Top 2024 Directed Trust Trends

With South Dakota’s flexible statutes, wealthy individuals and families often turn to South Dakota for trust services. South Dakota trusts offer asset protection, privacy and tax advantages, as well as the ability to assign trust management roles to different people through a directed trust structure.

Recent law changes and expanded trust statues have contributed to trends to keep on your radar in 2024.

1. Corporate Transparency Act Impacts

Recent changes now require certain types of existing and newly formed corporations, LLCs and other entities to report their beneficial ownership information to FinCEN starting January 1, 2024. The Corporate Transparency Act (CTA) was enacted in 2021 to increase transparency, eliminate shell companies and protect against money laundering and other illicit activity.

How does this affect directed trusts?

Directed trusts are affected by the CTA as they will be required to report beneficial ownership information to FinCEN if the trust serves as the owner of an entity or LLC. FinCEN will be creating a registry of owners through the CTA, which will include any names of trusts that own an entity and must report this information. The Beneficial Ownership Information (BOI) Report is the new framework for filing this information. While the full scope of how this will impact trustees and trust companies is yet to be seen, South Dakota trusts will continue to provide and maintain many benefits, including:

• Asset protection
• Privacy and anonymity
• Automatic perpetual seal
• Modification and decanting
• Tax advantages

The CTA will not compromise South Dakota’s highly regarded safeguards, but it may limit the degree of privacy that was previously permitted under state law. The advantages of directed trusts can still be used while safeguarding sensitive information about wealth even with these changing laws.

What is the reporting process?

Starting January 1, reporting companies can file their Beneficial Ownership Information (BOI) report. Visit the U.S. Chamber of Commerce to learn more about who is considered a beneficial owner of a company, what information must be reported and reporting deadlines.

Access the Introduction to Beneficial Ownership Information Reporting Guide from the U.S. Department of the Treasury Financial Crimes Enforcement Network for more information.

2. Expanded Purpose Trust Statutes

Another trend that will likely continue in 2024 is using directed trusts to hold voting and non-voting shares of closely held entities through South Dakota’s expanded purpose trust statutes. This is a unique way to ensure continuity for a business and security of shares, and it is another reason South Dakota trusts can support unique financial needs. 

How have purpose trusts evolved?

Purpose trusts were originally created for wealthy people to pass along assets and instructions after their death for the care of pets. These types of trusts were created to hold a specific purpose. Since then, the use of these trusts has been expanded to include other unique assets.

How does this impact South Dakota?

Since South Dakota statutes are broad, this has created an opportunity for individuals to roll other types of purpose trusts into their South Dakota Trust. For example, a family LLC or partnership could use a South Dakota Trust to put shares within the trust and be able to layout wishes for how to run the business in the future. This is a way for an individual to give instructions, similar to a will, that remain valid in perpetuity. Another common way to use this type of trust is through a foundation or charity.

Within these trusts, there are voting shares for members that would run the business, foundation or other entity, as well as non-voting shares for the trust owners. This has been beneficial in influencing decisions long after trust owners are gone, even while other members continue voting.

As we get further into 2024, we anticipate learning more about the impact of these laws and seeing other trends evolve.

Bankers Trust Company and its affiliates and their representatives do not provide tax or legal advice. This content is intended for informational purposes only and should not be construed as tax or legal advice. You should consult with your tax and legal advisors regarding your unique situation and needs.