“Private Label
Trust Services”
Al W. King III, J.D., LL.M.
Pierce H. McDowell III, Esq.
Co-Chairmen & Co-Chief Executive Officers
201 S. Phillips Avenue  Suite 200  Sioux Falls, SD 57104  (605) 338-9170
51 East 42nd Street  Suite 701  New York, NY 10017  (212) 642-8377
www.sdtrustco.com / www.privatefamilytrustcompany.com / www.directedtrust.com
© South Dakota Trust Company, LLC – All Rights Reserved
Table of Contents:
• What is Private Label Trust Administration?
3
• What Types of Financial Institutions Might Benefit from Private Label Trust Administration Services?
4
• Advantages of Private Label Trust Administration Services
5
• Additional Private Label Services
6
• Specific Types of Trusts Available for Private Label Trust Administration
7
• Two Common Types of Private Label Trust Administration Services
8
- Directed Trust
9
- Delegated Trust
10
• South Dakota Directed Statute (SDCL Sec. 55-1B2)
15
• Trust Protector
16
• Change of Trust Situs, then Reformation/ Modification or Decanting
17
• Special Purpose Entity combined with Directed Trust/Trustee
20
• Private Label Trust Administration Custody Options
22
• Why South Dakota?
27
• Why South Dakota Trust Company LLC?
35
• Alternatives to Private Label Trust Services – Private Trust Company
36
• South Dakota Trust Company LLC
37
- Al W. King III Biography
38
- Pierce H. McDowell III Biography
39
- Selected List of Speaking Engagements
40
- Selected List of Publications
41-42
© South Dakota Trust Company, LLC – All Rights Reserved
2
What Is Private Label Trust
Administration?
•
SDTC Private Label Trust Administration Services allows a financial institution to focus
on their core business (i.e., investment management, insurance, banking and/or
brokerage), but gain a competitive market advantage by adding trust administration as a
product offering to its clients/prospects.
•
SDTC Private Label trust administration allows the financial institution to provide trust
services to their clients without the burden of forming and operating a trust business
(i.e., startup and operating expenses, regulatory issues, capital, trust accounting systems,
trust tax returns, fiduciary duties and risks, experience and knowledge).
•
Statements have the financial institutions name by allowing them to retain their
branding.
–
Trust documents name South Dakota Trust Company as trustee.
•
SDTC can work with either the financial institution’s existing custodian or with
SDTC’s custodian, the Bank of New York Mellon. This is the choice of the financial
institution and/or the client.
•
SDTC’s computer systems allow the financial institutions to have secure Internet access
to their client’s private label trust account on their computers.
© South Dakota Trust Company, LLC – All Rights Reserved
3
What Types of Financial Institutions Might Benefit from
Private Label Trust Administration Services?
•
Investment Management and Advisory firms
•
Brokerage firms
•
Insurance companies
•
Regional and National banks with existing trust departments:
– May want to utilize SDTC’s Private Label Trust Administration services for their
Dynasty Trust and upscale trust offerings, thus leveraging the South Dakota
statutes.
•
Local/Community banks
•
Broker dealers
•
Independent advisors (i.e., RIAs, CPAs, financial planners)
•
Miscellaneous
© South Dakota Trust Company, LLC – All Rights Reserved
4
Advantages of Private Label Trust
Administration Services:
•
Adding trust services to a financial institution’s product and services offering not only increases
assets under management and/or insurance sales, but significantly increases the financial
institution’s ability to retain the client relationship for several years. A trust offering may also
expand the financial institution’s relationship with a family.
•
Trust services answer a clients’ needs by providing trusts as a means for promoting social and
fiscal responsibility within the family (i.e., promote family management) as well as assist a family
with the preservation and management of intergenerational wealth.
•
SDTC: provide “flexible, individualized, cost effective trust administration” allows the client to
combine the trust expertise of SDTC with the investment and/or insurance expertise of the
private label financial institution. Clients are not forced to move the relationship during their
lifetime or at death due to the appointment of another trustee.
•
SDTC provides trust personnel trained and experienced in working with outside financial
advisors to provide trust services to the financial institution’s clients.
•
Allows financial institution to leverage the trust and marketing experience of SDTC.
•
Attractive cost effective fee schedules.
© South Dakota Trust Company, LLC – All Rights Reserved
5
Additional Private Label Trust
Administration Services:
•
SDTC works with each of its Private Label Clients to custom design an outsourced trust
administration solution based upon the financial institution’s client base and its desired product offering.
•
Some of the key components of SDTC’s Private Label Trust Administration services are as follows:
–
Client/prospect seminars on trusts and estate planning;
–
Train financial institution’s personnel to recognize and market trust prospects.
–
Provide trust services marketing and informational materials; plus trust services and product support;
–
Assist financial institution with designing a trust services website, or integrating trust services as part of an
existing website. Alternatively, the financial institution could provide a link to SDTC’s website.
–
Assist financial institution’s personnel to sell SDTC’s trust services;
–
Consolidated statements with financial institution’s logo, if desired;
–
Leverage SDTC’s sales and marketing experience with assisting outside investment and insurance professionals
to garner additional investment assets and/or insurance through tax efficient South Dakota trust strategies;
–
Internet access available to financial institution, their clients and/or the advisors (Advent and Centerpiece technology
available);
–
Flexible, individualized, service oriented trust administration.
–
Trust tax compliance services.
