A Trust is a legal relationship in which one of the parties (the grantor or settlor) grants assets to an independent person or organization (the trustee or fiduciary) that will maintain and manage them for the benefit of a third party (the beneficiary). There are many reasons to create a Trust, however, traditionally they have been used to obtain financial security, lower taxes, optimize wealth management, asset protection and tax efficiency. The settlor may grant a revocable or irrevocable Trust.
Also known as “Testamentary Trust” or “Grantor Trust”, the revocable Trust is one in which the grantor holds direct control of the assets. It is flexible, tax efficient and can be terminated at any time, but lacks the legal protections of an irrevocable trust. The revocable trust may become irrevocable, either by the express will of the grantor or by his death.
An irrevocable or non-grantor Trust is a Trust in which the grantor transfers assets ownership, so that they can be professionally managed by the Trust as determined by the Trust, for its own benefit or that of third parties, whose identity is kept confidential.
This type of Trust allows for one of the highest levels of legal asset protection available. It guarantees confidentiality and security, allowing at the same time an efficient asset planning in taxwise.
The United States of America (USA) has become an increasingly interesting place to create a Trust. Previously, due to its complex tax system, the country was not considered an international trust jurisdiction, with other jurisdictions being more attractive in this regard. After the increasing changes introduced in the international legal landscape, the US has become a premier trusted jurisdiction for international families. Some of its states, in particular South Dakota, have gone even further, offering unprecedented legal protections and benefits to the Trust families under its jurisdiction.
South Dakota is one of the few states whose jurisdiction admits the position of a Trust Director. The Director (different from a manager) has full power over the trust’s assets. The Director may be any person chosen by the grantors, with a high level of indirect control over the assets, without thereby waiving the non-grantor Trust’s own conditions and protections.
A person or a group of people can play the role of the Director; thus, the client will obtain greater flexibility in the way of managing the assets and additional protection regarding who is authorized to act at any given moment. Even the appointment of foreign Directors offers international families additional tax benefits.
South Dakota it is a unique jurisdiction. Its laws were designed to guarantee the highest level of confidentiality and protection. It is the only state that allows the creation of an asset protection trust, or trust for its own benefit, in which the grantor is the main beneficiary. It also enacted laws that protect trusts against foreclosures and against the possibility of creditors reach the trust assets. It even protects the Trust’s assets in cases of divorce proceedings. South Dakota also has an incredibly short (two-year) statute of limitation for asset protection against creditors compared to other jurisdictions.
South Dakota’s confidentiality protection laws are among the strictest in the nation. In general, proceedings against Trusts are automatically left out of public knowledge, without the need for additional petitions or requirements. In addition, South Dakota allows the grantor to keep the trust and the beneficiary’s related information confidential, both during the grantor’s lifetime and after his death or in the event of disability.
South Dakota is a national leader in what are known as “Dynastic Trusts”; these allow families to avoid paying taxes on money transferred to future Trust beneficiaries. In most states, family trusts are terminated 21 years after the death of the trustee. In South Dakota there is no limit on the term of a Trust. This means that it is possible to form a Trust in South Dakota which continues to distribute funds to an indefinite number of generations of beneficiaries.