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© South Dakota Trust Company LLC – All Rights Reserved
Why
South Dakota
Trust Company
LLC?
SOUTH DAKOTA
TRUST COMPANY LLC
Sioux Falls Rapid City
New York (South Dakota Planning Co.)
Why
South Dakota
Trust Company
LLC?
S O U T H D A K O T A T R U S T C O M P A N Y L L C
© South Dakota Trust Company LLC – All Rights Reserved
2
About South Dakota Trust Company LLC
With currently more than $9 billion in assets under administration, South Dakota Trust Company LLC
(SDTC) offers pure trust administration without any product, working with whomever the client or advisor
wishes regarding investments, insurance and custody. Additionally, SDTC also administers trusts with non-
financial assets, e.g., LLCs, FLPs, closely-held stock, real estate and off shore entities. As a result of South
Dakota’s competitive and unique trust, asset protection, income tax, and private family trust company laws,
SDTC works with families all over the globe, serving as trustee, as well as, corporate and/or trust agent for
family-owned private trust companies.
SDTC currently works with over 68 billionaire and 200 centa-millionaire clients who have chosen SDTC due
to the following:
Highest ranked Trust jurisdiction in the U.S. (#1 in all categories) by Trusts & Estates magazine
(1/12)
Tax favored trust situs (no state income or capital gains tax)
Outstanding, timely, and inexpensive reformation/modification and decanting processes/statutes
Excellent asset protection
Modern and unique trust statutes
Customized trust administration
Quality personalized service
Unique and creative advice
Reasonable fees
– Directed trusts average 10 bpts.
– Flat fee for illiquid assets
SDTC specializes in trust administration of trusts established pursuant to South Dakota law, as well as trusts
of other states moved to South Dakota (i.e. change of situs trust). All of the above listed advantages and
services are available through SDTC without the necessity of either the trust grantor or the beneficiaries
having to visit, reside or even fly over South Dakota.
What makes SDTC unique?
Most trust companies in the industry typically provide investment services, first and foremost, and offer trust
administration services as secondary, auxiliary services to their investment products. In addition, many times a
corporate fiduciary will restrict and/or limit investment flexibility, and demand or eventually seek total
control in carrying out all of the trustee functions, i.e., trust administration, investments, accounting, etc. On
the contrary, SDTC works exclusively with a family’s outside, trusted investment managers and advisors,
creating a “best of class,” extremely flexible model. Our clients are able to retain long-standing and
comfortable relationships with their current investment advisors and maintain these associations when it
comes to their trust investments. By choosing SDTC, these families’ are also free to replace and supplement
these advisors with managers of their own choosing as their investment goals and desires change. SDTC’s
experienced trust officers act as relationship managers, customizing trust services individually for each client
and supplementing/facilitating communication with the trust grantor, the beneficiaries and the other
S O U T H D A K O T A T R U S T C O M P A N Y L L C
© South Dakota Trust Company LLC – All Rights Reserved
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investment, legal and tax advisors. SDTC’s business model was built on flexibility and family customization
positioning the needs and desires of our clients first.
Our Objective:
Our goal at SDTC is to provide “flexible, individualized, service and advice oriented, cost-effective
trust administration.” With this objective in mind, we seek to tailor services to each family. Some of the
benefits of working with SDTC are the following:
1. Directed Trusts: With newly drafted South Dakota law trusts, SDTC can act as “directed”
administrative trustee, leaving the family and their advisors as the investment and distribution
advisors, committees, fiduciaries and/or trust protectors. This allows the family to work with their
existing investment and/or insurance advisors and lessen their own personal liability. Additionally,
SDTC can serve as successor trustee or co-trustee for existing trusts looking to move to South Dakota
for its trust and tax benefits. SDTC can “delegate” investment responsibility to an outside
investment manager. Delegated Trusts can also be easily reformed or decanted to Directed Trusts in
South Dakota.
Typical Modern South Dakota Directed Trust Structure with a Trust Protector Promoting Flexibility and Control:
Trust Protector (Family, Friends or Advisors)
(Fiduciary, Not Trustee)
Powers Include:
Terminate the trust;
Modify or reform the trust;
Veto or direct trust distributions;
Add or remove beneficiaries;
Change situs or governing law of the trust, or both;
Appoint successor trustees & fiduciaries; and
Replace trustees & fiduciaries.
