Dynasty Trusts
Preserving family wealth for generations.
A South Dakota Dynasty Trust is a powerful planning tool that preserves family wealth across multiple generations by allowing trust assets to remain in trust indefinitely, thereby avoiding federal estate taxation in perpetuity.
Driven by state law, South Dakota became the first state in the nation to allow for Dynasty Trusts in 1983 by abolishing the Rule Against Perpetuities.
Dynasty Trusts
Unlike many states that have merely amended the Rule Against Perpetuities to extend the time when a trust must terminate, South Dakota allows for perpetual Dynasty Trusts that can remain in existence indefinitely. As a result, there is no mandatory trust termination that would otherwise require trust assets to be distributed, helping preserve the long-term tax advantages of the trust for future generations.
South Dakota led the way in modern Dynasty Trust planning, allowing families to avoid federal estate taxation across multiple generations.
how dynasty trusts work
Understanding South Dakota’s Dynasty Trust
- South Dakota Dynasty Trusts are available to residents and non-residents. The only requirement is that the trustee be a South Dakota resident and that South Dakota laws apply to the trust.
- By allowing trusts to continue in perpetuity, South Dakota law helps avoid federal estate taxation on trust assets over multiple generations.
- Through the use of the Dynasty Trust, families can reduce the tax burden on successive generations of beneficiaries while still giving them the use of the assets during their lifetime.
- South Dakota does not impose any form of taxation (income, dividends, interest, or capital gains) on these trust assets, creating significant tax savings for families. This was reinforced by the Supreme Court’s Kaestner ruling, where the Court held that it is unconstitutional for a state to tax undistributed trust income properly sitused and administered in a no income tax state like South Dakota.
Learn more about the Kaestner case →
choosing the right jurisdiction
Why South Dakota for Dynasty Trusts?
Dynasty Trusts are not available in all states and are not created equally. Because they are governed by state law, it is important to evaluate the differences among the statutes when selecting the proper situs for a trust. Families and their advisors should also consider how a jurisdiction’s broader trust laws—including asset protection, trust privacy, directed trust statutes, and other modern trust laws—may affect the long-term administration and flexibility of the trust.
To assist families and their advisors in evaluating trust jurisdictions, Bridgeford Trust Company has developed a comprehensive comparison of top-tier U.S. trust jurisdictions, including a detailed look at Dynasty Trust statutes and other modern trust laws that distinguish South Dakota as the superior trust jurisdiction in the overall analysis.
Questions About Dynasty Trusts?
If you would like to learn more about Dynasty Trusts or explore other planning opportunities available under South Dakota trust law, reach out to us through our contact form or call us at (605) 224-9189.
