The limits of a South Dakota asset protection trust

South Dakota's asset protection statutes are among the strongest in the country.

The structure is still worth understanding from its limits inward rather than its advantages outward. The advantages are real and easy to find written up elsewhere. The limits are where plans fail.

What the law provides

South Dakota allows individuals to establish self-settled trusts. A self-settled trust is one where the person who creates and transfers property to the trust is also allowed to be a beneficiary of the trust.

In order for a self-settled trust to provide protections from creditors the trust should be irrevocable, include a spendthrift provision, be governed under South Dakota law, appoint a South Dakota resident, trust company, or trust department to serve as trustee of the trust, and the individual who created and transferred property to the trust should not serve as a trustee of the trust.

That last requirement is where a number of conversations end, and it should be faced early rather than discovered late. This is not a structure you continue to control in the way you control a revocable trust.

It does not protect from all creditors

The creditor protection operates prospectively. It is not a response to a problem that already exists. The creditor protections do not extend to known creditors, lawsuits, or claims, including certain family obligations, that existed prior to transferring property to the trust.

The why behind South Dakota asset protection trusts

A properly designed South Dakota asset protection trust allows individuals to protect property transferred to the trust from future creditor claims, with very little limitations.

Individuals who may benefit from a South Dakota asset protection trust include business owners, farming and ranch operations, physicians and doctors, and high net worth individuals and families.