PODCAST OVERVIEW
Goosmann Law Firm Sioux Falls Estate Planning Attorney Sam Ferguson and Host Jeana Goosmann discuss the advantages of setting up a trust in South Dakota. During this episode you will learn:
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- What are the advantages?
- What are Domestic Asset Protection Trusts (DAPTs)?
- Are there tax advantages of relocating a trust?
- How to relocate a trust to South Dakota.
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TRANSCRIPT
Goosmann Law Firm (00:01):
Do complex legal issues hold you back? Let’s get energized and bring clarity to your top legal questions. This is Law Talk with the Flock.
Jeana Goosmann (00:29):
Hello, I’m your host, Jeana Goosmann, CEO and managing partner of the Goosmann law firm, author and business leader. I’m here to help you navigate your way through the law, your business and life as a leader. With me today, I have my guest, Sam Ferguson, an estate planning attorney with Goosmann law firm to help talk about estate planning. Welcome Sam!
Sam Ferguson (00:51):
Thanks. Thanks for having me on the podcast this morning. Looking forward to a discussion about estate planning and what people need to know about South Dakota.
Jeana Goosmann (00:59):
Excellent. So a little bit of background too on trust law council. We started trust law council many years ago at the Goosmann law firm. And we have a boutique group within Goosmann law firm that focuses on trust and estate planning for folks. Sam is one of our attorneys that’s part of that group, I help manage the group and we’re going to talk some about why South Dakota has an advantage. Really that’s been part of the growth for the Goosmann law firm is the South Dakota trust advantage.
Sam Ferguson (01:27):
Perfect. So I’ll jump right in. South Dakota is, I want to say the best state in the country. Some would argue that it’s one of the best States in the country to do your estate planning. And the reason that is, is South Dakota has a comprehensive statutory scheme around it’s trust laws that promote grantor sovereignty, which means the grantor’s ability to control what happens to one’s assets after the grantor passes away.
Jeana Goosmann (01:55):
In fact, I’ve heard some people call South Dakota the Delaware of trust. Kind of like Delaware is known for business. South Dakota is known for trust, right?
Sam Ferguson (02:02):
That’s exactly right. And in factsome of the stuff we’re gonna talk about today, I may mention a direct comparisons with Delaware’s laws on estate planning and how South Dakota is the superior jurisdiction to undertake that planning.
Jeana Goosmann (02:18):
I think another reason it’s superior and one of the best States in the country, if not the best state in the country to do planning is the stable political climate.
Sam Ferguson (02:26):
Absolutely. That’s actually the first point that I wanted to talk about. From a political standpoint the reason South Dakota has the best estate planning laws is because it sort of started with a governor sanctioned task force. It was called the Governor’s Trust Task Force and the task force still exists today. And that group of estate planning professionals, was mandated with creating an advantageous trust laws to promote people to bring their wealth into the state and house it here and to keep South Dakota on the cutting edge of the estate planning industry.
Jeana Goosmann (03:04):
It’s really about economic development for the state of South Dakota, wasn’t it? To have the best laws in the country for estate planning and trust laws.
Sam Ferguson (03:12):
It’s true. I mean, you look at that economic impact, and not only does South Dakota house about somewhere around half of all the trust assets in the United States, but it’s created a number of jobs and additional wealth and professions throughout the state with the high number of trusts, companies, wealth management departments, estate planning professionals, a whole lot of jobs. It’s created a whole industry that supports the state’s economy.
Jeana Goosmann (03:39):
So we’re sitting in Sioux Falls, South Dakota right now where there’s literally a trust company on every corner. I think I read a Bloomberg article one time that said there’s more billionaires that park their money in the state of South Dakota inside of a trust than any other state in the country. And people wonder how that happened when you just explained it.
Sam Ferguson (03:56):
Yup. And actually, before that task force was ever set up, South Dakota was the first state to get rid of what’s called the Rule Against Perpetuities, which prohibits grantors from controlling assets a certain period of time after their death. We were the first ones to abolish that rule so that we could set up something called dynasty trust that allow grantors to keep their estate or their assets in trust forever to benefit their family, keep it in the family perpetually. So that started back in the 80s, then the trust task force was created in the 90s and since then we’ve got a number of other laws that make South Dakota attractive to out of state and in state individuals.
Jeana Goosmann (04:41):
So essentially if you have wealth in your family, you want to keep it in your family for generations to come, you can form a South Dakota dynasty trust and that will allow you to do that.
Sam Ferguson (04:50):
Yes, that’s exactly right and there’s some tax benefits to that too that we might talk about later. I think.
Jeana Goosmann (04:56):
You bet. So what are some of the other advantages of having your trust in South Dakota?
