As mentioned in a previous article, recently passed legislation created the South Dakota Community Property Special Spousal Trust – House Bill 1039 (2016) (Sections 29-42), a very powerful planning tool for spouses not available in most states. The trust may be a revocable or irrevocable trust created by one or both spouses with both spouses as beneficiaries. This is a very powerful state income and estate tax planning tool because it will allow married settlors of the trust to avoid state taxation on undistributed retained income within the trust (because South Dakota does not have an income tax) AND treats the property as community property at the death of the first spouse, applying a 100% percent step-up in basis at date of death, therefore, avoiding federal capital gains taxation of marital/trust assets when sold. Watch the video below for an informative overview of the new law and the exciting new planning opportunities it presents for planners across the country, and around the world.
South Dakota’s new legislation becomes effective July 1, 2016. At this time, the only other state with a similar statute creating a Community Property Special Spousal Trust, applying to non-residents, without a state income tax is Alaska. However, given that state’s extremely unstable financial situation and recent statements and submitted budget proposal by Alaska’s Governor Bill Walker regarding the creation of a state income tax in the very near term, it appears that South Dakota is the preferred choice for this type of trust planning primarily because of its widely known financial strength, no state income tax, and clear commitment to being the most progressive trust jurisdiction in the nation.
Contact Bridgeford Trust via our contact page for additional information.