Distribution Committee (Fiduciary, Not Trustee)
Family Committee
(Non-tax sensitive distributions)
Independent Trustee
(Tax sensitive distributions)
Investment Committee (Family Members)
(Fiduciary, Not Trustee)
Administrative Trustee (South Dakota Trust Company)
Stocks & Bonds
Insurance
Art
FLPs
Ownership of Assets
Establish & Maintain Trust Bank Account
Prepare & Sign Trust Tax Return
Trust Statements
Make Distributions
Receive Contributions
Take Direction From:
Investment
Committee
Distribution
Committee *Combine All Functions Full Trustee
Directs Administrative Trustee (SDTC) regarding Investments
Directs Administrative Trustee (SDTC) Regarding Distributions
LLCs
Real Estate
Private Equity
Closely-Held Stock
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© South Dakota Trust Company LLC – All Rights Reserved
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2. Dynasty Trusts: As a result of current population trends as well as the flexibility and control that can
be drafted into modern trusts, the Dynasty Trust remains
extremely popular; especially in a dynasty friendly state like South
Dakota. A South Dakota has been an unlimited duration
Dynasty state since 1983, prior to the modern GST tax (1986).
South Dakota’s statute is based upon the 1979 Murphy case in
which the IRS acquiesced in for an unlimited duration trust
basically following the “suspension of the power to alienate”
combined with the abrogation of the Common Law RAP.
Consequently, South Dakota is the Dynasty Trust jurisdiction of
choice for many wealthy families.
In providing a substantial legacy for current and future
generations, Dynasty Trusts can be free of estate taxes and
protect the assets from potential creditors. Further, Dynasty
Trusts can take the greatest possible advantage of a grantor’s gift
tax exemption ($5.12 million per taxpayer in 2012) and
generation-skipping transfer tax exemption ($5.12 million per
taxpayer in 2012). These exemptions are due to return to 2001
levels in 2013 which are substantially lower than the current
levels. Since the current exemption amounts (gift and/or GST tax exemption) could get decreased to
$3.5 million or even $1 million, prior to 2013, it is important to fund a new Dynasty Trust or add to
existing Dynasty Trust as soon as possible in 2012.
3. Domestic Asset Protection: Trusts generally
provide excellent asset protection. A self-settled trust
is one of the more frequently used types of domestic
asset protection trusts (DAPT). It is generally a
discretionary irrevocable trust where the grantor or
settlor is a permissible beneficiary. If properly
structured, creditors cannot reach the assets in a self-
settled trust to satisfy the settlor’s legal obligations. A
self-settled trust can be drafted to either keep trust
assets within the settlor’s estate or remove them,
which allows a wealthy individual to establish a self-
settled trust even though that individual’s gift tax
exemption has been fully utilized. Advisors generally
suggest structuring the DAPT as a self-settled trust
included in the estate and the dynasty trust as a third party trust excluded from the estate due
to the fact that there are many possible estate and GST tax issues that can arise by structuring
the dynasty trust as a self-settled trust excluded from the estate.
In addition to no state income or capital gains taxes, South Dakota has:
Lowest state insurance premium tax No intangibles tax (compare FL,
KS, KY & MI) No dividends & interest tax No state LLC tax No state LLP tax No state ad valorem tax No city or local tax No state inheritance tax No state gift tax No state (GST) Generation-
Skipping Tax No state coupon tax No state personal property tax
S O U T H D A K O T A T R U S T C O M P A N Y L L C
© South Dakota Trust Company LLC – All Rights Reserved
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Establishing a DAPT in a state like South Dakota is not only advantageous (i.e., provides four levels of asset
protection-see below), but also easy and inexpensive ($1,500 set-up and $3,500 annual trustee fee). Offshore
asset protection has lost momentum as a result of increased scrutiny and reporting requirements by the
United States government. Consequently, South Dakota DAPTs are quite popular, and can provide
significant advantages for clients.
Generally, the settlor would place 10% to 40% of their financial assets into a DAPT to protect those assets
from a possible future lawsuit. The settlor is a permissible discretionary beneficiary of the DAPT, but does
not generally use the trust for everyday living expenses, as this could weaken the asset protection.
