Why SD?

Why South Dakota?

SDTC's choice for a trust company location is South Dakota because of the state's advantageous trust and tax laws, its cost efficient and dedicated workforce, the founders' previous favorable experience and their market recognition with the state. South Dakota was one of the first states (1983) to allow a trust to endure perpetually. Therefore a properly funded South Dakota trust can essentially jump outside the onerous federal transfer (gift, estate and generation-skipping) tax system theoretically forever. Currently, twenty-two other states have joined the ranks of offering a long-term trust. Eighteen of these states, including South Dakota, allow for a trust to go on in perpetuity. South Dakota can be distinguished due to its modern trust laws coupled with the fact that it does not impose any form of state taxation on the assets that compose a trust located there. This would include, but is not limited to no state income, capital gains, dividend/interest and/or intangible's taxes. Additionally, South Dakota has the lowest insurance premium tax of any state together with other favorable insurance legislation. South Dakota also has enacted a self-settled trust statute, allowing for domestic asset protection planning. Consequently, most of the unique and creative trust strategies for the wealthy involve trust administration in South Dakota without the necessity of having the trust's family reside there. One of SDTC's founders, Pierce McDowell, has taken a very prominent role on the state's trust legislative committee and will continue this role so that SDTC may best serve the wealthy and their advisors.

In the December, 2004 Trusts & Estates magazine, South Dakota and Delaware were rated as the top boutique trust jurisdiction in the U.S. Please note that there are differences between South Dakota and Delaware that many people feel make South Dakota the jurisdiction of choice

South Dakota has been a boutique Dynasty Trust jurisdiction without state income taxes since 1983 versus Delaware – 1995 and Alaska – 1997. South Dakota is a pure no trust income tax state like Alaska. Delaware requires informational reporting and taxes residents.

South Dakota’s state insurance premium tax is 8 basis points compared to Alaska’s 10 basis points and Delaware’s 200 basis points. Additionally, the retaliatory tax protection is better in South Dakota than Alaska since it is by statute.

There are other statutes including privacy, reformation and beneficiary notice that further differentiate South Dakota.

Regarding the Rule Against Perpetuities, South Dakota is a pure unlimited duration state as is Delaware with the exception of real estate, which is limited to 110 years in Delaware. Delaware statutes provide that if the real estate is in an LLC or partnership it is considered an intangible asset and thus is not subject to the 110 year limitation. Many clients are concerned that if the LLC or partnership ever ends the entire trust could be tainted. Delaware may have another issue with the Delaware Tax Trap if limited powers of appointment are utilized in a trust. South Dakota does not have these issues.

Alaska limits the duration of its trust to 1,000 years if a limited power of appointment is utilized. Wyoming also has a 1000 year rule. Many advisors claim the 1,000 year limit could be problematic.

According to many advisors, Alaska, Wyoming, Florida (360), and Washington’s (150) choice to extend the statutory rule against perpetuities period from 90 years to 1000 years, creates uncertainties in the application of the federal generation-skipping transfer tax pro-visions. The advisors claim that the significance of the similarity to the Uniform Statutory Rule Against Perpetuities (USRAP) language is that the USRAP approach to the rule is accommodated in the Internal Revenue Code and the Regulations – in other words, the federal rules permit the common law rule or 90-year term approach, but mere modification of that rule to extend the trust term beyond the 90 years may not work under the GST tax regulations. South Dakota does not have this issue.

Asset Protection South Dakota enacted self-settled trust legislation in 2005. Other states that have enacted self-settled trust statutes include Missouri (1989), Alaska (1997), Delaware (1997), Nevada (1999), Rhode Island (1999), Utah (2003) and Oklahoma (2004). Self settled trusts might be established for:

· Estate planning purposes:

Gift and GST exemptions would be utilized and the trust assets would be excluded from the grantor’s estate

· Asset protection purposes:

Trust assets would be included in the grantor’s estate and gift and GST exemptions would not be utilized

For families that want to establish their own Private Family Trust Company (PTC), South Dakota is generally the jurisdiction of choice for several reasons:

(1) No state income or capital gains tax

(2) Unlimited Dynasty Trust duration

(3) Lowest state insurance premium tax

· South Dakota is 0.08%

· Delaware is 2.00%, Wyoming is .75% and Nevada is 1.75 – 3.50%

(4) Most responsive state legislature for regulated family trust companies

· Delaware caters to institutional trust companies

(5) Simple application procedure

· Short time frame

(6) Reasonable set-up costs

(7) SD allows for interstate trust administration in family’s home state

(8) Low capital requirement