Asset protection
Planning that only works before you need it.
South Dakota allows a person to create an irrevocable trust, remain a discretionary beneficiary of the trust, and protect assets transferred to the trust from future creditors.
Who this is for
People with asset protection concerns
Physicians and surgeons
Where a single claim can exceed what any policy carries.
Business owners
Personal guarantees, and liability that follows the operating company home.
Contractors and builders
Long tail exposure on work completed years earlier.
Real estate holders
Premises liability across multiple properties and entities.
Individuals and families
Protecting assets to transfer to the next generation.
What the law provides
Four things that make it work
You can be a beneficiary of your own trust
A qualified disposition lets the person who funds the trust remain a discretionary beneficiary. In most states, retaining that interest defeats the protection entirely. South Dakota permits it by statute.
A qualified South Dakota trustee holds it
A chartered trust company, bank trust department, or a South Dakota resident must serve as a trustee, and the trust must be governed by South Dakota law.
Distributions are discretionary
Because the trustee decides whether to distribute rather than being compelled to, there is no fixed interest for a creditor to attach. The structure fails when that discretion is illusory.
Shorter fraudulent conveyance period
Two years after the transfer is made to the trust, or six months from discovery for creditors who existed before the assets were transferred to the trust. Among the shortest in the country.
Timing
Two clocks, and both start at funding
A creditor challenging a transfer to a South Dakota asset protection trust is working against a statutory deadline. A creditor of the person who created the trust before the assets are transferred to the trust can bring an action against the trust within the later of the following.
2 years
After the transfer is made to the trust.
6 months
After the transfer is or reasonably could have been discovered by the creditor.
Both windows describe when a challenge must be brought, not whether it succeeds.
Control
What are you allowed to keep
The common misconception is that an irrevocable trust requires you to hand everything to a stranger. A South Dakota asset protection trust can be designed and structured in many different ways.
- You can retain the right to receive discretionary distributions during your lifetime.
- You can appoint individuals you know to make investment decisions.
- You can appoint individuals you know to direct distributions.
- You can provide guidelines to remove and replace trustees.
- You can appoint an individual that has the power to make changes to the trust.
- Your existing advisors can be appointed in the trust to assist the trustee.
What it does not do
Four limits worth hearing early
Each one of these tends to come up eventually.
It will not defeat a claim you already have
The asset protection operates prospectively. A transfer made once a claim exists, or in anticipation of one, may not be protected.
Another state's court may apply its own law
The South Dakota Supreme Court declined to enforce an out of state support judgment against a trust governed by South Dakota law, but no jurisdiction can promise how a court in a different jurisdiction will rule.
Bankruptcy
A transfer made prior to filing for bankruptcy may not be protected.
It does not replace insurance
This is a second layer behind adequate professional and liability coverage, not a substitute for it.
Next step
The best time was earlier. The second best is now.
Describe what you are trying to protect and what your exposure actually looks like. If a trust is not the right answer, that is what you will hear.
Initial consultations are provided without charge.
Further reading: the limits of a South Dakota asset protection trust