Summary of 21st Century Family Estate Plan:
Will/Revocable Living Trust
Education Planning and Trusts
Irrevocable Insurance Trust
Private Foundation and Charitable Trusts
Advanced Trust Planning – See Below:
Domestic Asset Protection
Trust
Asset Protection:
Four Levels of Asset
Protection
Included in the Estate
– Tax Neutral
Self-Settled – Grantor as a
Permissible Beneficiary
Grantor Trust for Income
Tax Purposes
Typically Transfer 10-40% of
Assets
Dynasty Trust “Defective”
Shifting Growth on Assets:
Promissory Note Sale
– Grantor
– Beneficiary
– SCIN
Loan
“Walton” GRAT
QPRT
PNS-Residency/ Vacation Home
Excluded from Estate
Third Party* (vs.
Self-Settled)
Grantor Trust for
Income Tax Purposes *Please Note: May help avoid possible estate and GST tax issues (please see PLR 200944002). Trust protector may add beneficiary in the future.
CLAT
Sale of Remainder
Sale of Remainder
Sale of Remainder
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The four levels of asset protection make South Dakota (SD) one of the more popular and beneficial
jurisdictions for DAPTs. The four levels of asset protection are listed below:
4. International Families:
South Dakota is frequently chosen as a favored trust jurisdiction for international families looking for U.S.
trust situs. Additionally, many of these families choose SDTC as trustee as a result of its extensive experience
with International clients. There are many reasons for an international family to establish a trust in the U.S.
SDTC serves International Families worldwide with the following types of trusts:
• Non-Resident Alien (NRA) Dynasty Trust
Four Levels of Asset Protection with South Dakota DAPT and Special Features
1. South Dakota Self-Settled Trust: o The settlor has the ability to name him or herself as a trust beneficiary of a discretionary trust along with
other permissible beneficiaries. o If properly structured, creditors cannot reach the assets in a self-settled trust to satisfy the settlor’s legal
obligations.
2. South Dakota LLC or LP: o Assets located in other states are titled to a SD LLC or LP, which in turn is titled to a self-settled SD
DAPT. o SD affords “sole remedy charging order” protection to LLCs and LPs which is generally considered the
most desirable.
A charging order is simply a right to a distribution, if and when one is ever made, and it leaves a creditor without any means to force a distribution.
Additionally, it is the only remedy.
3. Discretionary Interests: o A discretionary interest in a trust is not a property interest in SD. Additionally, limited powers of
appointment and remainder interests are not property interests. o Since these are not property interests, a creditor cannot attach their claim to a discretionary interest in
trust.
4. Spendthrift Clause: o A spendthrift clause also helps prevent creditors from attaching to a trust providing another level of
protection. Additional Features:
Attorneys’ Fees:
o Under SD law, if someone sues the DAPT and loses, they will have to reimburse the DAPT for legal fees, which may help to deter some creditor suits.
Privacy:
o All lawsuits involving trusts are sealed in perpetuity (unique to SD).
S O U T H D A K O T A T R U S T C O M P A N Y L L C
© South Dakota Trust Company LLC – All Rights Reserved
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• Standby-Dynasty Trust (receptacle for Pour-Over from a foreign trust)
• Foreign Grantor Trust holding offshore entities
• Foreign Law Trust
5. Reformation/Modification & Decanting:
It may be helpful to reform, modify, and thus modernize many older irrevocable trusts. Alternatively, it may
be beneficial to decant from one older trust to a newly drafted trust, provided the trustee has the power to
distribute assets. Modifications, reformations, and decanting of a trust have all gained popularity as a result of
new trust laws, the new Uniform Principal and Income Act, the Uniform Prudent Investor Act, "directed
trust laws," changes in family circumstances and desires to change trust administration. South Dakota’s
decanting, modification and reformation statutes are some of the best in the U.S., and the South Dakota
process is both cost and time effective.
South Dakota law also provides that a court may reform the terms of a trust instrument on receipt of a
petition by a trustee or beneficiary. The reformation can be done to conform the terms of the trust to the
trustor's intention if the failure to conform was due to a mistake of fact or law and the trustor's intent can be
established. In order to achieve the trustor's tax objectives the terms of a trust instrument may be construed
or modified in a manner which will not violate the trustor's probable intention.
