Several recent surveys confirm that South Dakota is one of the most advantageous states to locate a trust. We were glad to hear that, although not totally surprised. It was because we wanted to offer LNW clients the advantages of a South Dakota trust that we launched the LNW Trust Company of South Dakota in early 2023. So why does South Dakota continue to be a sound choice in 2025 for the administration of trusts? Below, I highlight two areas where trusts based in South Dakota have distinct advantages, according to recent research:
Dynasty Trusts
South Dakota maintained the number one spot among all U.S. states for multigenerational Dynasty Trusts, according to research by attorney Steven J. Oshins (his rankings are widely regarded as a go-to reference for estate planning professionals throughout the U.S.). The Oshins’ Dynasty Trust rankings1, updated January 2025, heavily weigh the fact that South Dakota trusts can last forever (“in perpetuity”), whereas most other states restrict how long trusts can exist (due to rules against perpetuity). The other weighted factors favoring South Dakota:
- South Dakota has no state income tax
- Trust assets can be protected from familial claims asserted by a divorcing spouse and from claims for child support
- Disputes can efficiently be resolved by non-judicial settlement agreement (rather than needing court intervention)
- South Dakota is ranked as one of the most favorable states for trust decanting (i.e. pouring the assets of one trust into a second trust)
- South Dakota is the second-most-favorable venue when it comes to Domestic Asset Protection Trusts or DAPTs (see below for more on DAPTs).
Keep in mind that the longer a Dynasty Trust is intended to last, the more critical the role of the trustee, responsible for managing the assets and administering the trust. While trustees can be individuals (family members, business associates, attorneys or CPAs) who know the family well, individual trustees are mortal with varying levels of expertise and other demands on their time and capabilities. By designating a corporate trustee, such as the LNW Trust Company of South Dakota, a family can ensure continuity and consistency in the administration of their trust(s) for many generations into the future. It is also possible for the LNW Trust Company of South Dakota to serve as corporate co-trustee working with individual trustees.
Donor Asset Protection Trusts (DAPTs)
Also in January 2025, Trust & Estates, a journal for estate planning professionals, ranked South Dakota in the top tier for Donor Asset Protection Trusts or DAPTs (also known as Domestic Asset Protection Trusts).2 This type of irrevocable trust is unique in that the person setting up the trust (the donor or settlor) can also be a beneficiary of the trust in addition to other named beneficiaries.
As long as there is an independent trustee and assets are transferred to the trust well before any creditor claims arise, a DAPT can protect the donor’s assets in the trust, while still allowing that individual to be a beneficiary of the trust. Currently, DAPTs are available in less than half of U.S. states.
Trusts & Estates notes the ingenuity of DAPTs: “The anti-clawback provisions…incentivize HNW [high-net-worth] families to use their exemption now…to take advantage of the higher exemption amount while allowing settlors to be permissible discretionary beneficiaries of trusts.” The article further notes: “In South Dakota, permissible discretionary beneficiaries have no property interest in the trust – ‘a discretionary interest is neither a property interest nor an enforceable right.’”
South Dakota law assures individuals that the protection of trust assets is paramount: South Dakota Codified Laws Section 55-1-43.
Although Alaska is typically credited as the first state to enact a statute for asset protection trusts, Missouri was actually the first to do so around 1989. Therefore, DAPTs are considered relatively novel and could be suitable for individuals willing to venture into territory where boundaries are still being established and rules refined.
For some, the ability for the donor to also be a beneficiary and request discretionary distributions from a DAPT may outweigh the risk of future interpretations of the applicable law that narrow the scope or protection of this type of trust. South Dakota courts have historically interpreted statutes as to protect the intent of the individuals establishing the trusts. While past is not prologue, some may find comfort in that.
Final Thoughts
These recent rankings reaffirm why LNW selected South Dakota as the venue for its new trust company: South Dakota provides broader protections for those establishing trusts; allows the duration of trusts to be expanded (indefinitely); and allows for the most flexibility in administration of trusts.
As always, please do not hesitate to reach out to us here at LNW to explore if establishing a trust in South Dakota could be beneficial for you and your family as part of your estate and legacy planning.
