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By NATC Contributor | April 19, 2021

South Dakota has consistently been ranked as one of the best trust jurisdictions in the United States. South Dakota’s favorable trust laws are based on state statutes, which allow beneficiaries and other interested parties to consent to such things as modifications and terminations without having to go to court. In this article, we are going to discuss the benefits of South Dakota’s unique jurisdiction opportunities and how National Advisors Trust of South Dakota (NATSD) can help you gain a competitive wedge.

Directed Trust Statutes

South Dakota’s modern trust laws easily accommodate a bifurcated approach to trust administration, allowing NATSD to handle the administrative responsibilities and custody of trust assets while leaving investment management to the expertise of the client’s own investment advisor.

Asset Protection for Trusts

Few states allow a grantor to protect assets that remain for their own benefit. South Dakota has one of the best protection statutes available for self-settled trusts. Discretionary trusts also benefit from these extremely advantageous statutes, as any discretionary interest, power of appointment or remainder interest is not considered a property interest and therefore cannot be attached by creditors.

Tax Benefits

South Dakota offers many tax benefits, including no state income tax on trusts, no capital gains tax on trusts, no state LLC or LLP tax, no state inheritance tax, and no gift or generation-skipping tax.

Flexibility & Privacy of the Trust Terms & Assets

• South Dakota statutes give grantors and beneficiaries the ability to decant, modify or reform an irrevocable trust easily without a great deal of time and expense.
• Innovative statutes allow for the utilization of unregulated special purpose entities such as trust protectors, distribution committees, and investment committees.
• The ability to make modifications is statutory and well defined
• South Dakota offers one of the best privacy statutes for trusts in the United States, allowing for such changes to remain private family matters indefinitely.

Perpetual Trust Duration

South Dakota was one of the first states to abolish the rule against perpetuities and is one of the few states recognized as truly perpetual by the IRS.

Trust Assets

Diversification is most often seen as the most prudent course of investment action, but diversification is often at odds with the personal wishes of a grantor. Under South Dakota law, regardless of concentration or lack of diversification, the investment advisor need not diversify if the trust instrument allows for non-diversification or directs retention of assets in the trust.

About NATSD

National Advisors Trust of South Dakota (NATSD) is a professional trust company that works with independent investment advisors to provide flexible, individualized, service-oriented, cost-effective trust administration. When investment advisors use NATSD, they receive the advantage of tax-favored trust situs, access to modern trust statutes, customized trust administration, advanced technology, quality service, creative strategies, and competitive fees. All of NATSD’s services are available without the necessity of either the trust grantor or beneficiaries having to reside in South Dakota.

With NATSD, advisors continue to own the client relationship. NATSD supports advisors with the fiduciary and trust services needs of their high-net-worth clients who prefer to continue to maintain their professional relationship with a financial advisory firm. Unlike traditional banks and trust companies, NATSD works exclusively with and through the client’s professional advisor.

NATSD creates a true partnership with trusted advisors, welcoming the input and ongoing involvement of the attorney, CPA and investment advisors. We believe that this inclusive approach, combined with our comprehensive trust services, creates a unique environment that promotes relationship continuity and advantageous trust opportunities, making NATSD the trust company of choice for independent advisors and their clients.

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By NATC Contributor | April 6, 2021

Powers of Appointment are the secret ingredient to the major advantages of irrevocable trusts, and the formula that makes them work. Yet, the code does not do a good job of quantifying them, so we will do it for them. This knowledge makes it easier to decode documents, or design them in the first place, but also to communicate the advantages to the client and beneficiaries.

Drafting the Trust

When drafting a trust, the attorney must match the desires of the client with the design of the internal revenue code. A proper alignment of these two issues enables the client to control their money in the manner that they wish after they are gone, while achieving the tax protection and asset protection desired for their heirs. As one might imagine, if you give too much power or access to the funds, the IRS will say they belong to the beneficiary, thus losing the estate tax protection and asset protection. Fortunately, the internal revenue code gives us a “bright line” test to determine whether the beneficiary is the owner of the trust property or not; it is called a Power of Appointment.

The 6 Rules

As I organize the information in this section of the code, there are five powers of appointment. We will add the right to “income” to make six. Technically, powers of appointment are over the assets of the trust, not the income those assets produce. The right to income does not make you the owner of the underlying asset. So, in plain language, I will list and explain each of the five powers and the right to income, and then we can look at them in the context of a trust. Keep in mind I am simplifying a very technical area. The attorney in drafting the document will use much more technical language, the accountant determining the tax implications will read that language carefully, and the trustee will read and interpret distribution decisions based on that language. It could not be more central to the operation of the trust in carrying out the intent of the client.