Sam Ferguson (05:02):
South Dakota has the best privacy statutes as well. When I’m talking about trust privacy I’m talking about a few things. First offthat trust document itself will never become public record. A lot of states within X number of years after the grantors pass away and the trust is administered, that trust document will ultimately become public record in South Dakota that will never happen. That trust document is always going to remain private. On top of that, if say the kids who are the beneficiaries of the trust, they start fighting about stuff down the road and one of them sues the other and says, I deserve more of the trust assets.
Jeana Goosmann (05:42):
That never happens, does it Sam?
Sam Ferguson (05:43):
No people are happy and get along. Money doesn’t divide anyone. So if they start litigating this trust, those court documents, which normally would be public record but in South Dakota, there’s an automatic and perpetual seal on those core documents. In other words, they’re going to be shielded from the public view forever and automatically. And we’re actually the only state that has that combination of advantages for your privacy.
Jeana Goosmann (06:11):
That’s huge for someone because if you’re a wealthy individual, wealthy family, and you want to form a trust, having that privacy is critical. It’s really the legislation that’s allowed it to be so private in the state of South Dakota. It’s actually part of the law in the state of South Dakota. So rather than a litigator or a trial lawyer having to go and ask the court to seal something, it automatically happens because of the law in the state of South Dakota.
Sam Ferguson (06:37):
Exactly. Aside from that, the statutes also allow for what’s called a quiet trust. So a quiet trust is a trust where the beneficiaries don’t know that they are beneficiaries of a trust. And you can see the advantage there where a grantor wants a child or a grandchild or whatever beneficiary to become independently successful to figure things out on their own before getting these trust assets given to them or inherited by them. So a quiet trust says you don’t have to tell the beneficiary as long as there’s someone else that can receive statutorily required notices.
Jeana Goosmann (07:18):
Like a trust company.
Sam Ferguson (07:18):
Trust company as a trust protector. There’s that, you have options there, but those beneficiaries don’t know that they have this big inheritance coming their way until after they’ve figured their own lives out.
Jeana Goosmann (07:31):
And we’ve really seen people delay too the ages in which they’re giving their wealth and passing that wealth on to their children haven’t we, like people are extending it out from 30, 35, 40, 45 all the way up until they’re 50.
Sam Ferguson (07:43):
Yup. And I think there’s good reason for that because every grantor is experienced as to at what age they became financially responsible is different. And so their definition and understanding and personal experiences dictate what constitutes financial independence so that varies among every individual.
Jeana Goosmann (08:07):
So let’s shift and talk a little bit about asset protection and why South Dakota is so good for asset protection. And I know we form a lot of trusts in order to help families preserve their assets and protect them from predators.
Sam Ferguson (08:18):
So on the asset protection sidewhat you’re talking about is protecting assets from creditors. Giving assets into an irrevocable type trust so that if you get sued down the road, those assets that you gave away are off limits to essentially guarantee an inheritance to the children or whoever the beneficiaries are. South Dakota is one of 17 States that offers a domestic asset protection trust option or ADAPT if you will.
Jeana Goosmann (08:52):
We like our acronyms in the estate planning world.
New Speaker (08:53):
We sure do because that’s a mouthful to say all of those words. So ADAPT. What it does is it allows a grantor to give away assets but still be the beneficiary of that trust and still have creditor protection to have your cake and eat it too, so to speak. We weren’t the first state to set that up. Alaska actually did at first, but we did it right.
Jeana Goosmann (09:21):
Because what used to happen in order to have an irrevocable trust, which would really provide that asset protection, you couldn’t also be the beneficiary. So that was the big change, right? Is that I can now set up this asset protection trust and also be the beneficiary while I’m alive. So I take my money, I put it in, I like to call these lockbox trusts because I think it’s easier to say than ADAPT but it put it in that lockbox trust and I can still have access to those assets that are inside that lockbox trust while I’m alive.
Sam Ferguson (09:48):
That’s correct. So you hit the nail on the head. Common law said if you are the beneficiary of a self settled trust, the trust that you gave, then you could not have creditor protection in South Dakota said we’re going to get rid of that common law rule and have our own thing, which makes it a very attractive jurisdiction to bring your assets into knowing that you can give them away but still benefit from them.
Jeana Goosmann (10:12):
Exactly. I can still dip into that lockbox throughout my life and I think that’s awesome too cause it’s actually, again, it’s in the code, it’s in the statutes, in the law of the state of South Dakota that that’s how these things function. So when the courts go to interpret how this works, the first thing they have to look at isn’t an old case law, it’s actually looking at the law of the state.
Sam Ferguson (10:32):
Yes, exactly. And so it’s not a judicially created benefit. It’s a legislation, a legislative created benefit.
