Side-by-side comparison of dynasty trust laws
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Get Personalized Results →| Criteria | Delaware | South Dakota |
|---|---|---|
Dynasty Duration How long can a trust last in this jurisdiction? States that have abolished the Rule Against Perpetui... | 100 Perpetual | 100 Perpetual |
State Income Tax Does the state impose income tax on trust income? States with no income tax or favorable trust taxat... | 85 No tax with conditions | 100 No state income tax Higher |
Asset Protection How strong are the state's Domestic Asset Protection Trust (DAPT) laws? Key factors include statute ... | 88 Strong DAPT with 4-year statute of limitations | 95 Strong DAPT with 2-year statute of limitations Higher |
Directed Trust & Trust Protector Does the state have robust statutes for directed trusts (separating investment and distribution duti... | 100 Most comprehensive directed trust statutes in the US | 100 Comprehensive directed trust and trust protector statutes |
Decanting Flexibility How easily can trust terms be modified through decanting? Broader decanting powers allow for greater... | 95 Broad decanting powers with 60-day notice | 95 Broad decanting powers |
Delaware abolished the Rule Against Perpetuities for interests in trust property effective July 1, 1995. Trusts can continue indefinitely with no durational limit, making Delaware one of the premier dynasty trust jurisdictions.
South Dakota abolished the Rule Against Perpetuities in 1983, allowing trusts to last indefinitely. South Dakota was one of the first states to abolish the RAP and remains a leader in dynasty trust planning.
Delaware does not tax trust income if: (1) all current beneficiaries are non-Delaware residents, (2) there is no Delaware-source income, and (3) trustee location alone does not create tax nexus. Delaware statutory trustees/directed trustees do not create income tax liability by themselves.
South Dakota's constitution prohibits a state income tax. This applies to all income including trust income, making it one of the most favorable states for accumulating wealth within a trust.
Delaware's DAPT statute requires creditors to prove fraudulent transfer by 'clear and convincing evidence' - a higher standard than typical civil cases. The 4-year statute of limitations (or 1 year from discovery, whichever is later) provides strong protection after seasoning.
South Dakota enacted its Domestic Asset Protection Trust legislation in 1997. The statute features a 2-year statute of limitations for fraudulent transfer claims, one of the shortest in the nation. Self-settled spendthrift trusts are permitted.
Delaware is widely recognized as having the most sophisticated directed trust statute in the nation. The statute allows complete separation of administrative, investment, and distribution functions with explicit liability protection. Trust protectors can be granted broad powers and are not fiduciaries unless the trust instrument provides otherwise.
South Dakota is widely recognized as having the most comprehensive directed trust statutes in the nation. The state allows complete separation of investment and distribution responsibilities with explicit liability protection for directed trustees. Trust protector statutes are equally robust.
Delaware's decanting statute is one of the most permissive in the nation. Trustees with discretionary distribution authority can decant to new trusts with modified terms, extend trust duration (perpetual in Delaware), and change situs. No court approval required.
South Dakota permits broad decanting with minimal court involvement. Trustees with discretionary distribution authority can decant to new trusts with modified terms, including changes to beneficial interests, administrative provisions, and trust protector powers.
This is the real debate. Delaware has unmatched legal sophistication; SD has no state income tax. Your choice depends on complexity vs. simplicity.
Your trust is complex, you expect legal challenges, or you're working with Delaware specialists.
You want to avoid state income tax complexity and prefer the most straightforward option.
Delaware is for the 5% of trusts that are genuinely complex. For a standard dynasty trust, it's overkill. The income tax trap catches more people than you'd think.