© South Dakota Trust Company LLC – All Rights Reserved

Why

South Dakota

Trust Company

LLC?

SOUTH DAKOTA

TRUST COMPANY LLC

Sioux Falls Rapid City

New York (South Dakota Planning Co.)

Why

South Dakota

Trust Company

LLC?

S O U T H D A K O T A T R U S T C O M P A N Y L L C

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About South Dakota Trust Company LLC

With currently more than $9 billion in assets under administration, South Dakota Trust Company LLC

(SDTC) offers pure trust administration without any product, working with whomever the client or advisor

wishes regarding investments, insurance and custody. Additionally, SDTC also administers trusts with non-

financial assets, e.g., LLCs, FLPs, closely-held stock, real estate and off shore entities. As a result of South

Dakota’s competitive and unique trust, asset protection, income tax, and private family trust company laws,

SDTC works with families all over the globe, serving as trustee, as well as, corporate and/or trust agent for

family-owned private trust companies.

SDTC currently works with over 68 billionaire and 200 centa-millionaire clients who have chosen SDTC due

to the following:

Highest ranked Trust jurisdiction in the U.S. (#1 in all categories) by Trusts & Estates magazine

(1/12)

Tax favored trust situs (no state income or capital gains tax)

Outstanding, timely, and inexpensive reformation/modification and decanting processes/statutes

Excellent asset protection

Modern and unique trust statutes

Customized trust administration

Quality personalized service

Unique and creative advice

Reasonable fees

– Directed trusts average 10 bpts.

– Flat fee for illiquid assets

SDTC specializes in trust administration of trusts established pursuant to South Dakota law, as well as trusts

of other states moved to South Dakota (i.e. change of situs trust). All of the above listed advantages and

services are available through SDTC without the necessity of either the trust grantor or the beneficiaries

having to visit, reside or even fly over South Dakota.

What makes SDTC unique?

Most trust companies in the industry typically provide investment services, first and foremost, and offer trust

administration services as secondary, auxiliary services to their investment products. In addition, many times a

corporate fiduciary will restrict and/or limit investment flexibility, and demand or eventually seek total

control in carrying out all of the trustee functions, i.e., trust administration, investments, accounting, etc. On

the contrary, SDTC works exclusively with a family’s outside, trusted investment managers and advisors,

creating a “best of class,” extremely flexible model. Our clients are able to retain long-standing and

comfortable relationships with their current investment advisors and maintain these associations when it

comes to their trust investments. By choosing SDTC, these families’ are also free to replace and supplement

these advisors with managers of their own choosing as their investment goals and desires change. SDTC’s

experienced trust officers act as relationship managers, customizing trust services individually for each client

and supplementing/facilitating communication with the trust grantor, the beneficiaries and the other

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investment, legal and tax advisors. SDTC’s business model was built on flexibility and family customization

positioning the needs and desires of our clients first.

Our Objective:

Our goal at SDTC is to provide “flexible, individualized, service and advice oriented, cost-effective

trust administration.” With this objective in mind, we seek to tailor services to each family. Some of the

benefits of working with SDTC are the following:

1. Directed Trusts: With newly drafted South Dakota law trusts, SDTC can act as “directed”

administrative trustee, leaving the family and their advisors as the investment and distribution

advisors, committees, fiduciaries and/or trust protectors. This allows the family to work with their

existing investment and/or insurance advisors and lessen their own personal liability. Additionally,

SDTC can serve as successor trustee or co-trustee for existing trusts looking to move to South Dakota

for its trust and tax benefits. SDTC can “delegate” investment responsibility to an outside

investment manager. Delegated Trusts can also be easily reformed or decanted to Directed Trusts in

South Dakota.

Typical Modern South Dakota Directed Trust Structure with a Trust Protector Promoting Flexibility and Control:

Trust Protector (Family, Friends or Advisors)

(Fiduciary, Not Trustee)

Powers Include:

Terminate the trust;

Modify or reform the trust;

Veto or direct trust distributions;

Add or remove beneficiaries;

Change situs or governing law of the trust, or both;

Appoint successor trustees & fiduciaries; and

Replace trustees & fiduciaries.

Distribution Committee (Fiduciary, Not Trustee)

Family Committee

(Non-tax sensitive distributions)

Independent Trustee

(Tax sensitive distributions)

Investment Committee (Family Members)

(Fiduciary, Not Trustee)

Administrative Trustee (South Dakota Trust Company)

Stocks & Bonds

Insurance

Art

FLPs

Ownership of Assets

Establish & Maintain Trust Bank Account

Prepare & Sign Trust Tax Return

Trust Statements

Make Distributions

Receive Contributions

Take Direction From:

Investment

Committee

Distribution

Committee *Combine All Functions Full Trustee

Directs Administrative Trustee (SDTC) regarding Investments

Directs Administrative Trustee (SDTC) Regarding Distributions

LLCs

Real Estate

Private Equity

Closely-Held Stock

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2. Dynasty Trusts: As a result of current population trends as well as the flexibility and control that can

be drafted into modern trusts, the Dynasty Trust remains

extremely popular; especially in a dynasty friendly state like South

Dakota. A South Dakota has been an unlimited duration

Dynasty state since 1983, prior to the modern GST tax (1986).

South Dakota’s statute is based upon the 1979 Murphy case in

which the IRS acquiesced in for an unlimited duration trust

basically following the “suspension of the power to alienate”

combined with the abrogation of the Common Law RAP.

Consequently, South Dakota is the Dynasty Trust jurisdiction of

choice for many wealthy families.

In providing a substantial legacy for current and future

generations, Dynasty Trusts can be free of estate taxes and

protect the assets from potential creditors. Further, Dynasty

Trusts can take the greatest possible advantage of a grantor’s gift

tax exemption ($5.12 million per taxpayer in 2012) and

generation-skipping transfer tax exemption ($5.12 million per

taxpayer in 2012). These exemptions are due to return to 2001

levels in 2013 which are substantially lower than the current

levels. Since the current exemption amounts (gift and/or GST tax exemption) could get decreased to

$3.5 million or even $1 million, prior to 2013, it is important to fund a new Dynasty Trust or add to

existing Dynasty Trust as soon as possible in 2012.

3. Domestic Asset Protection: Trusts generally

provide excellent asset protection. A self-settled trust

is one of the more frequently used types of domestic

asset protection trusts (DAPT). It is generally a

discretionary irrevocable trust where the grantor or

settlor is a permissible beneficiary. If properly

structured, creditors cannot reach the assets in a self-

settled trust to satisfy the settlor’s legal obligations. A

self-settled trust can be drafted to either keep trust

assets within the settlor’s estate or remove them,

which allows a wealthy individual to establish a self-

settled trust even though that individual’s gift tax

exemption has been fully utilized. Advisors generally

suggest structuring the DAPT as a self-settled trust

included in the estate and the dynasty trust as a third party trust excluded from the estate due

to the fact that there are many possible estate and GST tax issues that can arise by structuring

the dynasty trust as a self-settled trust excluded from the estate.

In addition to no state income or capital gains taxes, South Dakota has:

Lowest state insurance premium tax No intangibles tax (compare FL,

KS, KY & MI) No dividends & interest tax No state LLC tax No state LLP tax No state ad valorem tax No city or local tax No state inheritance tax No state gift tax No state (GST) Generation-

Skipping Tax No state coupon tax No state personal property tax

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Establishing a DAPT in a state like South Dakota is not only advantageous (i.e., provides four levels of asset

protection-see below), but also easy and inexpensive ($1,500 set-up and $3,500 annual trustee fee). Offshore

asset protection has lost momentum as a result of increased scrutiny and reporting requirements by the

United States government. Consequently, South Dakota DAPTs are quite popular, and can provide

significant advantages for clients.

Generally, the settlor would place 10% to 40% of their financial assets into a DAPT to protect those assets

from a possible future lawsuit. The settlor is a permissible discretionary beneficiary of the DAPT, but does

not generally use the trust for everyday living expenses, as this could weaken the asset protection.