© South Dakota Trust Company, LLC – All Rights Reserved
6
Specific Types of Trusts Available for
Private Label Trust Administration:
•
•
Inter Vivos:
•
Revocable Living Trust
•
Grantor Defective Irrevocable Trust (with Promissory Note Sale)
•
Dynasty Trust
•
Grantor Retained Annuity Trust (GRAT)
•
Qualified Personal Residence Trust (QPRT)
•
Charitable Remainder Trust
•
Charitable Lead Trust
•
Irrevocable Life Insurance Trust
•
Revocable Life Insurance Trust
•
Heet Trust
•
Domestic Asset Protection Trust
Testamentary:
•
•
•
Will
–
Non-Marital Trust
–
Marital Trust
–
Generation Skipping Trust
–
Charitable Remainder Trust
–
Charitable Lead Trust
Pour Over to Revocable Living Trust
Other
© South Dakota Trust Company, LLC – All Rights Reserved
7
Two Common Types of Private Label
Trust Administration Services:
• Directed Trusts
• Delegated Trusts
© South Dakota Trust Company, LLC – All Rights Reserved
8
“Directed” Trust Structure
with a Trust Protector Promoting Flexibility and Control:
Trust Protector
Distribution
Financial Institution:
South Dakota Trust Company LLC:
Trustee/Committee
Investment Trustee/ Committee
Administrative Trustee
•Stocks & Bonds
Family
Trustee/Committee
• Insurance
Independent
Trustee/Committee
• Art
• FLPs
• LLCs
• Real Estate
•Ownership of Assets
• Establish & Maintain Trust Bank
Account
• Prepare & Sign Trust Tax Return
• Trust Statements
• Make Distributions
• Receive Contributions
• Take Direction from:
Investment
Committee
Distribution
Committee
Please Note: “Delegated” trustee has responsibility for completing due diligence for the asset/investment managers and consultants selected as well as
the ongoing monitoring of these asset/investment managers and assets, which in not the case with a “directed” trustee.
Please See: “Delegated vs. Directed Trusts” Trusts & Estates magazine, July 2006
© South Dakota Trust Company, LLC – All Rights Reserved
9
“Directed” South Dakota
Trust:
•
It is a trust where trustee (i.e. South Dakota Trust Company, LLC) is an administrative
trustee and/or custodian, but an outside investment advisor/manager (i.e. Private
Label Financial Institution), is responsible for the trust’s investment management.
Alternatively, the client can choose their own custodian.
•
The trust’s Investment Trustee or Committee typically is comprised of the client’s family
members or advisors direct that the investment management is handled separately by the
client’s outside money managers, consultants and/or advisors (i.e. the Private Label
Financial Institution).
•
Additionally, and independent non – South Dakota Trust Company, LLC “Distribution
Committee” may be established to determine when trust distributions should be made.
Typically with both Family and Independent subcommittees.
•
The administrative trustee (i.e. South Dakota Trust Company, LLC) can typically be
removed at anytime.
•
The trust can generally be moved to another jurisdiction at any time, if desired.
© South Dakota Trust Company, LLC – All Rights Reserved
10
“Directed” South Dakota
Trust (Cont’d):
•
The SDTC’s “directed” trust combines the fiduciary expertise of SDTC with the skills and personal relationship of the
Private Label Financial Institution as the investment advisor. This combination of services provides exceptional
management and administration of one’s trust combined with the comfort of maintaining one’s trusted investment advisors.
•
The trust’s investment trustee or committee is typically comprised of the client’s family members and/or advisors and
directs that the investment management be handled separately by the Private Label Financial Institution. The investment
trustee or committee directs the administrative trustee, SDTC, as to how the trust will be invested and invests
pursuant to an Investment Policy Statement previously reviewed with the administrative trustee, SDTC.
•
Additionally, a distribution committee may be established to determine when trust distributions should be made. Family
members can serve on these distribution committees and determine all distributions of income and principal for “health,
education maintenance and support” (HEMS). Any additional distributions would be tax sensitive and require an
independent trustee (i.e. SDTC, CPAs, and/or attorney, etc…)
•
SDTC can typically be removed at anytime as administrative trustee. Alternatively, if desired, SDTC can step into any
of the committee functions.
•
SDTC’s technology connects investment managers via a secure internet connection so that the investment manager
may manage the account and execute security transactions electronically. SDTC has technology for the purpose of
interfacing the trust administration with the investment managers, if desired.
•
Any type of trust can be established as a “directed” trust. This includes both revocable and irrevocable trusts. The
trust instrument vests control over investment discretion with an outside advisor.
© South Dakota Trust Company, LLC – All Rights Reserved
11
“Delegated” Trusts:
•
South Dakota has some of the better “delegated” trust statutes, which allows a trustee to delegate certain
responsibilities to other professionals and/or co-trustees.
•
The trustee of a “delegated” trust is generally allowed to delegate its investment responsibility to one or more
qualified investment managers consultants and/or advisors (i.e. Private Label Financial Institution), pursuant to the trust
document and/or outside agreement. The trustee generally has investment discretion under the terms of the trust
instrument, which in some cases can also be delegated to a co-trustee. Alternatively, delegation can generally be made
directly to one or more investment professionals. The “directed” trust, on the other hand, vests control for the investing with
someone else i.e. the investment committee.
–
A Delegated trust requires SDTC to do the due diligence on the Investment Manager selection as well as ongoing
monitoring, all of which is not required by a directed trust.
–
It is easy to reform a trust in South Dakota from delegated to directed.
•
All “delegated” trusts are generally invested pursuant to the provisions of the trust document as well as an agreed
upon Investment Policy Statement with the trustees.
•
“Delegated” trusts are generally existing irrevocable non-South Dakota Trusts (i.e. testamentary and/or intervivos),
which change situs from one state to South Dakota for the state income tax savings, but generally maintain their state
law provision.
•
A trustee may desire exoneration language (within the trust document and/or by separate agreement).
•
Delegated fees are reasonable, however slightly higher than “directed” trustee fees due to the slightly increased risk
incurred.
•
SDTC has both the administrative expertise and technology to accommodate most types of “delegated” trusts.
•
Additionally, South Dakota has a great reformation statute to reform an existing delegated trust to a directed trust, in most
cases.
© South Dakota Trust Company, LLC – All Rights Reserved
12
Summary – Directed Trust:
•
Section 185 2nd Restatement of Trusts – Trustee is generally not liable for following the instructions of an empowered
person within the trust instrument – State Statutes.
•
The administrative trustee has no discretionary investment (3rd party) duties regarding the trust.
•
The administrative trustee take direction from either a co-trustee, trust advisor, investment committee, or LLC.
•
State statute and the trust document exonerate the administrative trustee from taking direction for investments and/or
distributions. Typically “gross negligence statutes”.
•
FLP: Client may be GP of FLP.