Example- Reformation/Modification:
Example - Decanting:
New York “Delegated”
Trust
NY Law for Construction,
Validity and Administration
1. Change Situs to South Dakota by naming a South Dakota Trustee;
2. Upon change of situs and appointment of South Dakota Trustee, reform/modify to SD law for administration;
To Save State Income Tax/ Modernize Administration
Reformed/Modified NY Trust
New York Law:
Interpretation, Construction, and
Validity
South Dakota Law:
Administration-
“Directed”
“Trust Protector”
Existing Trust: Existing Trust Modified:
New York Law Trust: (Interpretation, Validity,
Construction and Administration)
Trustee Power to Distribute Assets
Appoint a South Dakota Trust Company as Trustee
Trustee Decants
South Dakota Law Trust with South Dakota Trustee
(Interpretation, Construction,
Validity and Administration)
Existing Trust: New Trust:
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6. Insurance Trusts:
As a result of its favorable insurance laws as well as
the lowest state premium tax in the U.S. SDTC
administers all types of insurance trusts and LLCs.
South Dakota’s insurance premium tax is the
lowest in the U.S. at 8 basis points (8/100th of 1%);
the national average is 200 basis points or 2%.
Additionally, South Dakota allows for in-kind
distributions from both cash value distributions as
well as death benefit payments. This helps with
hedge fund lock-ups, etc. South Dakota also is the
only state that allows for in-kind premiums. In
addition, South Dakota’s insurable interest statute is
excellent. Additionally, South Dakota has very
favorable statutes that provide unique investment
rules for Private Placement Life Insurance (PPLI).
Alaska 10 bpts.
Arizona 200 bpts.
California 235 bpts.
Connecticut 175 bpts.
Delaware 200 bpts.
Florida 175 bpts.
Georgia 225 bpts.
Hawaii 275 bpts.
Illinois 50 bpts
Massachusetts 200 bpts.
Minnesota 200 bpts
Nevada 350 bpts.
New Hampshire 125 bpts.
New Jersey 210 bpts.
New York 200 bpts.
Ohio 140 bpts.
Pennsylvania 200 bpts.
South Dakota 8 bpts. (Lowest)
Washington 200 bpts.
Wyoming 75 bpts.
Privacy is a very high priority for our clients. South Dakota has the most comprehensive privacy statute in the U.S. for trust matters, i.e., total seal forever. No other states have this type of privacy protection.
Photos courtesy of the South Dakota Department of Tourism
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© South Dakota Trust Company LLC – All Rights Reserved
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7. Private Family Trust Company (PFTC):
SDTC is the industry leader in establishing and operating Private Family Trust Company’s (PFTC) for
families. SDTC can serve as both Corporate and/or Trustee Agent by assisting a family with the
formation and operation of a PFTC in South Dakota by providing the family with the necessary office
space, local Board membership, as well as assistance with regulator/compliance issues, trust
administration, trust accounting and/or custody services. The PFTC can then work with the non-South
Dakota Family Office pursuant to a service agreement to provide additional services to the family. No
one needs to move to South Dakota, if SDTC is involved.
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Planning Strategies:
SDTC’s founders and its employees have advised more than 25% of the Forbes 400 and are currently working
with over 68 billionaires and over 200 centamillionaires. In working with these families, as well as with other
wealthy families and their advisors across the country, SDTC has seen many creative and cutting-edge estate
planning and trust strategies.
Our experience with most of the top lawyers, accountants, insurance agents, and investment mangers across
the country, allows us to identify trends among similarly wealthy families without, of course, divulging any
private information. Decisions can then be made by a family after analyzing an estate plan with the client’s
advisors from both a tax and non-tax point of view. SDTC thoroughly recognizes the needs of its clients and
develops a strong, successful and personal relationship with its clients lasting in perpetuity.
If you have any questions or would like to request additional information about any information discussed
herein, please do not hesitate to contact SDTC at any time at 212-642-8377.
IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, please note that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.
Photos courtesy of the South Dakota Department of Tourism
South Dakota Trust Company, LLC 201 South Phillips Avenue – Suite 200
Sioux Falls, SD 57104 Phone: (605) 338-9170
Fax: (605) 274-9200 [email protected]
South Dakota Planning Company LLC 51 East 42nd Street – Suite 701
New York, NY 10017 Phone: (212) 642-8377
Fax: (212) 642-8376 [email protected]
www.sdtrustco.com
For additional information on this or any topic, please contact us: