South Dakota is continually chosen as the top regulated Private Family Trust Company (PFTC) jurisdiction in the U.S. and South Dakota Trust Company LLC (SDTC) is an industry leader in assisting families with the establishment, operation and compliance of PFTCs.
Traditionally, families have chosen as their trustees: family members, advisors and/or commercial trustees with whom they have had personal, professional or business relationships with over the years. PFTCs allow families to still involve these family members, advisors and institutions within the PFTC without the liability of them serving individually. These PFTCs are typically located in South Dakota due to the state’s favorable trust, asset protection, tax and PFTC laws.
Additionally, South Dakota has the lowest PFTC capital requirements in the U.S., as well as low set-up and maintenance costs, resulting in many families establishing their own South Dakota PFTC.
A South Dakota PFTC is a South Dakota LLC or corporate entity that is typically 100% owned by the family and qualifies to do business in South Dakota as a PFTC after a hearing and acceptance by the South Dakota Division of Banking. The South Dakota PFTC then works with the non-South Dakota Family Office via service agreements to provide other related services to the family trusts (i.e., investment advisory and management, etc).
As owners of the PFTC LLC, i.e. the family, can acquire Directors and Officers Insurance as well as Errors and Omission Insurance, and can serve as trustee within a LLC wrapper versus individually, thus eliminating personal liability they have individually being named as a co-trustee in a family members’ trust document.
The PFTC can then lease investment, asset allocation and other services from the non-South Dakota Family Office. Families may also place their PFTC in a South Dakota Dynasty Purpose Trust with an unlimited duration to perpetuate its existence. South Dakota has a perpetual Purpose Trust statute with a separate rule against perpetuity (RAP) provision. Many advisors claim a separate RAP is necessary for the purpose trust since it does not have any beneficiaries. Its sole purpose is to hold and care for the PFTC. South Dakota’s unlimited duration dynasty statute dates back to 1983. The statute follows the Murphy case which the IRS acquiesced in 1979. South Dakota is one of the few states that can make these claims.