– GP interest held by client outside of trusts and LP interests held within trust. Administrative trustee is directed to hold
and is also protected by document.
•
Directed trustee must make sure trust document is followed.
•
South Dakota Directed Trust state – Also Murphy Case state and no state income tax state.
•
Compare Delegating:
Selection of Investment Advisors – experience, track record, ADV, Compensation, Duration
Monitoring of Investment Advisors – Asset allocation, FMV Drop, Large Concentration, Investment Performance
Investment Policy Statement – Creation, monitoring and updates
Exoneration for testamentary trusts not allowed in many jurisdictions (Example: NYEPTL 11-1.7)
© South Dakota Trust Company, LLC – All Rights Reserved
13
South Dakota Directed Statute
(SDCL Sec. 55-1B2)
“Any excluded fiduciary [i.e. directed
administrative trustee] is also relieved from
any obligation to perform investment
reviews and make recommendations with
respect to any investments to the extent
the trust advisor has the authority to direct
the acquisition, disposition or retention of
any such investment.”
© South Dakota Trust Company, LLC – All Rights Reserved
14
Investments – Allocation of Investable
Assets Overseen by Family Offices:
Please Note: Most clients and financial institutions would prefer “directed” versus “delegated” trusts, particularly if they are
investing in a sophisticated asset allocation model (i.e. see below), so that the administrative trustee does not have to do due
diligence on all assets and investment managers and advisors as well as on going monitoring.
Source: Family Office Exchange –
2009Wealth Advisor Forum
Source: Institute for Private Investors –
Family Performance Tracking Survey
2008
© South Dakota Trust Company, LLC – All Rights Reserved
15
South Dakota
Trust Protector:
•
Provides extensive flexibility to the trust
•
Personal vs. fiduciary powers
Future Circumstances
Drafting
– No personal gain, duty of loyalty & impartiality, actions for good of trust & beneficiaries
•
Power to remove or to replace trustees
•
Power to veto or direct trust distributions
•
Power to add or remove beneficiaries
•
Power to change situs and the governing law of the trust
•
Power to veto or direct investment decisions
•
Consent to exercise power of appointment
•
Amend the trust as to the administrative and dispositive provisions
•
Approve trustee accounts
•
Terminate the Trust
© South Dakota Trust Company, LLC – All Rights Reserved
16
Change of Trust Situs, then
Reformation/ Modification or Decanting
•
Reform/Modify Existing Trust after change of trust situs:
–
–
–
Generally keeps original state law for interpretation purposes
Reformation cannot conflict with the settlor’s “material purpose” or “probable intention”
Reform/Modify administrative provisions to South Dakota law
•
–
–
–
Example of Costs: The South Dakota Reformation/Modification process is quick (averaging 2-10
days) and inexpensive (average $2,500-$3,000)
Grandfathered Generation Skipping Trusts – OK (cannot extend duration)
Privacy (SD is total seal forever; Delaware also allows the ability to seal for 3 years)
•
–
•
Once trust situs is moved to South Dakota with the appointment of a South Dakota trustee.
Most other states “open to the public”
Virtual Representation: Unborn beneficiaries represented: South Dakota vs. Delaware (Limited)
Decanting:
–
If trustee has discretionary power to distribute assets:
•
•
•
•
Change trust situs
Generally appoint a South Dakota trustee who then decants
Distribute from old trust to new South Dakota Trust
Generation Skipping Trusts OK, but caution and cannot extend the duration beyond the existing duration.
Please see: “Trust Remodeling” by Rashad Wareh, Trusts & Estates, August 2007.
© South Dakota Trust Company, LLC – All Rights Reserved
17
Example: Change of Trust Situs
and Reformation/Modification:
New York
“Delegated”
Trust
1.
2.
Change Situs to South Dakota
by naming a South Dakota
Trustee;
Upon change of Situs and
appointment of South Dakota
Trustee, reform/modify to SD
Law for administration;
New York Law for
Administration
New York Trust
New York Law:
Construction, Validity
Interpretation and
Reformed/Modified
Construction,
To Save State Income Tax/
Modernize Administration
Validity and
Interpretation
© South Dakota Trust Company, LLC – All Rights Reserved
South Dakota Law:
Administration –
• “Directed”
• “Trust Protector”
18
Example: Trust Decanting:
New York Law Trust:
(Interpretation, Validity,
Construction and
Administration)
–
–
Trustee Power to Distribute
Assets
South Dakota Law Trust
with South Dakota Trustee
South Dakota Trustee
Decants
(Interpretation, Validity,
Construction and
Appoint a South Dakota
Trust Company as Trustee
Administration)
© South Dakota Trust Company, LLC – All Rights Reserved
19
South Dakota Special Purpose Entity
combined with Directed Trust/Trustee:
Special Purpose Entity
(South Dakota LLC)
• Trust Protector
Directs
• Investment Committee
South Dakota Trust
Company, LLC
• Distribution Committee
– Not a trust company
• Administrative Trustee
– D&O, E&O Insurance
– Owned by Family
© South Dakota Trust Company, LLC – All Rights Reserved
20
South Dakota
Special Purpose Entity:
Unregulated Special Purpose Entities: The unregulated special purpose entity alternative is generally used in combination
with the "directed trust" structure. A recent trend is to establish unregulated entities such as a limited liability company to place a
liability umbrella over the heads of the individuals filling the roles of Trust Protector, Investment Committee and/or Distribution
Committee.
Unregulated Special Purpose South Dakota LLC
Serves the role of:
•
Trust Protector;
•
Investment and/or Distribution Committees
[And]
•
Provides liability protection through D&O/E&O to independent
advisors serving the family in these roles.
It is very difficult, if not impossible, to acquire individual liability insurance coverage to serve as committee members and/or trust
protector. However, some insurance companies will provide coverage to an entity established specifically for these purposes,
thus protecting the trust protector and committee members. Such an entity would also provide legal continuity of its corporate
existence by continuing without regard to any single individual’s death, disability or resignation. The entity typically has by-laws
that allow for additional members to be added or removed so that the entity can continue along with the trust. These entities
have to be properly structured so as to avoid estate tax inclusion issues. There are not any specific state statutes for these
special purpose unregulated entities, however, South Dakota generally allows families to establish such unregulated companies
on a case by case basis. These entities must generally be exempt from regulated Private Trust Company status and are typically
special purpose type entities with limited defined duties.
© South Dakota Trust Company, LLC – All Rights Reserved
21
Private Label Trust Administration
Custody Options:
Option 1.
Custodian does not have an interface with
Infovisa (Most Common Option);
Option 2.
Custodian does not have an interface with
Infovisa: → LLC or LP Utilized;
Option 3.
SDTC’s default Custodian → Bank of New
York/Mellon with Infovisa interface;
Option 4.
A custodian other than Bank of New
York/Mellon that interfaces with Infovisa.
© South Dakota Trust Company, LLC – All Rights Reserved
22
Option 1 – Custodian does
not interface with Infovisa:

SDTC establishes an account in the name of the trust, i.e. ABC Trust
dated 1/1/10 with the investment manager using their custodian.
(There can be multiple managers and accounts).

All marketable securities are in these account(s).

SDTC shows each account as a line item on its books and through
internet access adjusts the market value periodically to reflect
accurate trust valuation.

Custodian provides statement to SDTC.

SDTC’s trust accounting statement is supplemented by attaching the
custodian’s statement for the security detail.

Cost effective option.
© South Dakota Trust Company, LLC – All Rights Reserved
23
Option 2 – Custodian does
not interface with Infovisa:

One way to deal with this option is to establish a partnership or LLC which holds the
marketable securities using the client’s and/or investment manager’s custodian.

The partnership or LLC sets up an account with the custodian to hold the securities.

SDTC’s records show the partnership or LLC as an asset of the trust not the individual
securities.

All security transactions take place within the partnership or LLC therefore no security
transactions will show at the trust level nor will there be reconciliations required by SDTC.

Custodian provides statements of position to trustee and partners.

SDTC will adjust the market value of the partnership to reflect the correct value of the
trust.

All trust related transactions take place in the trust by the trustee and are reflected on the
trust statement provided by SDTC.

Cost effective option for trustee’s fee.
© South Dakota Trust Company, LLC – All Rights Reserved
24
Option 3 – SDTC’s custodian – Bank of New
York/Mellon and Infovisa
:
 Bank of New York/Mellon and Infovisa (SDTC’s trust accounting
system) have a direct interface for all transactions and
information regarding the securities.
 BONY/Mellon and Infovisa have representative’s assigned to
SDTC to work with the trust officers and reconcile the holdings.
 BONY/Mellon tracks capital calls, mergers, acquisitions,
dividends, etc. which interfaces with Infovisa.
 Detailed account statement are provided by SDTC.
 Technology Integrators are available to assist the money
manager.
 Infovisa provides internet access to the trust account which can
also be used to manage the assets.
© South Dakota Trust Company, LLC – All Rights Reserved
25
Option 4 – Custodian of Client’s
choice interfaces with Infovisa
:
 Custodian and/or investment manager of client’s
choice interfaces with Infovisa.
 Transactions are sent via an interface to Infovisa.
 SDTC reconciles the holdings between the
custodial account and the trust accounting system.
 Detailed account statement are provided by
SDTC.
© South Dakota Trust Company, LLC – All Rights Reserved
26
Why South Dakota?
• No taxes/pro business environment
• Responsible work force/centrally located
• Very little regulation (compared with the scrutiny Offshore
trust jurisdictions with US beneficiaries)
• Proactive legislature. Things need changing; Just Do It!
• Confidentiality (privacy)
• Do not need to live in South Dakota to benefit - How?
– Choose South Dakota Trust Company, LLC as Trustee
© South Dakota Trust Company, LLC – All Rights Reserved
27
South Dakota State
Tax Savings Opportunities:
• No Income or Capital Gains Tax
• No Intangibles Tax
– FL, KS, KY & MI
• No Dividends & Interest Tax
• No State LLC Tax
• No State LLP Tax
• No State Ad Valorem Tax
• No City or Local Tax
© South Dakota Trust Company, LLC – All Rights Reserved
28
Additional South Dakota State
Tax Savings Opportunities:
• No State Inheritance Tax
• No State Gift Tax
• No State GST Tax
• No State Coupon Tax
• No State Personal Property Tax
• No State Sales & Use Tax on Trust Assets
• No State Securities Transfer Tax
• Lowest State Insurance Premium Tax
© South Dakota Trust Company, LLC – All Rights Reserved
29
South Dakota has the Lowest
State Premium Tax in the U.S.:
Alaska
10 bpts.
Arizona
200 bpts.
California
235 bpts.
Connecticut
175 bpts.
Delaware
200 bpts.
Florida
175 bpts.
Georgia
225 bpts.
Hawaii
275 bpts.
Illinois
50 bpts
Massachusetts
200 bpts.
Minnesota
200 bpts
Nevada
350 bpts.
New Hampshire
100 bpts.
New Jersey
210 bpts.
New York
200 bpts.
Ohio
140 bpts.
Pennsylvania
200 bpts.
South Dakota
8 bpts. (Lowest)
Washington
200 bpts.
Wyoming
75 bpts.
© South Dakota Trust Company, LLC – All Rights Reserved
30
State Premium Taxes:
•
Irrevocable Trust – Completed Gift/Excluded from Estate
Planning
Irrevocable Trust – Completed Gift/Included in Estate/Self Settled
Revocable Trust w/Tax ID #
South Dakota LLC or LP with SDTC Managing Partner
•
Types of Policies Affected
Domestic Fixed and Variable Policies
•
Retaliatory Provisions
•
In-Kind Distributions – Cash Values (Policy Loans) and/or death benefits
•
In-Kind Premiums - Allowed in South Dakota (case by case)
•
Insurable Interest Statute
•
Versus Offshore – Now an even playing field
Domestic Private Placement Life Insurance
Please See: Al King & Pierce McDowell: “Trust Administration: The Domestic Advantage” The PPLI Solution: Chapter 6,
Bloomberg Wealth Manager, February 2005.
