaries while still giving them the use of the assets during their lifetime (learn more about state taxation of trusts).
Additional Benefits of a South Dakota Dynasty Trust
South Dakota Dynasty Trusts, whether designed as self-settled or 3rd party trusts, can also incorporate spendthrift provisions to prevent future creditors (including former spouses) from directly accessing trust assets (learn more about Domestic Asset Protection from a recent webinar Bridgeford Trust Company hosted).
South Dakota has the most robust privacy trust laws in the nation, with a total, non-discretionary seal on trust information forever, allowing for increased privacy and confidentiality protections. Most states have no privacy provisions and in Delaware, after 3 years, sealed trust information can become public.
While a South Dakota Dynasty Trust can endure for an unlimited duration, because of powerful modern trust planning tools such as the Directed Trust and Trust Protector, settlors of trusts, beneficiaries, and their advisors can maintain tremendous control and direction over vital aspects of trust creation, administration, and modification, through the use of South Dakota’s powerful decanting statute, considered the best in the nation.
South Dakota also offers the Special Purpose Entity, as well as the Community Property Trust and Family Advisor – all planning tools not available in other U.S. trust jurisdictions. South Dakota’s modern trust laws are the reason why that state has been ranked as the top Dynasty Trust state in the nation by advisors, industry experts, and publications, including Trusts & Estates magazine (learn more about why South Dakota was named a top-tier trust jurisdiction by Trusts & Estates magazine).
We encourage you to view Bridgeford Trust Company’s comparison chart of the leading top-tier U.S trust jurisdictions and where they rank in terms of Dynasty Trusts. This chart also illustrates many other progressive trust topics and laws that distinguish South Dakota as the best U.S. trust jurisdiction in the overall analysis.
You can also watch this video about Dynasty Trusts on Bridgeford’s YouTube channel to learn more about its history, how they work, and why South Dakota has been ranked as the top Dynasty Trust state in the nation.
For more information on the Dynasty Trust and how it combines with South Dakota’s modern trust laws to create this powerful planning opportunity for advisors and their clients, please contact Bridgeford Trust Company’s team at (605) 224-9189 or online.
McKonly & Asbury is able to offer an extension of trust and fiduciary services to our clients and friends of the firm through our partnership with Bridgeford Trust Company. As a fully independent trust company chartered in South Dakota, Bridgeford Trust Company provides conflict free and innovative fiduciary services and progressive U.S. modern trust law solutions around asset protection, privacy, and tax planning to domestic and international families across the country and around the world.
You can learn more about Bridgeford Trust Company and the South Dakota Advantage at www.bridgefordtrust.com.
About the Author
McKonly & Asbury is a Certified Public Accounting Firm serving companies across Pennsylvania including Camp Hill, Lancaster, Bloomsburg, and Philadelphia. We serve the needs of affordable housing, construction, family-owned businesses, healthcare, manufacturing and distribution, and nonprofit industries. We also assist service organizations with the full suite of SOC services (including SOC 2 reports), ERTC claims, internal audits, SOX compliance, and employee benefit plan audits.