Tax Benefits
South Dakota trusts are free from all state income tax, city/local tax, intangibles taxes, dividends taxes, interest tax and corporate tax. There are also no state capital gains taxes on trusts, which can save beneficiaries a significant amount when generational wealth is passed down.
Individuals may find it challenging to keep up with the constant updates and changes required, leading to potential confusion and complications down the line. Another aspect that draws complaints is the impact of transfer taxes and the need for refinancing when assets are transferred into a living trust.
The trustee must be a qualifying South Dakota trustee, the trust must have an express South Dakota governing law clause, the trust must be irrevocable, and, the trust must have a spendthrift clause.
Anyone can set up a trust regardless of income level if they have significant assets worth protecting. You can start a trust fund for as little as $100 in initial deposit and a few hundred dollars in fees, but if you have $100,000 or more and own real estate, then a trust might be beneficial to protect your assets.
One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
Trustee Fees: If a professional trustee is appointed, expect ongoing fees. These fees are typically a percentage of the trust's assets, often around 0.5% to 1%.
There are legal requirements which must be met for a will to be valid in South Dakota. The law requires that the maker of the will be at least 18 years old and of sound mind. The will must be written, signed, and witnessed by two or more individuals.
There is no minimum. You can create a trust with any amount of assets, as long as they have some value and can be transferred to the trust. However, just because you can doesn't necessarily mean you should. Trusts can be complicated.
South Dakota allows for a trust to exist in perpetuity, i.e., for an unlimited duration.
A living trust, unlike a will, can keep your assets out of probate proceedings. A trustor names a trustee to manage the assets of the trust indefinitely. Wills name an executor to manage the assets of the probate estate only until probate closes.
Suze Orman, the popular financial guru, goes so far as to say that “everyone” needs a revocable living trust. But what everyone really needs is some good advice. Living trusts can be useful in limited circumstances, but most of us should sit down with an independent planner to decide whether a living trust is suitable.
With a trust, there is no automatic judicial review. While this speeds up the process for beneficiaries, it also increases the risk of mismanagement. Trustees may not always act in the best interests of beneficiaries, and without court oversight, beneficiaries must take legal action if they suspect wrongdoing.
South Dakota remains one of the most favorable jurisdictions for establishing trusts, particularly because it does not impose state income tax on trust income. This unique tax advantage means that more of the trust's earnings can be retained and reinvested, growing the trust's assets more efficiently over time.
An irrevocable trust offers your assets the most protection from creditors and lawsuits. Assets in an irrevocable trust aren't considered personal property. This means they're not included when the IRS values your estate to determine if taxes are owed.
Furthermore, South Dakota is unique in that it allows for a perpetual purpose trust (i.e., the purpose trust has no restriction as to length of time it can be in existence) with a specific unlimited duration Murphy case dynasty trust statute. Consequently, a South Dakota purpose trust can last in perpetuity if desired.
Selecting an individual trustee
Choosing a friend or family member to administer your trust has one definite benefit: That person is likely to have immediate appreciation of your financial philosophies and wishes. They'll know you and your beneficiaries.
It can be advantageous to put most or all of your bank accounts into your trust, especially if you want to streamline estate administration, maintain privacy, and ensure assets are distributed according to your wishes.
Many advisors and attorneys recommend a $100K minimum net worth for a living trust.
You create a living trust during your lifetime by signing a trust agreement which is a legal document that directs how property transferred to the trust will be managed, when and to whom the income and principal from the trust will be paid, and to whom the trust property will be distributed when you die.
South Dakota does not have an inheritance tax. The voters of South Dakota repealed the state inheritance tax effective July 1, 2001. There is also no estate tax.
Which Takes Precedence: Will or Trust? In California, a trust often supersedes a will if a person has created both documents. A trust takes effect immediately, while the trustee is still alive, whereas a will only takes effect after the death of the executor.
This is because there is no set minimum for the amount of money needed to establish a valid and enforceable trust. However, the general rule of thumb is that owning assets that collectively total $100,000 or more constitutes a trust rather than a will.
There are also some potential drawbacks to setting up a trust in California that you should be aware of. These include: When you set up a trust, you will have to pay the cost of preparation, which can be higher than the cost of preparing a will. Also, a trust doesn't provide special asset or estate tax protection.
There is little question but that a beneficiary may serve as the sole trustee of a trust established by a third person for his or her own benefit and not be treated as the owner of the trust assets for estate tax purposes as long as the distribution discretion is limited by an ascertainable standard.