© South Dakota Trust Company, LLC – All Rights Reserved
31
State Premium Tax Planning with
Non-South Dakota Trusts:
South Dakota LLC/FLP
•
Co-managing member
South Dakota Entity
•
Purchases Insurance
•
8 basis point premium
tax vs. New York 200
basis points, Delaware
200 basis points and
Florida 175 basis points
(Alaska – 10 basis
points)
New York GST Trust
© South Dakota Trust Company, LLC – All Rights Reserved
32
Domestic Trust Situs
Comparison Summary:
Alaska
Delaware
New Hampshire
Nevada
South Dakota
Wyoming
Ranking*
#3 (2007), #1 many
categories (2010)
#2 (2007), #1 many
categories (2010)
#3 (2007), Honorable
Mention (2010)
#9 (2007), #1 many
categories (2010)
#1 (2007), #1 all
categories (2010)
#9 (2007), Honorable
Mention (2010)
RAP
Approach #1
Partially Follows Murphy
Case
1000 year limit with LPA
Approach #1
Partially Follows Murphy
Case
Approach #1
Follows Murphy Case
Post 1986
Approach #3
“Timing” Only
(Problematic?)
Approach #1
Follows Murphy Case and
pre-1986. (Excellent)
Approach #3
“Timing” Only
(Problematic?)
Directed Trust Statute
Yes
Yes
Yes
(New)
Yes
(New)
Yes
Yes
Trust Protector Statute
Yes
Yes
Yes
(New)
Yes
(New)
Yes
(Oldest since 1997)
Yes
Modification/ Reformation/
Decanting Statutes
Yes
Yes
Yes
(New)
Yes
(New)
Yes
(Excellent)
Yes
Unregulated Entities
allowed for Committees
and Protectors
Yes
Yes?
No
Yes
Yes
Yes
Self-Settled Statutes
Yes
Yes
Yes (1/09)
Yes
Yes
Yes
Third Party Discretionary
Trusts – Not Property
Interest
No
Yes
(Partial)
No
Yes
(Partial)
Yes
(Best)
No
Sole Remedy Charging
Order: both LLC/LP
Yes
Yes
No
Yes
Yes
State Income Tax
No
No: non-resident
Yes: resident
Dividends & Interest Tax
5%
No
No
No
State Insurance Premium
Tax
10 basis points
200 basis points
100 basis points
350 basis points
8 basis points
75 basis points
Privacy
Open
Seal 3 year,
Then Open
Open
Open
Total Seal
Open
Private Family Trust
Companies
Yes
Yes, But Favor
Commercial
Yes
(New) – No Experience
Yes, Mainly Unregulated
Unless Commercial
Yes – Excellent Statutes
and Extensive Experience,
Light Regulation - Families
Mainly Unregulated
Only LLC
Please See: “Perpetual Trust States: The Latest Rankings” by Dan Worthington, Trusts & Estates: January 2007 and (2007), “Which Situs is Best?” Trusts & Estates: January 2010.
© South Dakota Trust Company, LLC – All Rights Reserved
33
Why South Dakota as a Trust
Jurisdiction?
Selected Key Reasons:
1. Top Rated Trust Jurisdiction (2004-2010) by Trusts & Estates Magazine.
2. 1983 Dynasty Trust State (Pre-1986 and Modern GST):
•
Follows Murphy Case
•
Delaware 1995, Alaska 1997
3. One of the Best and Oldest Directed Trust Statutes
4. First Trust Protector State (1997)
5. Top Rated Reformation/Modification and Decanting Statutes, Process and Cost
6. Total Seal Privacy Statute:
•
Important for modifications/reformations
•
Delaware seals for 3 years, others public
7. Unique “Special Purpose Entity”
8. Leader in Lightly Regulated Private Family Trust Companies:
•
Compete with Nevada and Wyoming (Unregulated)
•
Compete with New Hampshire (Regulated)
9. Top Rated Asset Protection State:
•
Self Settled Trusts and LLC/LP “Sole Remedy Charging Order” Protection
10. First Discretionary Support Statute to supplement Spendthrift and Self Settled Trust Statutes:
•
Top rated statute of this type (also Delaware, Nevada, Michigan have less expansive versions)
•
See “Which Situs is Best?” Trusts & Estates Magazine (January 2010) and “Where Should You Situs Your Trust?” Steve Leimberg's Asset Protection Planning Newsletter
(May 10, 2007)
11. Lowest State Premium Tax (8 bpts):
•
Most states average 200 bpts
12. No state income or estate taxes
13. Excellent Jurisdiction for International Families
14. South Dakota Trust Company LLC?
© South Dakota Trust Company, LLC – All Rights Reserved
34
Why South Dakota Trust
Company LLC?
•
Purely Administrative Trust Company:
–
No Products of any kind – work with custodians, investment and insurance advisors of clients’ choice.
–
$9 Billion: Assets Under Administration;
–
Administer all types of illiquid assets: Real Estate, LLCs, LPs, Closely-Held Businesses, Insurance, Offshore
Entities, etc. (generally flat fee).
–
“Directed” and “Delegated” Trusts:
•
–
Reciprocity with most states;
Private Family Trust Companies – Corporate and Trust Agency Services
•
Industry leader
•
Extensive Experience in boutique trust jurisdiction business;
•
Annual “Directed” Trustee Fees average 10-15 basis points:
•
•
Minimum fees average between $3k-$6k;
•
Set-Up fee average $1,500-$2,500
•
Cap fee for illiquid assets
Annual “Delegated” Trustee Fees average 20-30 basis points;
•
Minimum fees average between $5,000-$7,500
•
Set-Up fees average $1,500-$2,500
© South Dakota Trust Company, LLC – All Rights Reserved
35
Alternative to Private Label Trust
Services – a Private Trust Company:
•
Private Trust Company is a qualified South Dakota LLC owned by Financial Institution;
•
PTC would then be named as trustee in the trust document vs. South Dakota Trust Company being
named as trustee with a private label situation.
•
South Dakota Trust Company serves as:
•
•
•
–
Corporate Agent (i.e. provides South Dakota office space, forwards mail and phone calls, sits on Board of Directors, liaisons
with South Dakota Division of Banking, and runs day to day operations of the PTC in South Dakota for the Financial Institution)
–
Trustee Agent (i.e. administer trusts in South Dakota that PTC is named as trustee)
Time Frame to establish a PTC:
–
2-6 months
–
Versus Private Labeling – Immediate
Costs to establish and operate a PTC:
–
Capital $200,000
–
Set-Up $100,000
–
Annual Operational $75,000-100,000 (excluding trust administration agency services)
–
Versus Private Labeling - $0 - $15,000 per year
Please Note – We have additional information on PTC services if you are interested.
© South Dakota Trust Company, LLC – All Rights Reserved
36
Al W. King III, J.D., LL.M.,
Co-Chairman and Co-Chief Executive Officer,
South Dakota Trust Company, LLC
Al W. King III is the Co-Founder, Co-Chairman and Co-Chief Executive Officer of South Dakota Trust Company, LLC (SDTC), South Dakota
Planning Company, LLC (SDPC) and the Estate Planning Institute (EPI). South Dakota Trust Company is a national trust boutique for the
wealthy based out of Sioux Falls, South Dakota serving clients nationally and internationally.
Mr. King was previously Managing Director and National Director of Estate Planning for Citigroup. Mr. King was also the Co-Founder and
Vice Chairman of Citicorp Trust South Dakota. Mr. King also previously served as Director of Financial and Estate Planning for Coopers and
Lybrand in Stamford, Connecticut.
Prior to joining Coopers and Lybrand, Mr. King was a Vice President and Director of Financial and Estate Planning with Shawmut Bank and
the Northeast Director of Financial and Estate planning for Prudential-Bache Securities. Mr. King was also a Senior Staff Attorney/Financial
Counselor with the AYCO Corporation, a fee-based financial counseling firm.
Mr. King is a member of the Editorial Board of Trusts and Estates Magazine. Mr. King has been inducted into the National Association of
Estate Planners & Councils (NAEPC) Estate Planning Hall of Fame as an Accredited Estate Planner (AEP), Distinguished. He is also a
member of several groups and organizations including the Society of Trust and Estate Professionals (STEP), the International Association of
Advisors in Philanthropy (AiP), New York Philanthropic Advisors Network (NYPAN), Fairfield County and New York City Estate Planning
Councils, etc. In addition, he is frequently published and quoted by several publications on various Estate Planning topics and addresses
several professional organizations, special interest groups, and general audiences on the subject of estate and financial planning.
Mr. King received a Bachelor of Arts cum laude from Holy Cross College, a Juris Doctor from Syracuse University Law School and an LL.M.
in Tax Law from Boston University School of Law.
© South Dakota Trust Company, LLC – All Rights Reserved
37
Pierce H. McDowell III, J.D.
Co-Chairman and Co-Chief Executive Officer,
South Dakota Trust Company, LLC
Pierce H. McDowell III is currently the Co-Founder, Co-Chairman and Co-Chief Executive Officer of South Dakota
Trust Company, LLC and South Dakota Planning Company, LLC. The former is a national trust boutique and
financial advisory company for the wealthy based out of Sioux Falls, South Dakota and the latter an estate planning
consulting firm based out of New York City. McDowell was formerly the Co-Founder and President/Chief Trust
Officer of Citicorp Trust South Dakota. Due to South Dakota's attractive trust and tax legislation, Mr. McDowell is
responsible for servicing the trust and estate needs of clients across the United States and world in the creation and
movement of trusts to South Dakota.
Prior to joining Citibank, Mr. McDowell practiced law with Woods, Fuller, Shultz and Smith of Sioux Falls, and was
formerly a Vice President, Trust Administrator and Business Development Manager for both Norwest and First
Banks.
Mr. McDowell is nationally known and frequently quoted by Forbes and other publications on the advantages of
South Dakota trust law. Mr. McDowell received the Citibank outstanding sales awards for both 1996 and 1998 as
well as the 1997 Epic Award for his Trusts & Estates magazine's articles on South Dakota Trust planning.
Mr. McDowell serves on the Board of the South Dakota Planned Giving Council. He has been appointed to the
Philanthropy Committee with the South Dakota State Bar Association. He is the Chairman of the South Dakota
Bankers Association's Trust Committee, a member of the South Dakota Bar Association's Real Property, Probate &
Trust Law section and serves on its Probate and Trust Committee and the Legislative Committee, a member of the
University of South Dakota Foundation Board of Trustees, as well as a former member of the Advisory Board for
Trusts &Estates magazine.
Mr. McDowell received a Bachelor of Science from Arizona State University and a Juris Doctor from the University of
South Dakota.
© South Dakota Trust Company, LLC – All Rights Reserved
38
Co-Chairmen and Chief Executive Officers –
Selected List of Speaking Engagements:
NY State Banker’s Association (Marketing and Estate Planning Seminars)
National AICPA Personal Financial Planning Conference
National Conference of CPA Practitioners
NY State Society of CPAs Personal Financial Planning Conference (95-96)
NAPFA - Advanced Planners Conference (Williamsburg, VA)
Institute of Certified Financial Planners (NYC)
International Association of Financial Planners
National Fortress Conference (Dallas)
American Association of Retired Persons
American Association of Independent Investors
Connecticut Estate and Gift Tax Council
Connecticut Society of CLUs
CPAs in Industry Society (Ohio)
Financial Executives Institute (NJ)
Long Island Federation of Women’s Clubs
California CPAs
Colorado CPAs
Los Angeles CPAs - October 1996
New Jersey State CPA Society Seminar 1996, 1997
Million Dollar Round Table Conference - June 1997
Hawaii Tax Institute - October 1997
American Bar Association - August 1997, 1998
Nevada Estate Planning Council
Estate Planning Councils: Hartford, Westchester, Rockland, Miami
Maryland Bar Association
Bank Administration Institute (BAI)-March 2002
President Bush Inaugural Dinner Sponsored by Salomon Smith Barney
The Planned Giving Council of Central Florida - September 19, 2002
NY State CPA's Estate Administration Conference NYC - May, 2003
NYC Trusts & Estates Magazine Conference - October 20, 2003
Nevada Estate Planning Council – January, 27 2004
Long Island Estate Planning Council – September, 2004
International Forum – January, 2005
Red River Estate Planning Council (ND) – February, 2005
NYU Tax Institute – July, 2005
Citco Seminar – October 2005
San Francisco CPA/Bar Alliance
Tri-State LINC CPA Society
New York State Bar Association
Florida Bar Association
Cleveland Clinic Donors
Sacred Heart University Alumni
Merrimac College Alumni
Hofstra University Alumni
Syracuse University Alumni
Holy Cross College Donors
Bridgeport Hospital Medical Staff
Various Rotary and Jaycees Events
Several Fortune 500 Companies
Florida Bar (Business Section)
New York CPA Network (NYC)
Florida CPAs
Denver CPAs
San Francisco CPAs - October 1996
Chicago CPAs - November 1996
New York Society of CPAs PFP Seminar - June 1997
New York City Bar - June 1997
Washington County Hospital Association
National AICPA PFP Technical Conference - 1999
Institute for Private Investors (NYC 2001)
Long Island Bar Association (2001)
Naples, Florida Estate Planning Council-March 2002
Fairfield County Connecticut Estate Planning Council - Oct 15, 2002
AIG Adv. Pl. Seminars LI, NYC, NJ, Westchester County Feb/Mar 03
NY CPA's Closely-Held Group - June, 2003
UNCW Institute for Tax and Investment Planning – November 2003
Southern California (Orange County) Estate Planning Council – March, 2004
South Dakota Estate Planning Council – November, 2004
Producers Group – February 2005
AXA Advisors (PPG) – March 2005
Los Angeles STEP Chapter – May 2006
Lorman (Buffalo and NYC) 2006
Million Dollar Round Table – June 2006 (San Diego)
Naples Estate Planning Council – September 2007
Lorman Teleconference –November 2006
Heckerling Luncheon – January 2007 (Orlando)
AXA Equitable Agents –Feb 2007 (Boca Raton)
Lorman – February 2007 (NYC)
NYCLE – May 2007
ABA Webinar – August 2007
InfoVisa Technology Conference – Key Note Speaker – Sept 2007 (TX)
Hawaii Tax Institute – Oct 2007
Notre Dame Tax Institute 2007
Heckerling Insurance - January 2008
AICPA Tax Strategies for the High-Income Individual (Las Vegas, NV) – May 2008
AALU Annual Meeting (D.C.) – May 2008
Financial Events International – Advanced Trust Planning (NYC) – 2008
Family Office Seminar (Aventura, FL) – May 2008
STEP San Francisco - September 2008
NAEPC Webinar - September 2008
Hawaii Tax Institute - October 2008
Heckerling Luncheon – January 2009 (Orlando)
Lorman - February 2009
Rockland County Estate Planning Council – February 2009
WTAS Webinar – February 2009
NAEPC Webinar – March 2009
Wealth Counsel Annual Meeting (Chicago, IL) – August 2009
Institute for Private Investors (New York, NY) – December 2009
Family Office Exchange Webinar – January 2010
Heckerling Luncheon – January 2010 (Orlando)
© South Dakota Trust Company, LLC – All Rights Reserved
39
Co-Chairmen and Chief Executive Officers –
Selected List of Publications:
Recent Selected Publications:
“When to Consider a Corporate Trustee” Part I November 1995 AICPA Planner
“When to Consider a Corporate Trustee” Part II December/January 1996, AICPA Planner
“Dynasty Trusts: What the Future Holds for Today’s Technique” April 1996 Trusts & Estates Magazine
“Dynasty Trust Planning and Your Artwork” May 1996 Christie’s Auction News
“Trust Planning: Experts Critical Analysis of the Dynasty Trust, A Unique Planning Device to Preserve and Create Wealth” June 1996
Insights and Strategies CCH
“Dynasty Trust” September 1996 The CPA Journal
“Who benefits from the Suspension of Sec 4980A’s Excise Tax?” April 1997 Trusts & Estates Magazine
“Trust Forum Shopping: The Next Generation” August 1997 Trust & Estates Magazine
“The Modern Dynasty Trust: Flexibility is more important than ever” January 1998 Trusts & Estates Magazine
“Sale to a “Defective” Trust Application as a Life Insurance Technique” April 1998 Trusts & Estate Magazine
“Modern Trusts Are Being Created With More Flexibility Resulting in Assets Remaining in Trusts for Longer Periods of Time” January
1999 Trusts & Estates Magazine
“Delegating Responsibility: Trustees Explore The Once Taboo” March 1999 Trusts & Estates Magazine
“A Generation Skipping Trust: Unlimited Duration? Why Not? June 1999 Trust & Estates Magazine
“Changing the Situs of a Trust: Shopping for Income Tax Savings” September 1999 Trust & Estates Magazine
“Population Trends, New Wealth Creation and HR 10 are Keys to the Future” January 2000 Trust & Estates Magazine
“South Dakota Dynasty Trust” June 2000 Millionaire
“Smart Start - Establishing A Dynasty Trust in South Dakota” November 2000 Departures Magazine
“Death Tax Uncertainty Makes Flexible and Family Value Estate Planning More Important Than Ever” January 2001 Trust & Estates Magazine
“Multi-Disciplinary Practices Important due to Economic, Tax Uncertainty” August 2001 Trusts & Estates Magazine
“Non-Disclosure Agreements – Help or Hindrance to a Client’s Planning” August 2001 Trusts & Estates Magazine
