SOUTH DAKOTA TRUST COMPANY LLC. South Dakota Trust Company. South Dakota. Trust Company LLC? LLC?

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1 SOUTH DAKOTA TRUST COMPANY LLC Why Why South Dakota South Dakota Trust Company Trust Company LLC? LLC? Sioux Falls Rapid City New York (South Dakota Planning Co.) South Dakota Trust Company LLC All Rights Reserved

2 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 nonfinancial 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 South Dakota Trust Company LLC All Rights Reserved 2

3 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: Distribution Committee (Fiduciary, Not Trustee) Directs Administrative Trustee (SDTC) Regarding Distributions Family Committee (Non-tax sensitive distributions) *Combine All Functions Independent Trustee (Tax sensitive distributions) 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. Full Trustee Investment Committee (Family Members) (Fiduciary, Not Trustee) Directs Administrative Trustee (SDTC) regarding Investments Stocks & Bonds Insurance Art FLPs LLCs Real Estate Private Equity Closely-Held Stock Administrative Trustee (South Dakota Trust Company) 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 South Dakota Trust Company LLC All Rights Reserved 3

4 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 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 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 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 selfsettled 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 selfsettled 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. South Dakota Trust Company LLC All Rights Reserved 4

5 Summary of 21 st Century Family Estate Plan: Asset Protection: Domestic Asset Protection Trust Will/Revocable Living Trust Education Planning and Trusts Irrevocable Insurance Trust Private Foundation and Charitable Trusts Advanced Trust Planning See Below: Shifting Growth on Assets: Dynasty Trust Defective 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 Sale of Remainder Sale of Remainder Sale of Remainder 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 ). Trust protector may add beneficiary in the future. Promissory Note Sale Grantor Beneficiary SCIN Loan Walton GRAT QPRT CLAT PNS-Residency/ Vacation Home 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. South Dakota Trust Company LLC All Rights Reserved 5

6 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: 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). 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 South Dakota Trust Company LLC All Rights Reserved 6

7 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: Existing Trust: 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 Existing Trust Modified: South Dakota Law: Administration- Directed Trust Protector Example - Decanting: Existing Trust: New York Law Trust: (Interpretation, Validity, Construction and Administration) Trustee Power to Distribute Assets Appoint a South Dakota Trust Company as Trustee Trustee Decants New Trust: South Dakota Law Trust with South Dakota Trustee (Interpretation, Construction, Validity and Administration) South Dakota Trust Company LLC All Rights Reserved 7

8 Alaska Arizona California Connecticut Delaware Florida Georgia Hawaii Illinois Massachusetts Minnesota Nevada New Hampshire New Jersey New York Ohio Pennsylvania South Dakota Washington Wyoming 10 bpts. 235 bpts. 175 bpts. 175 bpts. 225 bpts. 275 bpts. 50 bpts 200 bpts 350 bpts. 125 bpts. 210 bpts. 140 bpts. 8 bpts. (Lowest) 75 bpts. 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 (8/100 th 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). 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 South Dakota Trust Company LLC All Rights Reserved 8

9 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. South Dakota Trust Company LLC All Rights Reserved 9

10 SOUTH DAKOTA TRUST COMPANY LLC 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 Photos courtesy of the South Dakota Department of Tourism For additional information on this or any topic, please contact us: South Dakota Trust Company, LLC 201 South Phillips Avenue Suite 200 Sioux Falls, SD Phone: (605) Fax: (605) piercemcdowell@sdtrustco.com South Dakota Planning Company LLC 51 East 42nd Street Suite 701 New York, NY Phone: (212) Fax: (212) alking@sdplanco.com 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. South Dakota Trust Company LLC All Rights Reserved 10 Reprinted with permission from South Dakota Trust Company, LLC. TD Ameritrade and South Dakota Trust Company are separate and unaffiliated and each is not responsible for the other's content. Brokerage services provided by TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Used with permission.