Privacy and Trust Planning: The South Dakota Advantage

family-trust-planningPrivacy has always been of paramount concern to wealthy families and is one of the primary reasons why billions of dollars have been and are being moved into South Dakota for trust administration from around the globe.  Most states do not have provisions or laws protecting trust information from being revealed to beneficiaries or to the public during litigation. Furthermore, the few trust privacy laws in existence in the United States are not “created equally”, making it vitally important for clients and their advisors to understand which state trust jurisdiction offers the best and most powerful privacy protection.  For the reasons outlined below, South Dakota clearly has the most robust privacy provisions in the nation rendering that state the trust jurisdiction of choice for wealthy families from all over the world.   

Quiet Trust

Most wealthy families want the option of deciding whether to reveal to a child or grandchild that they have a beneficial interest in a trust. However, most states require trustees to inform a beneficiary of his or her beneficial interest in a trust at the age of eighteen (18).  The top tier U.S. trust jurisdictions of South Dakota, Nevada, Alaska, and Delaware, as determined by Trust & Estates Magazine and other industry publications, have addressed this issue and passed rules that allow a trust to waive notice requirements regarding its existence and its assets to beneficiaries. Referred to as a Quiet Trust, settlors of trusts in the above mentioned states have control over what information is revealed to a beneficiary and when it is revealed, if at all.

South Dakota is universally considered by advisors and academics to have the most comprehensive and flexible quiet trust statute in the nation, granting the settlor, trust protector, and the investment/distribution advisor the power to expand, restrict, eliminate, or modify the rights of the beneficiaries to discover information about a trust. Nevada law is silent on the issue of granting the power to these roles, and Delaware and Alaska’s provisions, while similar, place significantly more restriction on the waiver of notice requirement, rendering all three jurisdictions significantly less favorable than South Dakota.

Privacy (Keeping Trust Information Out of the Public Domain)

South Dakota’s privacy statute provides for a total seal forbidding the release of trust information, including names of settlors, beneficiaries, and the contents of a trust, to the public during litigation. Alaska and Nevada do not have privacy statutes specific to trusts and, as such, privacy is not mandated or guaranteed by law as it is in South Dakota. To the contrary, Courts in those jurisdictions consider requests to seal the record on a case by case basis, after the commencement of litigation. It is not uncommon for such requests to be denied. Similar to that of Alaska and Nevada, Delaware gives the Court discretion over whether to seal trust information. It is very important to note that, even if a Delaware Court grants the seal, the information is only protected for three (3) years.  This is a major departure from South Dakota’s statute which seals trust information from the public forever without the need to petition for a Court degree. Therefore, South Dakota’s privacy provisions are clearly superior to that of any other state in the nation and are generally regarding by many practitioners, advisors, and academics as being among the best in the world.

The desire for privacy and keeping trust information out of the public domain is critically important to most families with wealth. Therefore, it is a compelling factor for planners to consider and accentuates the vital importance of evaluating alternative trust jurisdictions in the wealth and trust planning process. For more information about South Dakota’s privacy provisions and how they can be incorporated into a wealth plan, please feel free to contact us via our contact page.