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Domestic US Trusts

South Dakota Self Settled Trust

South Dakota is a pure no trust income state and may be used in perpetuity since 1986.

The common law against perpetuities is not enforced in South Dakota.  This means that a person can create a trust in South Dakota and avoid federal transfer tax system (gift and estate planning generation-skipping) for ever if a family chooses. 

South Dakota does not impose any state taxation on the assets in a South Dakota trust.  There are no capital gains, dividend interest or intangible taxes.  South Dakota has the lowest premium insurance rate of any state.  South Dakota’s insurance premium tax rate is 8 basis points, Alaska is 10 and Delaware is 200.  In 2005, South Dakota enacted self-settled trust legislation offer statues to increase the states asset protection.

South Dakota trusts are known to be free from complexities by statute.  It is possible to establish a South Dakota trust for asset protection keeping in mind that although South Dakota may offer some of the best asset protection in the United States, it is still inferior to offshore asset protection.

GST and gift exemptions may be utilized and the trust assets may be excluded from the settlor’s estate.  Trust assets are included in the settlor’s estate and gift and GST exemptions would not need to be utilized.  This means that the settlor can still take advantage of the exemptions personally if assets remain outside the trust under the person’s control and ownership.

South Dakota offers

• Trust Statutes for protection
• The first domestic Trust Protector Statutes
• Pure no state income tax
• Privacy protection
• Lowest state insurance premium in the US
• Utilization of Unregulated Special Purpose Entities as Trust Protector, Investment and/or Distribution Committees
• Dynasty Trust Hardship withdrawals
• Grantor defective trust – protected income tax reimbursement to the grantor – pursuant to Revenue Ruling 2004-64
• Pre-Immigration Planning
• Asset Protection for Life Insurance

The capital requirement is $200.00.  The state conducts a regulatory exam every 18 months.  There is controversy as to which provides the best asset protection, a regulated self-settled trust state or a non-regulated trust states.  South Dakota is a regulated state and a regulated state is considered by many attorneys to be harder to pierce then a non-regulated state like Delaware and Nevada.

Trust Administration

South Dakota allows integrated trusts for flexibility of beneficiaries, settlor’s and trustees.

South Dakota allows a “full inclusive trustee”, “directed trustee” or “delegated trustee.”  Directed and Delegated trusts are very popular in South Dakota.  This is for the purpose of providing family interest and investment simultaneously.

The directed trustee may be appointed by the settlor who can then appoint an investment advisor; the term “directive” refers to the fiduciary role of the trustee.  Revocable and irrevocable trusts can be established with a directed trustee.  The trusts investment trustee is typically a committee of family members.  Additionally, a distribution committee may be selected and comprised of family members who may direct the distrubutions to the beneficiaries.

A delegated trustee is generally allowed to delegate its investment responsibility to one or more qualified investment managers, pursuant to the trust deed and/or outside agreement.  The trustee generally has investment discretion under the terms of the trust instrument, which in some cases can be delegated to a co-trustee.

In the event of loss of Medicaid, a self-settled trust may not be enough to create protection. To avoid loss of Medicaid¹⁹ when establishing a self-settled trust, it is not enough to create an irrevocable spend thrift trust, even if it is discretionary. South Dakota law like all other states are subject to 42 U.S.C. §1396p(d)(4), which explains how a trust can peacefully co-exist with Medicaid benefits. The beneficiary must be "disabled" as defined in the Social Security statute.

South Dakota is subject, like all states to the four dilemmas of self-settled trusts.

• The Full Faith and Credit Clause
• The Supremacy Clause of the US Constitution
• Fraudulent Conveyance
• Conflict of Law Arguments