South Dakota trust law vs. Arizona trust law

When creating a trust, often times, clients don’t fully understand all their options. All state trust law is not created equal. For clients, knowing the difference between their states benefits and another is not usually common. Most attorneys have heard of top jurisdictions like South Dakota for administering trusts. However, they might not know the different advantages it may have over their state. South Dakota trust law vs. Arizona trust law is one of the most common comparisons clients search for. Using an outside trust situs in order to administer trust can offer value for both the grantor and beneficiaries. Below you will see the comparison of South Dakota trust law vs. Arizona trust law.  

But first, would you like to receive relevant, crisp, and informative information about trust law, estate planning tips, and what's new? Sign up for our blog below.

After reading this, you will have necessary knowledge to make the best decision to use South Dakota trust law vs. Washington trust law for your trust. The following are the top reasons as to why you should consider using South Dakota trust law vs. Washington trust law:

No state income tax - There’s no state income tax, no capital gains tax, no dividends, and no interest tax.

Dynastic Trusts - A wise way to avoid multiple hits of taxation is by using South Dakota’s dynastic trust benefits to grow your wealth for multiple generations.

Asset Protection – South Dakota has enacted legislation which prohibits judicial foreclosure and creditor attachment on beneficial interests in trusts, powers of appointment held by beneficiaries, and reserved powers by a beneficiary. Additionally, a power of appointment in a trust is specifically excluded as a property interest. South Dakota was the first state with a discretionary trust statue for asset protection.

Directed Trusts - South Dakota directed trusts benefit from passive laws that allow trust advisors to delegate the management of assets held in trust to the expertise of third parties.

Privacy Rules - South Dakota’s Quiet Trust benefits mean the trustor can restrict and even conceal the existence and information about a trust from a trustee.

Trust Protector- South Dakota was the first state to create a trust protector statute. Many trust documents list a trust protector in order to safeguard the decisions.

Decanting - South Dakota has the #1 ranked decanting statute. Decanting is creating a new trust document and moving the assets. Modifying a trust is sometimes necessary, decanting is an important tool for making these necessary changes. Steve Oshins, one of the top attorneys in the nation, has voted South Dakota as the top decanting state for 6 years in a row

Below is a comparison chart for South Dakota vs. Washington. 

(1) Dynastic Trust (RAP): AZ has the rule against perpetuities.

• AZ Constitution – Article II, Section 29: “No hereditary emoluments, privileges, or powers shall be granted or conferred, and no law shall be enacted permitting any perpetuity or entailment in this state.”
  • AZ Constitution does not define perpetuity or entailment
• Arizona Revised Statutes (ARS) 33-261: “The common law rule known as the rule against perpetuities shall hereafter be applicable to all property of every kind and nature and estates and other interests therein, whether personal, real or mixed, legal or equitable by way of trust or otherwise.”

(2)  No creditor protection for revocable trusts; some creditor protection for irrevocable trusts (more as to a beneficiary than a settlor)

• Revocable Trusts: No creditor protection (14-10505)
• Irrevocable Trusts: Some creditor protection with a spendthrift provision (14-10502), but there are exceptions (14-10503; 14-10505).
• 14-10505 Exceptions During a Settlor’s Life:
  • “Subject to the requirements of this section, with respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor's benefit.  If a trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor's interest in the portion of the trust attributable to that settlor's contribution. This paragraph does not apply to any trust from which any distribution to the settlor can be made pursuant to the exercise of a power of appointment held by a third party or abrogate otherwise applicable laws relating to community property.  A creditor of a settlor:
    • (a) Shall not reach any trust property based on a trustee's, trust protector's or third party's power, whether or not discretionary, to pay or reimburse the settlor for any income tax on trust income or trust principal that is payable by the settlor under the law imposing the tax or to pay the tax directly to any taxing authority.
    • (b) Is not entitled to any payment or reimbursement that is to be made directly to any taxing authority.
    • (c) Shall not reach or compel distributions to or for the benefit of the beneficiary of a special needs trust”
  • 14-10503 Exceptions to a Spendthrift Provision:
    • “ Even if a trust contains a spendthrift provision, a beneficiary's child who has a judgment or court order against the beneficiary for support or maintenance, or a judgment creditor who has provided services relating to the protection of a beneficiary's interest in the trust, may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary only for these matters.
    • The exception prescribed in subsection A is unenforceable against a special needs trust.
    • A spendthrift provision is unenforceable against a claim of this state or the United States only to the extent a statute of this state or federal law so provides.
    • For the purposes of this section, "child" includes any person for whom an order or judgment for child support has been validly entered in this or another state.”

(3) Privacy: Records from trust companies are protected from the public under 6-860(B). Probate records are public, meaning any testamentary trust would become public record.

(4) Directed Trust: Trust agreement may create a directed trust (14-10808); Trustee may delegate investment and management duties to an agent (14-10907; 14-10807). Not implemented favored by Corporate Trustees.

(5) Decanting Statute: Yes (as long as not prohibited by trust doc) (14-10819)

Learn About the Top 7 Trust Law States