South Dakota was a pioneer in “dynasty trusts,” which allow families to escape estate taxes forever. The state offers iron-clad secrecy for trusts and protection of assets from creditors and former spouses.
By Stephen K Lehnardt
When it comes to “dynasty trusts,” some states have more favorable trust laws than others. Believe it or not, sleepy South Dakota is right up there amongst the best dynasty trust jurisdictions. Did you know that trusts, like businesses, can be set up across state lines with a bit of structuring?
South Dakota has been slowly and quietly building itself up as a trust haven over the years. Those efforts have not gone unnoticed and the secret is out. To learn more about this success story, turn to a recent article in Businessweek titled “South Dakota, Little Tax Haven on the Prairie.”
Not all trusts operate by the same laws because each state has its very own set of trust laws, for a variety of reasons. The South Dakota trust laws are special. Unlike the majority of states, South Dakota does not impose a limit to the duration of a trust. Most state trust laws limit the lifetime of a trust to the lifetime of a living heir plus a period of 21 years. Translation: under the trust laws of most states a well-formed and well-funded trust can allow one generation to help the one immediately below and also leave a bit extra for the second generation (grandparent to parent to grandchild), escaping estate taxation on that amount of those two transfers.
Take away the duration limit and you are not just talking about two transfers, but an intergenerational wealth transfer boon to the family. Instead, you are talking about a true dynastic transfer of wealth, potentially escaping the estate tax at every successive transfer. That is the power a “dynasty trust” provides.
In the end, it may be well worth your time to learn more about the dynasty trust and, perhaps, about South Dakota as a place for settling your family trust (there are a few more advantages to the state).
Before you leap onto a dynasty trust bandwagon, however, carefully consider what you need your trust to accomplish and then investigate whether a state outside your own may be required. States differ, trusts can do different things, and your family is unique. Plan accordingly.
For more information in Liberty, MO and the Kansas City Area about Medicaid planning and crisis management, and effective estate planning, and to access free information and tools to organize your estate, visit our estate planning website.
Reference: Bloomberg Businessweek (January 9, 2014) “South Dakota, Little Tax Haven on the Prairie“