Dynasty Trust Services
With 120 years of stability and family ownership, we are an excellent choice for Dynasty Trusts. Exceptional personal service and expertise, plus the benefits of an asset protection trust statute, ensure long-term success.
Under the present federal transfer tax system, property is taxed each time it passes from one generation to the next, either through lifetime transfers (gift tax) or transfers that take effect upon death (estate tax). This can result in a double taxation of property when property is left to children and is then subsequently passed on to grandchildren.
Generation Skipping Transfers
To avoid the taxation of property a second time, individuals created life estates with remainder interests to pass on to successive generations so that no estate tax was incurred on the death of a life tenant.
To close this loophole, Congress enacted the Generation Skipping Transfer Tax (GST Tax), which imposes a tax at the highest marginal estate tax rate on certain generation skipping transfers. There is an exemption from the GST Tax on transfers from one individual of up to $5,340,000.00.
A technique used to pass wealth on to successive generations is to place property in an irrevocable trust. The trust, also known as a "Dynasty Trust," would be funded with property using all or a portion of a grantor's GST exemption. A grantor's spouse may also take part in the funding of the trust, resulting in a doubling of the amount exempted from the GST Tax up to a maximum of $10,680,000.00. The Dynasty Trust could provide for limited distribution of income and principal at the trustee's discretion so that the principal of the trust would remain intact for the benefit of future generations.
Trust law, in many states, requires that a trust terminate at some specified future date, typically 21 years after the last to die of certain identified beneficiaries. This type of law is commonly referred to as the "rule against perpetuities." South Dakota is one of the few states that has no rule against perpetuities. Consequently, a trust established in South Dakota which meets certain other requirements, could remain active indefinitely. As long as the trust remains in effect, the assets of the trust would avoid federal estate tax.
Dynasty Trusts in South Dakota
In addition to no rule against perpetuities, South Dakota has no state income tax. The lack of an income tax allows for greater accumulation of capital in a Dynasty Trust and creates significantly more wealth for future generations than if the trust were located in another state.
South Dakota law also provides protection of trust assets from claims of creditors of the beneficiary. South Dakota "spendthrift" laws would shield the trust's assets in the event of the beneficiary's financial difficulties.
Creating Situs in South Dakota
To obtain the benefit of South Dakota law for a Dynasty Trust, the "situs" (the legal jurisdiction) of the trust would have to be established in South Dakota. This would require that the trust's instrument provide that South Dakota law would govern the terms of the trust; that the trustee be a resident of South Dakota; and that the assets of the trust be situated in South Dakota.
To find out more on how we can assist you, please contact us at 605.335.5180 or 800.553.7073.
Consult your tax professional.