The Powers:

1. Lifetime General Power of Appointment – The ability for a beneficiary to take any or all of the assets of the trust at any time and for any reason. This makes an irrevocable trust work very much like a revocable trust; full control and no tax or asset protection benefits. Generally used only in Marital trusts.
2. Testamentary General Power of Appointment – The ability for a beneficiary to change the beneficiaries to whomever they choose. By itself this power gives no access during life, but may be combined with other powers. Whether the power is exercised or not, the assets are included in the power holder’s estate. Also used primarily in Marital trusts.
3. Five by Five Power – The ability for the beneficiary to take the greater of $5000 or 5% of the trust each calendar year; a 5% version of the Lifetime General Power. Some access, translates to 5% of the income being taxable to the beneficiary, and 5% being included in the power holder’s estate.
4. Ascertainable Standard – The ability of the beneficiary to request any amount of the assets, subject to specific language, like “health, education, and support” or “to support their accustomed manner of living.” Because these distributions are subject to specific language, or subject to the judgment of an independent or adverse person, this power is NOT a general power and thus creates no estate tax inclusion for the beneficiary.
5. Specified Class – The ability to alter the beneficiaries of the trust, yet only within a predefined class or group of beneficiaries, like “among the grantor’s descendants.” Since this power does not give unrestricted authority to change and the power holder cannot appoint to themselves, this is NOT a general power and thus creates no estate tax inclusion for the beneficiary.
6. Income – The ability to get all of the income automatically, or have access to the income for anything or for predefined reasons. Again, the right to the income does not make you the owner of the underlying asset, so this is NOT a general power and thus creates no estate tax inclusion for the beneficiary.

Powers in Use

In considering the language of a trust, one should answer the question, “If I were to leave instructions on how I wanted this money to be used, what would I say?” That response when matched up with the six powers above should make it fairly clear which powers to include. Keep in mind, the greater the power given, the greater the inclusion in the estate. Powers 1 and 2 create 100% estate inclusion and thus are best saved for marital trusts. Power 3 creates a nice balance of access without discretion, yet does cause some estate inclusion. Inclusion in the estate is not just a tax issue; it can also eliminate creditor protection, which in our world of high estate tax-exempt values is more important to most clients.

Non-marital trusts, that is trusts for other family members, will generally include Powers 4 and 6 on a discretionary basis. Access to 100% of the money, but only if needed for some identified use such as “maintaining one’s accustomed manner of living” or “for support in reasonable comfort.” On the other hand, the language may be much more restrictive for a Special Needs Trust or a Supplemental Needs Trust such as, “no distribution shall be made which would disqualify her from state or federal aid programs which are available to her” or “to pay for such supplemental support not provided by state or federal aid programs.” These examples are simplified to demonstrate the meaning of the language and the grantor’s ability to design it as they wish. With broad discretion over the use of both income and principal, we can create the greatest balance of access and availability to the beneficiaries without breaching the tax protection and asset protection features of the trust. Power 5 can likewise maintain this protection and yet still give the beneficiaries a say in the future of the trust to be flexible to family needs and wealth dynamics.

It should go without saying that recommending and working with experienced partners to help design and implement the language your clients’ desire in their trusts is paramount to help your clients achieve what they desire with their life savings, and for the people most precious to them. An attorney to draft precise language to reflect their wishes, an accountant to accurately interpret the tax consequences, and a professional trustee to properly and independently exercise the discretion the client provides in the document for benefit of their heirs.

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By NATC Contributor | December 1, 2020

Reading and understanding the terms of a will or trust instrument is a vital part of a fiduciary’s role. From the synopsis of key provisions to the distribution language and terminology to state law issues, we all need to be able to see the obvious and identify the nuances that are expressed in the primary estate plan documents that govern our administration of estates and trusts. This webinar discusses:

• Basic construction of typical documents

• Key clauses to look for

• Issues to be aware of under state law

• New definitions with old language, standard terminology

Contact

One of our Trusted Advisors can help you determine through trusted service what would work in the best interest of your clients when discussing their documents. You are your client’s Trusted Advisor, and we are your Trusted Advisor.

Contact one of our Trust Consultants now for trusted guidance in trust services.

Schedule a consultation HERE

By NATC Contributor | June 23, 2020

With Estate tax exclusions at over $11 Million per person, there are challenges to many traditional estate planning techniques. The webinar above discusses which techniques are most appropriate and why. We discuss planning ideas under current law and maintaining flexibility for proposed changes. The webinar also includes the following topics:

• Review of Estate Tax laws and their impact on individuals and married couples
• How current law may affect the existing planning clients have had in place
• Non-tax reasons for estate planning
• What to consider when reviewing and altering the plan

Watch our webinar recording above to learn more.

Contact

One of our Trusted Advisors can help you determine through trusted service what would work in the best interest of your clients when discussing their estate plan. You are your client’s Trusted Advisor, and we are your Trusted Advisor.

Contact one of our Trust Consultants now for trusted guidance in trust services.

Trust Consultant Team:
TrustConsultant@nationaladvisorstrust.com

Schedule a consultation HERE

By Tucker Swiastyn | June 12, 2020

Many individuals now prefer an estate plan that uses a revocable living trust over a will as the primary estate planning document because it:

Helps Avoid Probate

A properly drafted and funded revocable living trust plan avoids probate at death, including multiple probates if you own property in different states. A will must go through a state’s probate process, and if you own property in more than one state, your family could face multiple probates, each one according to the laws in that state. 

