When discussing domestic asset protection trusts, a few stand out as superior to the majority. Of that select group, South Dakota asset protection trusts have recently taken the crown from Nevada to become the most powerful domestic trust.
But what exactly makes these trusts so special compared to other domestic options? Let’s take a look at South Dakota trusts to see why they’re considered the top domestic trust:
- South Dakota Asset Protection Trust Overview
- South Dakota Asset Protection Trust Advantages
- How South Dakota Trusts Stack Up Against Offshore Trusts
South Dakota Asset Protection Trust Overview
South Dakota asset protection trusts were first allowed in 2005 when the state passed the South Dakota Qualified Distributions in Trust Act. After the passage of the act, South Dakota quickly became a favorite of domestic asset protection professionals for its robust privacy laws and reasonable statute of limitations.
In a general sense, South Dakota asset protection trusts work similarly to other domestic trusts. The settlor (you) creates the trust with the help of a professional and appoints a trustee to manage their assets. After that, the settlor acts as a beneficiary so they can receive some portion of the trust-held assets.
This structure creates a scenario in which the settlor’s assets are legally owned by the trustee. So, if someone decides to sue the settlor and attempts to collect the assets in the trust, the settlor can reasonably claim that they no longer own those assets.
South Dakota Asset Protection Trust Advantages
So, what exactly makes a South Dakota asset protection trust stand out in a sea of other domestic options? Let’s break down the main benefits:
- Reasonable statute of limitations: In South Dakota, there is a two-year statute of limitations on fraudulent conveyance. If anyone files a fraudulent conveyance case more than two years after the date of the initial transfer, the case won’t be heard. However, this period can be reduced to just six months by publishing a notice of the asset transfer in a South Dakota newspaper and properly notifying known creditors. Most states have a four-year statute of limitations on fraudulent conveyance.
- Ability to exist in perpetuity: Most states only allow trusts to operate for a set period of time. South Dakota, however, imposes no limitations on the lifespan of a trust. Provided a trustee remains in place, a South Dakota trust can exist forever.
- Privacy benefits: South Dakota has some of the best trust privacy laws in the country. Trust details are not part of the public record, so your personal information remains safe. More importantly, because your name isn’t associated with the trust, lawyers and creditors will have a more difficult time locating your assets.
- No residency requirements: You don’t have to live or own property in South Dakota to establish a trust within the state.
- Zero state income tax: South Dakota trusts are not taxed on income, dividend interest, or capital gains. This is especially helpful for people who hold appreciating assets within the trust, and plan to retain those assets for a long time. That said, you may be responsible for paying taxes in your home state.
Given all these advantages, a South Dakota asset protection trust is easily one of the best, if not the best, domestic trust option.
How South Dakota Trusts Stack Up Against Offshore Trusts
South Dakota trusts compare favorably to other domestic options, but how do they look when compared to offshore asset protection trusts? Unfortunately for fans of the South Dakota asset protection trust, offshore options still reign as king.
Here are a few reasons why you should still pick an offshore trust if you want the highest level of protection available:
- Invulnerability to domestic judgments: The key advantage of every offshore trust is its ability to ignore judgments handed down by U.S. courts. As offshore trusts, and the trustees who run them, are located in another country, a U.S. judge’s orders don’t impact a foreign trustee’s actions. Unfortunately, this isn’t the case for South Dakota trusts. If a creditor takes you to trial in a state that has creditor-friendly laws, like California, and wins, that judgment will be upheld across state lines.
- Even more favorable trust laws: Even states like South Dakota and Nevada, which are generally pro-trust security, have weak protections compared to offshore jurisdictions. All states are bound by federal laws, which limit the level of protection states can legally offer. Offshore trusts, however, craft their trust protections using federal laws and are all the more secure for it.
- Greater flexibility: Offshore trusts can be easily combined with other tools and techniques like LLCs, land trusts, and equity stripping to enhance their protections. Domestic trusts, however, don’t receive the same level of enhancement from these additional legal structures.
Ultimately, if you’re looking for a strong, affordable, and convenient way to protect your assets, a South Dakota trust is a decent option. But if you’re looking for the best protection available, you need to consider an offshore asset protection trust.
Establish the Strongest Possible Defense with Help from Asset Protection Planners
If you want to keep your assets safe using a South Dakota asset protection trust or an offshore trust, it’s important to work with experts who know how to establish these structures. A trust that’s set up improperly can leave your valuable assets vulnerable to attacks from creditors.
Luckily, the team of experts at Asset Protection Planners has been setting up trusts for decades. Whether you want to establish an ironclad offshore trust or a powerful South Dakota trust, we can do it correctly and secure your assets in the process.
Interested in setting up a trust? Fill out the contact form below to schedule a free consultation with one of our team members.
