SOUTH DAKOTA TRUST LAWS ALLOW SETTLORS TO KEEP TRUST INFORMATION PRIVATE FROM BENEFICIARIES AND THE PUBLIC.
The First Steps to Keeping Your Estate Private
There are two primary reasons people wish to avoid administering their estates through probate—money and privacy. Probate costs a lot of money because it is a formal judicial proceeding requiring civil formalities, including attorneys filing notices the presentation of admissible evidence (such as through formal appraisals to determine the value of the estate), and orders issued by a judge. When a person’s estate passes through probate, the estate must issue public notice so that potential creditors can make claims against the estate, and so that potential heirs can challenge the decedent’s will. These formalities cast privacy out the window in favor of inclusion.
When a last will and testament is the centerpiece of an estate plan, that estate will pass through probate. The will must be admitted to the probate court and thereby become a public document. Such documents admitted into court may be made available to any outside party that knows how to go about requesting it. This opens the door for potential predators to know what the decedent’s heirs will receive and to attempt to prey on them.
To avoid the expense and public nature of probate proceedings, many people make a trust the centerpiece of their comprehensive estate plan. Because the trust lives beyond the life of the settlor, the assets held in trust pass outside of probate. If the settlor’s assets not held in trust (i.e. probatable assets) are sufficiently small, the settlor may avoid probate completely (the threshold amount of the probatable estate varies from state to state). Because the trust does not pass through probate (a public proceeding), the document itself remains private. But depending on state law, the trust document may or may not remain private.
South Dakota-Specific Privacy Advantages
After a trust is administered, there are two situations that threaten the privacy of the trust contents.
Quiet Trusts—Privacy From Beneficiaries
First, even though a settlor may wish to keep the contents of the trust private from a beneficiary, most states require trustees to inform a beneficiary of that beneficial interest once the beneficiary becomes an adult. Many wealthy people wish for their heirs or chosen beneficiaries to make a life for themselves before ever having access to or even knowledge of a trust established for their benefit. The settlor may wish for that person to learn independence and hard work rather than relying on this gift.
So how can a settlor keep the trust private from the beneficiary? A few states’ trust laws allow the settlor to control what information is revealed to a beneficiary and when it is revealed. Trusts that utilize this benefit are known as quiet trusts. South Dakota has the most comprehensive and flexible quiet trust statute in the U.S. because it allows the settlor, the trust protector, and the investment/distribution advisor the power to modify the beneficiary’s right to knowledge about the existence of the trust and its contents, whether for increased or decreased rights to information.
Statutory Seals—Automatic and Perpetual Privacy When Courts Are Involved
Second, if the contents of the trust or its administration are litigated, or if the beneficiaries or trustee seeks judicial modification, the once private information may be thrust into the public domain. Settlors, trustees, and beneficiaries may request the court to seal the record and thereby keep the trust contents private. Generally, courts may grant or deny the request on a case-by-case basis. State statute will govern how long the record will remain sealed. For example, if a Delaware court grants the request to seal, then the record will remain private for 3 years before it is made public.
In South Dakota, however, trust information that comes out in court is automatically sealed from the public, and no request is required. Furthermore, that seal is perpetual so that trust information never becomes public. South Dakota is the only state with an automatic and perpetual seal on trust information, making it the best trust privacy jurisdiction in the country.
If privacy is a concern for you, and if you wish to take advantage of the best trust privacy laws in the U.S., contact our Sioux Falls estate planning attorneys today.