Plans for Incapacity

A properly drafted and funded living trust avoids court interference at incapacity. Most people prefer to have their care and assets managed privately by people they know and trust, instead of being placed in a court guardianship, which is costly, time-consuming, public, and stressful. A will is of no help at incapacity because a will can only go into effect when you die. With a revocable living trust, the trustee takes over immediately at incapacity.

Brings Assets Together

A living trust brings all of your assets together under one plan with one set of instructions. (Possible exceptions are IRAs and other tax-deferred plans.) This makes it much easier to provide fair inheritances to your beneficiaries, as opposed to trying to balance inheritances with beneficiary designations and joint ownership because of fluctuating values of investment accounts, life insurance policies, and other assets. A will only controls assets that are titled solely in your name (read about the importance of asset titling HERE); it does not control assets that pass automatically by operation of law, such as most jointly owned assets or those for which you have named a valid beneficiary.

Enhances Privacy

A properly drafted and funded living trust is more private than a will and is not as easily contested. Because probate is a public process, disgruntled heirs and other interested parties are invited to submit claims and contest your will. Unwanted solicitors can have access to your family’s personal and financial information. That is not so with a revocable living trust.

Ensuring that your clients have a properly drafted and funded revocable living trust is crucial for the successful execution of the estate plan. The process of properly funding and properly titling assets is often overlooked. Making sure that this step is accurately completed is critical.

One of our Trusted Advisors can help you determine through trusted service what would work in the best interest of your clients when discussing revocable living trusts. You are your client’s Trusted Advisor, and we are your Trusted Advisor.

Contact

Contact one of our Trust Consultants now for trusted guidance in trust services.

Trust Consultant Team:
TrustConsultant@nationaladvisorstrust.com

Schedule a consultation HERE

By Tucker Swiastyn | June 2, 2020

Making sure assets are titled correctly can save your clients from a plethora of headaches while planning an estate. Asset titling determines how assets are managed during a lifetime and how they are distributed upon death according to a will based on state law, agreement, or beneficiary designation. 

Asset titling is often overlooked. However, it is one of the most important elements of an estate plan. If asset titling is not properly coordinated with an estate plan, the terms of the plan may not turn out as intended. A client may have a very well-drafted will but have no assets pass through the terms of the will if titling of the assets is inconsistent with the terms of the will.

Many believe that all of their assets will be distributed according to the terms of their will or trust upon their death. However, many assets—in some cases everything–could pass outside their estate, depending on how the assets are titled. It is not uncommon to hear of spouses that have set up a trust for a surviving spouse, only to discover upon the death of the first spouse, that there are no assets with which to fund that trust because they are owned jointly, bypassing the trust entirely. Problems like these are often the result of failing to consider titling. 

Title Ownership Types

There are four primary types of title ownership; fee simple, joint tenancy with right of survivorship, tenancy in common, and tenancy by the entirety.

Fee Simple is the ownership of assets by one individual. The individual owns all property solely and can sell it, give it away, or leave it on death. The property will flow into the client’s estate and is subject to probate upon death. The property will be distributed according to the terms of the will. To avoid probate, fee simple property can be titled in the name of an individual’s living trust.

Joint Tenancy with right of survivorship is often used by couples that are married. However, it can be used by two or more individuals if they each have an equal interest in the assets and that they acquired the equal interest during the same time. Each owner or co-owner owns all of the property equally with the others. The owners can transfer or sell their interest during their life, but cannot leave or donate the interest at death. This type of ownership transfers the property automatically to the other owner(s) and does not allow the deceased’s share of the property to pass into his estate. 

Tenancy in Common refers to when there is more than one owner of the property and each owner owns a share of the asset. Each owner has the right to give away, sell, or leave his or her share at death. 

Tenancy by the Entirety is basically joint tenancy between spouses. Property owned as such passes directly to the surviving spouse bypassing the terms of the will and trust and probate.

Application

Life changes, so should your asset titling. As life goes on, the will does not supersede the beneficiary named on the account. It is good practice to review all of the financial accounts that require a named beneficiary every 12, 24, and 36 months to ensure that all titles are aligned with the estate planning assets. Situations change constantly, it is important to make sure that the preferred beneficiaries and titles are kept current.

Ensuring that your client’s asset titling falls in-line with the terms of their will is crucial for the successful execution of the estate plan.

One of our Trusted Advisors can help you determine through trusted service what would work in the best interest of your clients when discussing Estate Asset Titling. You are your client’s Trusted Advisor, and we are your Trusted Advisor.

Contact

Find out if we are the right fit for you and your business.

Take our quiz HERE

Contact one of our Trust Consultants now for trusted guidance in trust services.

Trust Consultant Team:
TrustConsultant@nationaladvisorstrust.com

Schedule a consultation HERE