Jeana Goosmann (10:40):
Let’s shift and talk a little bit about limited tax liability.
Sam Ferguson (10:43):
Sure. So South Dakota is a fantastic state to live in, but also a fantastic state to die in because of of the limited tax liability thats there. First off there is a constitutional prohibition on inheritance tax. There’s no federal inheritance tax. But several states have it, Nebraska, Iowa, they have an inheritance tax. South Dakota’s constitution says that will never happen and that is difficult to amend. So there’s greater protection there. South Dakota also does not have a state estate tax.
Jeana Goosmann (11:20):
So there is a mouthful.
Sam Ferguson (11:22):
Yes. And people mix that up all the time. There is a federal estate tax, but there is no South Dakota state estate tax.
Jeana Goosmann (11:29):
And Sam explain to everybody what the difference is between an inheritance and an estate tax.
Sam Ferguson (11:33):
So an inheritance tax is a tax that is imposed on the individuals receiving the inheritance. So once everything’s been administered, the beneficiaries get their distributions, the government, the state government would come in and say, we’re taking a piece of what you just received. So there’s no inheritance tax and estate tax is actually charged against the estate before the beneficiaries ever received their distributions.
Jeana Goosmann (11:58):
There’s neither one.
Sam Ferguson (12:00):
There’s neither one in South Dakota, but surrounding States, like Minnesota has an estate tax but no inheritance tax.
Jeana Goosmann (12:07):
Right? And the federal government has an estate tax but that doesn’t kick in until you have-
Sam Ferguson (12:12):
-You’re very wealthy. And right now with the high exclusion amountonly one in every thousand deaths qualifies for federal estate tax. That number is set to cut in half at the end of 2025.
Jeana Goosmann (12:29):
They’re constantly adjusting that number. That’s part of what we hear about on who’s going to be president, who’s going to be in office. That’s one of the things constantly up, right? But in the state of South Dakota, there will be no estate tax. It’s actually in the constitution. And that’s part of what we talk about by a stable political climate. I mean, they feel so strongly about these issues, they’ve made it a constitutional issue.
Sam Ferguson (12:51):
Absolutely. And aside from that, and this is probably the one that’s most attractive to a lot of people, is there is no income tax in the state of South Dakota.
Jeana Goosmann (13:01):
While we’re living here. We’re not paying income tax.
Sam Ferguson (13:03):
That’s correct.
Jeana Goosmann (13:03):
We’ve got to pay to the federal government, but not to the state.
Sam Ferguson (13:06):
That’s right. And that’s very attractive because a lot of these assets that people have, whether in the state or out of the state are income producing assets. And so that makes South Dakota a very attractive state to house those assets in because there’s the potential that an out of state client or an out-of-state grantor can place those assets in the state of South Dakota, essentially make that trust a resident of the state so that the income it produces is not taxed on the state level.
Jeana Goosmann (13:37):
We would love to help people bring their assets to the state of South Dakota, wouldn’t we Sam?
Sam Ferguson (13:41):
Absolutely. Absolutely. We’ve got statutes in place for that too. So we have the best what’s called decanting statute in the country and decanting, if you’re familiar with drinking wine decanting is pouring wine from one container into another to allow it to be more drinkable. I personally don’t drink. So I think that’s fascinating.
Jeana Goosmann (14:03):
I know what a decanter is. I might own one myself.
Sam Ferguson (14:07):
So much like how it works with wine, decanting a trust is the act of taking assets from one trust and placing them in another trust with more favorable terms. And so people that have an out-of-state trust, if they want to take advantage of South Dakota’s trust statutes and tax laws, they can decant or pour those assets from the out-of-state trust into a South Dakota trust that is a resident of South Dakota so that they don’t have to pay income tax on that. There are other technical things you have to consider like that state’s laws about what they can tax and what they can’t. But that’s generally how that works to transfer a trust into the state of South Dakota. That decanting statute is what makes that possible for a lot of people.
Jeana Goosmann (14:59):
And if folks are interested in meeting a South Dakota lawyer, today they met two Jeana Goossman and Sam Ferguson. Thank you so much for being on the podcast with me today, Sam. A lot of good information on the advantages of South Dakota and why there are more billionaires that park their money here in this state than any other. Thank you Sam. And for all of you listening today, go make it worth it.
Goosmann Law Firm (15:21):
Thanks for joining us for law talk with the flock by Goosmann law firm. We hope you feel energized and ready to soar past your goals. Become a flock fan and subscribe to our podcast for weekly episodes. Learn more at www.goosmannlaw.com.
Learn more about Goosmann’s estate planning practice HERE.
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