Summary of 21st Century Family Estate Plan:

Will/Revocable Living Trust

Education Planning and Trusts

Irrevocable Insurance Trust

Private Foundation and Charitable Trusts

Advanced Trust Planning – See Below:

Domestic Asset Protection

Trust

Asset Protection:

Four Levels of Asset

Protection

Included in the Estate

– Tax Neutral

Self-Settled – Grantor as a

Permissible Beneficiary

Grantor Trust for Income

Tax Purposes

Typically Transfer 10-40% of

Assets

Dynasty Trust “Defective”

Shifting Growth on Assets:

Promissory Note Sale

– Grantor

– Beneficiary

– SCIN

Loan

“Walton” GRAT

QPRT

PNS-Residency/ Vacation Home

Excluded from Estate

Third Party* (vs.

Self-Settled)

Grantor Trust for

Income Tax Purposes *Please Note: May help avoid possible estate and GST tax issues (please see PLR 200944002). Trust protector may add beneficiary in the future.

CLAT

Sale of Remainder

Sale of Remainder

Sale of Remainder

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The four levels of asset protection make South Dakota (SD) one of the more popular and beneficial

jurisdictions for DAPTs. The four levels of asset protection are listed below:

4. International Families:

South Dakota is frequently chosen as a favored trust jurisdiction for international families looking for U.S.

trust situs. Additionally, many of these families choose SDTC as trustee as a result of its extensive experience

with International clients. There are many reasons for an international family to establish a trust in the U.S.

SDTC serves International Families worldwide with the following types of trusts:

• Non-Resident Alien (NRA) Dynasty Trust

Four Levels of Asset Protection with South Dakota DAPT and Special Features

1. South Dakota Self-Settled Trust: o The settlor has the ability to name him or herself as a trust beneficiary of a discretionary trust along with

other permissible beneficiaries. o If properly structured, creditors cannot reach the assets in a self-settled trust to satisfy the settlor’s legal

obligations.

2. South Dakota LLC or LP: o Assets located in other states are titled to a SD LLC or LP, which in turn is titled to a self-settled SD

DAPT. o SD affords “sole remedy charging order” protection to LLCs and LPs which is generally considered the

most desirable.

A charging order is simply a right to a distribution, if and when one is ever made, and it leaves a creditor without any means to force a distribution.

Additionally, it is the only remedy.

3. Discretionary Interests: o A discretionary interest in a trust is not a property interest in SD. Additionally, limited powers of

appointment and remainder interests are not property interests. o Since these are not property interests, a creditor cannot attach their claim to a discretionary interest in

trust.

4. Spendthrift Clause: o A spendthrift clause also helps prevent creditors from attaching to a trust providing another level of

protection. Additional Features:

Attorneys’ Fees:

o Under SD law, if someone sues the DAPT and loses, they will have to reimburse the DAPT for legal fees, which may help to deter some creditor suits.

Privacy:

o All lawsuits involving trusts are sealed in perpetuity (unique to SD).

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• Standby-Dynasty Trust (receptacle for Pour-Over from a foreign trust)

• Foreign Grantor Trust holding offshore entities

• Foreign Law Trust

5. Reformation/Modification & Decanting:

It may be helpful to reform, modify, and thus modernize many older irrevocable trusts. Alternatively, it may

be beneficial to decant from one older trust to a newly drafted trust, provided the trustee has the power to

distribute assets. Modifications, reformations, and decanting of a trust have all gained popularity as a result of

new trust laws, the new Uniform Principal and Income Act, the Uniform Prudent Investor Act, "directed

trust laws," changes in family circumstances and desires to change trust administration. South Dakota’s

decanting, modification and reformation statutes are some of the best in the U.S., and the South Dakota

process is both cost and time effective.

South Dakota law also provides that a court may reform the terms of a trust instrument on receipt of a

petition by a trustee or beneficiary. The reformation can be done to conform the terms of the trust to the

trustor's intention if the failure to conform was due to a mistake of fact or law and the trustor's intent can be

established. In order to achieve the trustor's tax objectives the terms of a trust instrument may be construed

or modified in a manner which will not violate the trustor's probable intention.

