About South Dakota Planning Company
Typical Client Estate Plan
Why South Dakota?
Unique South Dakota Laws
Unlimited Trust Duration
State Income Tax Savings
Premium Tax Savings
Asset Protection
Reformation and Decanting
Privacy Statutes
International Families
Management Biographies

Unique South Dakota Laws

South Dakota has been a boutique dynasty trust jurisdiction without state income taxes since 1983 (prior to the modern generation-skipping tax of 1986) compared with Delaware (1995) and Alaska (1997). South Dakota is a pure no trust income tax state like Alaska. Delaware requires informational reporting and taxes residents. Additionally, South Dakota has the best privacy statute for trusts in the U.S. (i.e., total seal); Delaware is typically only sealed for three years. All other states, including Alaska, are generally open to the public.

South Dakota's state insurance premium tax is 8 basis points, compared with New York's 200 basis points, California's 235 basis points and Nevada's 350 basis points. Additionally, the retaliatory premium tax protection is viewed by many as better in South Dakota, as it is by state statute. South Dakota also has one of the better insurable interest definitions and great lending statutes.

South Dakota's decanting, modification, and reformation statutes are some of the best in the U.S., and the process for any of these procedures is both extremely cost and time effective in South Dakota.

Most states have a Rule Against Perpetuity (RAP) statute, typically requiring that trusts end in 90-110 years. There are several states that have modified or abrogated their RAP statute to allow for either unlimited or extended durations. Many advisors claim most of these states have not modified their RAP statute in accordance with the 1979 Murphy Case, in which the IRS acquiesced to unlimited trust duration. South Dakota is one of only a few unlimited duration trust states that follow the Murphy Case. Both Delaware and Alaska have amended their statutes attempting to follow theMurphy Case, but many advisors feel they have not gone far enough and may have issues when limited powers of appointment are utilized.

Additionally, Delaware has an exception for real estate, which is limited to 110 years, unlike South Dakota which is unlimited. However, Delaware statutes further 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 (e.g., if a filing or fee is missed), the entire trust could be tainted.

Alaska limits the duration of its trusts to 1,000 years if a limited power of appointment is used. Colorado, Utah and Wyoming also have a 1,000-year RAP statutes. Additionally, Florida (360 years), Nevada (365 years), Tennessee (360 years) and Washington (150 years) all extend their statutory RAP period beyond 90 years to an arbitrarily longer term of years. Many advisors claim that federal rules permit the common law rule or 90-year term approach, but mere modification of that rule to extend the trust term beyond 90 years may not work. There is no authority to do this under the GST tax regulations or case law. Additionally, these states only deal with the “timing” issues associated with the RAP and not the “vesting” issues as outlined in the Murphy Case. South Dakota does not have these issues and closely follows the method outlined in the Murphy Case. For additional information on this topic, visit the Unlimited Trust Duration overview section of this website.

The information on this Private Trusts website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.