4 Secrets That Can Super-Charge Your Estate Plan

  • estate

Mysterious visitors from far-away lands

My friend frequently delivers gourmet box lunches to private jets on the tarmac.  The pilot waits there while his passenger attends business in town.  Within a few hours, wheels are up, and they will be back home.  A thousand miles away on the coast.

I asked my friend, the restaurant owner at the airport, what’s the mystery behind these fly-in fly-out meetings of the rich and famous?

The answer: they are visiting with an estate planning attorney.

Lindsay M. Harris, JD, an attorney at the Swier Law firm in Sioux Falls, SD, published an article in 2018 to explain what makes South Dakota so special in estate planning.

Summarizing Lindsay M. Harris’ article, here are:

South Dakota’s 4  Estate Planning super-powers:  

 

1. South Dakota has a unique tax structure

South Dakota doesn’t tax you on income, capital gains, dividends or interest, or inheritance.  While your home state may want to tax you on these things, you are untouchable if your trust is set up in South Dakota.

Don’t get confused with state versus federal tax.  While South Dakota can shield you from your state income, capital gains, dividends, interest, and inheritance tax, that doesn’t mean you will be exempt from federal taxes.

You always will be subject to the federal tax rules.  But some states apply a secondary tax on top of the federal tax.  That is where South Dakota can shelter you from: the additional taxes from the state.

So, if you live in a state that taxes you on your personal income, capital gains, dividends, interest, or inheritance, you can adopt South Dakota as your “trust state.”

I think of South Dakota as being the “safe zone” in a game of tag: you can’t tag me if I’m in the “safe zone.”

 

 

2.  You can live anywhere in the US and still set up a trust here

Taking advantage of South Dakota trusts doesn’t require you to live here.

This article, by Jessicah Lahitou, lists the states with the highest tax rates.  She relates it to the issue of political environment: democratic states have higher taxes than republican states.  South Dakota is a conservative, Republican state.  While that may irritate you if you identify as a liberal, I hope that doesn’t stop you from taking advantage of the system.  That’s the beauty of capitalism.

There are six other states that don’t tax their residents on their personal income.  They are Alaska, Florida, Nevada, Texas, Washington, and Wyoming.  However, those other six states may not allow you to set up a trust in their state if you are not a resident.

It’s this special sauce that South Dakota dominates in.  South Dakota refrains from taxing you on income, capital gains, interest, dividends, and inheritance, and they will allow you (from a different state) to enjoy the benefits they offer.

According to Lahitou, if you live in New Jersey, California, Wisconsin, Minnesota, or New York, you are paying the highest amount of taxes.  South Dakota is here to help! You can take advantage of the South Dakota tax structure, without moving your family to the prairie.

 

 

3.  South Dakota trust laws gives you tremendous protection

If you are concerned that your business or your family may run into trouble after you aren’t around anymore, South Dakota strong trust laws will put you at ease.

Divorce, creditors, nursing homes, and lawsuits are threats to your estate.  They can potentially penetrate your estate.  However, they are less likely to if your trust is set up in South Dakota.

Lindsay M. Harris, JD, explains here that “one of the key differences in South Dakota compared to less favorable trust states, is that South Dakota states a discretionary interest in a third-party trust, a limited power of appointment, and remainder interests in trust assets are not considered property interests.  This discretion, along with a potent sole remedy charging order law provide a powerful shield…”

This sounds complicated, but it’s a key ingredient to South Dakota’s special sauce for estate planning.

If you have worked hard to accumulate a nest egg, if you have spent years contributing to your retirement account, if you have invested your tears, time and money into building your business, then the last thing you want is for it to be snatched away from you.  This frequently happens to those retirees who end up in a nursing home. Nursing homes are notoriously expensive. This blog article by PolicyGenius explains how nursing homes affect your personal finances.

...there is a system to make sure that your belongings are accounted for before you begin receiving Medicaid assistance to cover that $400 a day for nursing home care.

If a couple shares assets at the time that one of them goes into a nursing home, there are Medicaid spousal impoverishment rules that make sure that the spouse is able to reduce how much of their assets are taken into account before the patient qualifies. According to Marshall, Parker, & Weber, LLC, a law firm in Pennsylvania that specializes in elder law and estate planning, the couple is allowed to spend their money "to pay off existing debts" to prepay real estate taxes, insurance, or other large bills; or to prepay funeral expenses" before qualifying for Medicaid.

What happens to the rest of your money? Well, the good news is that spouses can keep half of the amount saved. The other half will have to be spent on the list of items above (among a few other things) to get their assets down to the qualifying $2,000. Otherwise, you’ll end up paying the rest out of pocket to the nursing home.

This is known as “Medicaid Spend-Down.”  South Dakota trust laws are some of the best in the nation to protect your nest egg from suddenly drying up due to the exorbitant end-of-life expenses.

Another trap you want to avoid is your legacy going to the ex-spouse of your child.  Divorce happens to roughly 50% of people.  If your child happens to be one of the 50% who goes through a divorce, you want your estate to stay with your child, rather than it being split with the former spouse.  Trusts are the way to do that.  Again, South Dakota gives superior protection from threats like this.

Lawsuits and creditors are another threat you may want to protect your estate from.  Maybe you don’t foresee yourself being sued or chased down by debt collectors, but can you say the same for your children and their spouses?  Setting up a trust is the way to protect you and your heirs from this possibility.  And, South Dakota boasts some of the most favorable laws in this regard.

Other asset-protection haven-states are Florida, Nevada, Wyoming and Alaska (Ken Himmler, Live Rich, Stay Wealthy).

 

 

4.  South Dakota offers Dynasty Trusts

Dynasty Trusts are a special type of trust that allows the trust to last as long as you want it to.  Few states offer this type of trust.  But, Delaware, Alaska, and South Dakota are the only states that do not assess a state tax on trust income, so that is where most people set up dynasty trusts (Dalton 522).   Dynasty trusts are not always needed, either.  But for certain high-net-worth individuals, a Dynasty Trust is significant.

Estate planning is not just for the rich and famous.  Estate planning is for everybody.  If you are single or married, if you have kids or no kids, if you have pets or no pets if you have money or only debt.  You need at least need to do basic estate planning.  If you have a more complex financial or family situation, a South Dakota attorney may be able to provide a unique, advantageous solution.  If you want a recommendation for a good, trustworthy attorney, contact me at: christina@lynnfinancialllc.com.  I’ll let you know who I used for my own will and trust, as well as another attorney that I think does a great job.

 

References

Dalton, Michael A., Thomas Langdon. Estate Planning, 11th Edition. Money Education, 07/2018. VitalBook file.

Harris, L. (n.d.). The South Dakota Trust Advantage. Retrieved December 15, 2018, from https://www.swierlaw.com/library/the-south-dakota-trust-advantage.cfm

 

2019-01-31T13:18:08+00:00