Example- Reformation/Modification:

Example - Decanting:

New York “Delegated”

Trust

NY Law for Construction,

Validity and Administration

1. Change Situs to South Dakota by naming a South Dakota Trustee;

2. Upon change of situs and appointment of South Dakota Trustee, reform/modify to SD law for administration;

To Save State Income Tax/ Modernize Administration

Reformed/Modified NY Trust

New York Law:

Interpretation, Construction, and

Validity

South Dakota Law:

Administration-

“Directed”

“Trust Protector”

Existing Trust: Existing Trust Modified:

New York Law Trust: (Interpretation, Validity,

Construction and Administration)

Trustee Power to Distribute Assets

Appoint a South Dakota Trust Company as Trustee

Trustee Decants

South Dakota Law Trust with South Dakota Trustee

(Interpretation, Construction,

Validity and Administration)

Existing Trust: New Trust:

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6. Insurance Trusts:

As a result of its favorable insurance laws as well as

the lowest state premium tax in the U.S. SDTC

administers all types of insurance trusts and LLCs.

South Dakota’s insurance premium tax is the

lowest in the U.S. at 8 basis points (8/100th of 1%);

the national average is 200 basis points or 2%.

Additionally, South Dakota allows for in-kind

distributions from both cash value distributions as

well as death benefit payments. This helps with

hedge fund lock-ups, etc. South Dakota also is the

only state that allows for in-kind premiums. In

addition, South Dakota’s insurable interest statute is

excellent. Additionally, South Dakota has very

favorable statutes that provide unique investment

rules for Private Placement Life Insurance (PPLI).

Alaska 10 bpts.

Arizona 200 bpts.

California 235 bpts.

Connecticut 175 bpts.

Delaware 200 bpts.

Florida 175 bpts.

Georgia 225 bpts.

Hawaii 275 bpts.

Illinois 50 bpts

Massachusetts 200 bpts.

Minnesota 200 bpts

Nevada 350 bpts.

New Hampshire 125 bpts.

New Jersey 210 bpts.

New York 200 bpts.

Ohio 140 bpts.

Pennsylvania 200 bpts.

South Dakota 8 bpts. (Lowest)

Washington 200 bpts.

Wyoming 75 bpts.

Privacy is a very high priority for our clients. South Dakota has the most comprehensive privacy statute in the U.S. for trust matters, i.e., total seal forever. No other states have this type of privacy protection.

Photos courtesy of the South Dakota Department of Tourism

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7. Private Family Trust Company (PFTC):

SDTC is the industry leader in establishing and operating Private Family Trust Company’s (PFTC) for

families. SDTC can serve as both Corporate and/or Trustee Agent by assisting a family with the

formation and operation of a PFTC in South Dakota by providing the family with the necessary office

space, local Board membership, as well as assistance with regulator/compliance issues, trust

administration, trust accounting and/or custody services. The PFTC can then work with the non-South

Dakota Family Office pursuant to a service agreement to provide additional services to the family. No

one needs to move to South Dakota, if SDTC is involved.

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Planning Strategies:

SDTC’s founders and its employees have advised more than 25% of the Forbes 400 and are currently working

with over 68 billionaires and over 200 centamillionaires. In working with these families, as well as with other

wealthy families and their advisors across the country, SDTC has seen many creative and cutting-edge estate

planning and trust strategies.

Our experience with most of the top lawyers, accountants, insurance agents, and investment mangers across

the country, allows us to identify trends among similarly wealthy families without, of course, divulging any

private information. Decisions can then be made by a family after analyzing an estate plan with the client’s

advisors from both a tax and non-tax point of view. SDTC thoroughly recognizes the needs of its clients and

develops a strong, successful and personal relationship with its clients lasting in perpetuity.

If you have any questions or would like to request additional information about any information discussed

herein, please do not hesitate to contact SDTC at any time at 212-642-8377.

IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, please note that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.

Photos courtesy of the South Dakota Department of Tourism

South Dakota Trust Company, LLC 201 South Phillips Avenue – Suite 200

Sioux Falls, SD 57104 Phone: (605) 338-9170

Fax: (605) 274-9200 piercemcdowell@sdtrustco.com

South Dakota Planning Company LLC 51 East 42nd Street – Suite 701

New York, NY 10017 Phone: (212) 642-8377

Fax: (212) 642-8376 alking@sdplanco.com

www.sdtrustco.com

For additional information on this or any topic, please contact us: