“Modern trust law” was born in 1983 when South Dakota – the first state in the nation to do so – abolished the rule against perpetuity, creating the dynasty trust, a powerful trust planning tool allowing assets to remain in trust over multiple generations, conceivably avoiding federal estate tax forever.
South Dakota’s move to “modernize” U.S. trust law prompted a race among certain states to ascend as a “top-tier” trust jurisdiction, resulting in a proliferation of progressive modern trust laws around asset protection, privacy, sophisticated tax planning strategies, and planning tools to deliver far more direction and control to families with regard to important aspects of trust administration over generations through the directed trust and trust protector concepts.
This article highlights how these modern progressive trust laws, found only in a handful of states including South Dakota, have drastically changed how trusts are created and administered, delivering far more control and direction to settlors of trusts, beneficiaries, and their advisors than ever before.
The Directed Trust
Directed Trusts – only available in a handful of states including South Dakota – continue to drastically change the trust world through unbundling asset management and trust administration functions, putting control back into the hands of settlors, beneficiaries, and their advisors.
Through bifurcating liability, the directed trust model creates a legal framework allowing trustees and beneficiaries to work with asset managers and independent trust companies of their choosing. South Dakota’s directed trust statute is recognized as among the best in the nation, allowing Bridgeford Trust Company to work collaboratively with clients and their long-time trusted advisors while delivering industry leading fiduciary capability.
The Trust Protector
The trust protector – often used in conjunction with the directed trust and referred to as a super trustee – delivers great control to settlors of trusts, beneficiaries, and their advisors. The inclusion of a trust protector allows the settlor, beneficiaries, and their advisors to modify and control many important aspects of the trust and provide direction to the trustee with respect to investment management, jurisdiction, and trust distributions.
The trust protector concept enhances the control aspects of the directed trust because it provides for direction or restraint of powers of the trustee.
Domestic Asset Protection
Domestic Asset Protection Trusts (DAPT), available only in a small number of states – including South Dakota – are a formidable planning strategy that legally shields assets from third-party liability and lawsuits while permitting settlors to retain some control over the trust assets and enjoy a discretionary benefit during their lifetime. Therefore, an individual can establish a DAPT that is fully discretionary, meaning settlors can receive financial benefit from the trust (income and discretionary principal distributions), and protect trust assets from creditor claims and lawsuits, while maintaining control over the investment management function through the directed trust structure.
South Dakota has one of the oldest and most progressive self-settled Domestic Asset Protection Provisions in the United States. With its two year “look back” fraudulent conveyance statute, South Dakota’s provision is among the shortest in the country.
Privacy (Not Secrecy)
Privacy has always been of paramount concern to wealthy families and is one of the primary reasons billions of dollars have been and are being moved into the U.S. – and to South Dakota in particular – for trust administration from around the globe.
South Dakota is considered by advisors and academics to have the best trust privacy and quiet trust statutes in the U.S. and provides for a total seal forbidding the release of trust information including names of settlors, beneficiaries, and the contents of a trust to the public during litigation. South Dakota also offers the most comprehensive and flexible quiet trust statute in the nation, granting the settlor, trust protector, and the investment/distribution advisor the power to expand, restrict, eliminate, or modify the rights of the beneficiaries to discover information about a trust.
For more information about these progressive modern trust laws that consistently rank South Dakota as one of the best U.S. trust jurisdictions, 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.