“How To Play the Current Downturn – And Plan for a Decade of Evolving Estate Tax Rules” January 2002 Trusts & Estates Magazine
“Freezers - our Future Coffins” August 2002 Trusts & Estates Magazine
Footnoted: "Dynasty Trusts and the Rule Against Perpetuities" 116 Harvard Law Review 2588 (2003)
“What Does the 2001 Tax Relief Act and Estate Tax Phase-Out Mean for the States? It Is Not a Rosy Picture – the Impact Is Already Dramatic!” March 2004 Nebraska Lawyer
“Estate Planning and the State Premium Tax” February 2005 AUS
© South Dakota Trust Company, LLC – All Rights Reserved
40
Co-Chairmen and Chief Executive Officers
Selected List of Publications (Cont’d):
“The PPLI Solution (Chapter 6: “Trust Administration: The Domestic Advantage”)” February 2005 Bloomberg Press
“Delegated Vs. Directed Trusts” July 2006 Trusts & Estates Magazine
Family Office Exchange (FOX) 2009: Fall Forum Resource Center White Paper – “Directed Trusts, Trust Protectors & Special Purpose Entities”
Family Office Exchange (FOX) 2009: Fall Forum Resource Center White Paper – “Large Domestic Insurance Premiums: Do Not Forget to Plan for the State Premium Tax”
Family Office Exchange (FOX) 2009: Fall Forum Resource Center White Paper – “Modernizing an Existing Irrevocable Trust: Reformation, Modification and Decanting”
Family Office Exchange (FOX) 2009: Fall Forum Resource Center White Paper – “Trust Administration of the Ultra Wealth: The Private Trust Company and Other Key Alternatives”
Family Office Exchange (FOX) 2009: Fall Forum Resource Center White Paper – “The Modern Dynasty Trust: Flexibility and Control”
Tapes and Published Outlines Available:
1997 Million Dollar Roundtable - Atlanta, Georgia (Dynasty Trusts)
1998 American Bar Association Advanced Drafting Meeting - Dallas, Texas (Dynasty Trusts)
1998 Texas Bar Association Advanced Drafting Meeting - Dallas, Texas (Dynasty Trusts)
1999 National AICPA Technical PFS Conference - Las Vegas, Nevada (Dynasty Trusts)
2000 Sky – TV Net Worth (Dynasty Trusts)
2000 Salomon Smith Barney National Sales and Marketing Focus (Dynasty Trusts)
2004 Society of Financial Services Professionals (SFSP) – "Park Avenue Meets Main Street: Family Office Techniques for the Millionaire Next Door" DVD
2005 International Forum – “Advanced Planning with a Modern Corporate Trustee”
2006 Society of Financial Services Professionals (SFSP) – “Advanced & Creative Estate Planning (with a Modern Corporate Trustee) in an Uncertain Tax and Economic Environment”
2006 Million Dollar Round Table – “Creative Uses of Life Insurance in Trust Planning” San Diego
2007 AALU National Webinar – “Creative Uses of Life Insurance in Trust Planning”
2008 AICPA Tax Strategies for the High-Income Individual- May 9, 2008 – “Selection of Domestic Trust Jurisdictions: Does It Make A Difference?"
2009 Family Office Metrics Webinar – “The 21st Century Private Family Trust Company”
2009 Institute for Private Investors (IPI) – “2010: Uncertainty Means Opportunity for Modern Trust Planning”
2010 Family Office Exchange (FOX) Webinar – “The 21st Century Family Bank Dynasty Trust: What, Why, When, Where, How, Who?”
© South Dakota Trust Company, LLC – All Rights Reserved
41
Disclaimer:
These informational materials are intended to provide and advise clients,
prospects and advisors with guidance in estate planning. The materials do not
constitute, and should not be treated as, legal and/or tax advice regarding the
use of any particular tax, trust or estate planning technique. South Dakota Trust
Company, LLC and South Dakota Planning Company, LLC and any of their
related entities and/or Holding Company do not assume responsibility for any
individual’s reliance on the written or oral information disseminated. Current
strategies and techniques should be independently verified by the client and/or
prospect’s legal and/or tax advisors before applying them to a particular fact
situation and should be independently verified to determine both the tax and nontax consequences of using any particular tax, trust or estate planning technique.
© South Dakota Trust Company, LLC – All Rights Reserved
42
Contact Information:
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________
South Dakota Office
New York Office
South Dakota Trust Company LLC
201 South Phillips Ave. Suite 200
Sioux Falls, SD 57104
(Phone) 605 338-9170
(Fax) 605 274-9200
piercemcdowell@sdtrustco.com
South Dakota Planning Company LLC
51 East 42nd St., Suite 701
New York, NY 10017
(Phone) 212 642-8377
(Fax) 212 642-8376
alking@sdplanco.com
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________
If you have any questions or would like any additional information, please do not hesitate to call or e-mail
us at the numbers and addresses listed above. We also invite you to visit our websites:
www.sdtrustco.com
www.privatefamilytrustcompany.com
www.directedtrust.com
We hope to have the opportunity to work with you!
IRS Circular 230 Disclaimer:
To ensure compliance with requirements imposed by the IRS, please note that any U.S. tax advice contained in this communication (including any
attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or
(ii) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.
© South Dakota Trust Company, LLC – All Rights Reserved
43
SOUTH DAKOTA TRUST COMPANY LLC
Serving Families in Perpetuity:
 Trust accounts representing more than $9 billion in assets
under administration;
 250 combined years of experience;
 Worked with more than 15% of the Forbes 400;
 Work with all outside investment managers and custodians
of the Clients’ Choice globally.
 Work with most types of Non-Financial Assets;
 Excellent, timely and inexpensive reformation, restatement
and decanting statutes and processes.
South Dakota Trust Company LLC
201 S. Phillips Avenue – Suite 200
Sioux Falls, South Dakota 57104
Pierce McDowell – (605) 338-9170
Please note our new suite number in New York:
South Dakota Planning Company LLC
51 East 42nd Street – Suite 701
New York, New York 10017
Al King – (212) 642-8377
www.sdtrustco.com
 Private Family Trust Company relationships worth in excess
of $60 billion (www.privatefamilytrustcompany.com);
 Ranked annually one of the Top Advisor Friendly Trust
Companies by Bloomberg Magazine;
 Rated the #1 Trust Jurisdiction in the U.S. by Trusts & Estates
Magazine, (January 2004, 2007) / Highest ranked state: #1 in all
categories (January 2010).
www.directedtrust.com
www.privatefamilytrustcompany.com
© South Dakota Trust Company, LLC – All Rights Reserved