Perhaps you are a Washington resident and the thought of using an outside fiduciary is unappealing. Using an outside fiduciary can offer a risk, but also considerable benefits. Creating a trust is an important step in protecting assets and providing for future beneficiaries. Learn the difference of how Washington compares to trust havens like South Dakota.

Comparison Chart

 

Washington

South Dakota

Dynasty Trust

150 Years

Yes

Decanting

Yes

Yes

Domestic Asset Protection Trust

No

Yes

Directed Trust

No

Yes

State Income Tax

No

No

Privacy

No

Yes

Community property

Yes

No

Estate Tax

Yes (Up to 20%)

No

 

Dynastic Trusts

A Dynastic trust is a trust used for the purpose of setting up a dynasty of an individual and their family. A dynasty trust by definition is, “a long-term trust created to pass wealth from generation to generation without incurring transfer taxes, such as gift tax, estate tax, or generation skipping transfer tax, for as long as assets remain in the trust”. In South Dakota, the rules against perpetuities are not in force. This means, in South Dakota Trust can last forever. Washington has similar dynastic trust features, however, trust in Washington can only last for 150 years.

Decanting

Decanting a trust is having the ability to make changes to a trust, or create a new trust. South Dakota has ranked #1 for their decanting statutes for the last 6 years according to Steve Oshins. Washington, although recently new, has adopted a decanting in early 2017. Under this new act a fiduciary can make adjustments to an irrevocable trust, in certain cases, without the consent of the beneficiaries. However, this act does not hold for charitable trusts, and it requires the fiduciary to do so only if acting in a fiduciary capacity.

Domestic Asset Protection Trust

Asset protection trusts are one of the top advantages of South Dakota. An asset protection trust is a trust that is protected from debtors and creditors. However, it does not protect against the federal government. These trusts are also referred to as self-settled trusts. South Dakota was the first state to enact the asset protection trust statute. South Dakota has created legislation for prohibiting judicial foreclosure and creditor attachment on beneficial interests in trusts. Washington does not offer these same statues or trusts created for protection. In Washington asset protection trusts are not permitted.

Directed Trusts

South Dakota has some of the top Directed trust statutes in America. In South Dakota, the trust can separate who manages the trust assets and who administers the trust assets. This flexibility allows clients to use an administrative trustee, and select their investment advisor or an investment committee. A client can also direct for a distribution committee to direct the administrative trustee. Washington directed trust laws, refer to actions held by the administrative trustee and the trust advisor. The particular language pertained to the separation of duties is limited.

State Income Tax

Income tax plays a significant role in the planning of how a trust is distributed. A state with a high income tax rate can be detrimental on the proceeds that are paid to beneficiaries. A part of the estate planning process with your attorney is finding ways to shelter your hard-earned money from receiving hefty tax bills. Neither Washington or South Dakota have state income taxes.

Privacy

Privacy features are important for shielding a beneficiary from turning into a, “trust fund baby”. Privacy statutes were enacted to keep a trust silent for a period of time in order to safeguard the assets, and prevent a beneficiary from losing motivation. In South Dakota, trust documents are not required to be filed publicly, and changes or updates to a trust do not have to be filed with a court. Other states that have privacy trust laws are not as strong as South Dakota. For example, Delaware has privacy laws with only a 3-year seal, and Washington does not have any privacy laws. In fact, Washington requires that the trustee notifies the beneficiary of a trust after a certain amount of time, usually within a year.

Community Property

Unlike South Dakota and many other states, Washington is a community property state. Any property or assets that were acquired during marriage are legally owned by both partners. If you pass away, your spouse will always be entitled to your community property shares. South Dakota is not a community property state. In the events of a divorce in South Dakota, a court will divide the property based on equitable distribution.

Estate Tax

Washington is one of the few states that collects an estate tax. Individuals who are residents of Washington, or own property in Washington are subject to their estate tax. If you own more than $2.193 million in your estate at death, you can be taxed up to 20%. In South Dakota, there is not an estate tax. This makes South Dakota a safe haven for sheltering an estate.

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