Creating Your Dynasty: Understanding South Dakota’s Dynasty Trusts
South Dakota’s dynastic trust laws allow every family to potentially become wealthy among the leagues of the ultra-rich. Why limit yourself to keeping up with the Jones when you can be the Jones? The attractive benefits of South Dakota dynastic trusts include the strength of preserving wealth for future generations, protecting those assets as they descend through the generations, and most importantly, the immense income tax savings.
The repeal of South Dakota’s Rule Against Perpetuities allowed for the creation of dynastic trusts. This allows for the money to largely avoid heavy tax burdens and be shielded away from creditors forever. When thinking about creating a South Dakota Dynastic Trust remember WAS: Preserving Your Wealth, Protecting Your Assets, and Potential Tax Savings. Your money WAS, is, and forever will be protected by South Dakota’s trust friendly laws.
Preserving Your Wealth
The power to pass along money to your children, grandchildren, and generations beyond your comprehension is now a reality in South Dakota. Mom and Dad’s hard work can be preserved and handed out with family-specific stipulations for years. Through these South Dakota dynastic trust laws, Mom and Dad can pay for their descendants’ health care, education, and personal expenses. All this can be done while restricting chardonnay and Brie diets to a perhaps more realistic beer and cracker cocktail hour.
Families can use a South Dakota dynastic trust as a shelter for family-held businesses, real property, income producing the property, and other personal property that accrues value, to provide long-term wealth for the family. These dynastic trusts allow the wealthy an “excellent mechanism to create structure around the family legacy and fortune and potentially avoid the familiar proverb of a wealthy family going from shirtsleeves to shirtsleeves in three generations.” South Dakota’s dynastic trust benefits are recognized by old moneyed patrons, retiring professionals, and everyone in-between, to protect what they’ve earned.
Protecting Your Assets
No one enjoys an uncomfortable conversation. Parents and children often have hard times discussing money, death, and life’s intimate burdens. And again, too often people make decisions they later regret. As the divorce rate increases among all age ranges, smart family planning should account for unthinkable possibilities—that favorite daughter-in-law becoming an ex or your child racking up impressive bills with hungry creditors. Families can protect their assets from prying hands with a South Dakota dynastic trust.
There are several questions to consider before creating your South Dakota dynastic trust. What kind of assets do you have, how long do you want those assets to stay within the family, and at what point do you trust the relatives with the free access to that money? With the divorce rate hovering at 50 percent, it’s a smart move to legally separate potential inheritance of your child from future legal claims or a shop-a-holic ex-in-law. South Dakota dynastic trusts are used to protect your beneficiaries’ inheritances from student loan collectors, debt collectors, or legal judgments.
Potential Tax Savings
Avoiding multiple rounds of taxation against your wealth as it is passed through successive generations is an exciting and very real possibility afforded by South Dakota’s dynastic trusts laws. Because South Dakota doesn’t collect income tax on investments, establishing a South Dakota dynastic trust could be the wise decision for both income and taxation preparation.
Because of the friendly trust laws, almost all of the $226 billion in South Dakota trusts comes from out of state sources. One South Dakota-based advisor said a South Dakota dynasty trust could, “shield a big fortune from estate taxes for centuries as it hands out cash to great-great-great-grandchildren and beyond.” As Americans grow richer, it seems appropriate that wealthy mothers and fathers would like to extend their influence and be remembered for generations to come. In the same fashion of American old moneyed families like the Mellons, Du Ponts, or Waltons, multiple generations of any normal American family could be handed a large chunk of the family fortune and be spared an overbearing tax bill. After all, aren’t we all just living for a legacy?
Potential Drawbacks of Dynastic Trusts
The primary drawbacks to establishing a South Dakota dynastic trust are the restrictions on your financial flexibility once the trust is established and the limited flexibility imposed on beneficiaries. Responsible estate planning requires an appreciation of the potential results of a South Dakota dynastic trust. A face value assessment of the process may seemingly outweigh the detractions, but the results of placing your money in a South Dakota dynastic trust do have repercussions.
Anyone would be right to be fearful of giving up the control of their money. And one should question the fiscal appropriateness of giving a great-great-great-grandchild a share of your valuable oil and gas royalties or interest in your real estate holdings when you have no expectations as to their character or spending habits. This is why it’s important to define your family’s philosophy on money, wealth, morals, and charitable giving. Speaking to an advisor about establishing a South Dakota dynastic trust for your family may be the smart thing to do if you feel comfortable with your family’s response to your philosophy on money.
Office space in South Dakota has become the trendiest accessory for the high net worth individual seeking shelter in the state’s dynastic trust laws. Bloomberg reported that a former five-and-dime store in downtown Sioux Falls is the home office of multi-national families, the American elite, and anyone else interested in protecting their wealth with South Dakota’s dynastic trust laws. In fact, one South Dakota address is the home to over 40 family offices responsible for millions in assets.
Americans have grown wealthier in the past two decades than any other time in the country’s history. From 2015 to 2016, the number of American millionaires grew by half-a-million. With nearly 10 million Americans worth somewhere between $1 to $5 million, proper dynasty planning allows for your descendants to continue their lives at the same, if not higher, socio-economic level.
A South Dakota dynastic trust will avoid the Generation Skipping Tax until the world stops turning. One study showed that $1 million transferred to a great-grandchild through a dynasty trust could theoretically accrue to $144 million. That study further showed if the $1 million was given outright to the grantor’s son, the amount would accrue only to $14 million by the time it reached the grantor’s great-grandchild. Dynasty trusts are also recognized as worthy conduits of family businesses, artwork, jewelry, and other purchases that accrue value over time.
Anyone considering the permanence and potential outcomes of bad estate planning should look to the possibilities of a South Dakota dynastic trust. Ultimately the pros are the ability to Preserve Your Wealth, Protect Your Assets, and attractive Potential Tax Savings. Compared to the anxieties—restrictions on your and your heirs’ financial flexibility—the pros tend to offer a greater breadth of potential. Attempting to control your heirs every move will get you nowhere. Worrying won’t add another second to your life. Placing your worries in the hands of a wealth advisor and deciding the right wealth solution for your future is as simple as looking into the benefits afforded by a South Dakota dynastic trust.