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Using Directed Trusts to Protect Unique Assets

Using Directed Trusts to Protect Unique Assets

Directed trusts, especially those drafted in South Dakota, offer many asset protection benefits. Directed trusts are known for their benefits in protecting wealthy individuals’ and families’ wealth, but they can also be used to hold “unique assets,” such as businesses, land, collectibles and other valuables.

This article aims to answer the most common questions about using directed trusts to hold unique assets, including which unique assets can be held, the benefits of using directed trusts to hold unique assets, and why directed trusts are often an overlooked option.

Which unique assets can be held within a directed trust?

Directed trusts can be very diverse and can include any asset with value. Examples of unique assets include:

  • A family business, including commercial buildings
  • Oil, gas and mineral rights
  • Valuable art
  • Collectibles such as coins or antiquities
  • Vehicles, including cars and yachts
  • Patents
  • Promissory notes
  • Investment portfolios at a variety of different brokerage firms
  • Farmland, crops and livestock

Additionally, transitioning unique assets to a directed trust does not require an expensive appraisal. Not only is a directed trustee directed to hold the asset(s), they are also directed as to the total value of the asset.

Why are directed trusts a good option for unique asset holdings?

Directed trusts are beneficial for holding unique assets because they receive similar protection as directed trusts that hold cash or investment portfolios. The majority of wealth is held in assets other than cash and marketable securities. Accordingly, trust structures should be flexible enough to easily hold all types of assets. And the greater an individual’s or family’s wealth, the more unique assets they tend to hold, the greater the amount of tax planning that can be done, and thus a greater need to protect unique assets.

Directed trusts drafted in South Dakota can be used to hold unique assets so an individual or family can plan and protect all their wealth, not just their cash and investments, which often makes up a smaller fraction of their wealth. Day-to-day management of unique assets can continue with the grantor’s management team while held in trust by the directed trustee. In states with more traditional trust laws, trust companies tend to be more traditional too, often preferring to have only cash and investments within trusts. This is largely because they carry all the risk of the decision to hold the various type of assets. For this reason, traditional trust companies have either avoided unique assets altogether, or have created additional compliance and fees to deal with the risk. When trustees are unable or unwilling to accept unique assets it can lead to unnecessarily complex estate plans in which unique assets are segregated from other assets. The result can be multiple trusts that are difficult to administer or failing to fully fund trusts, thereby missing out on the maximum estate tax exemption. With directed trusts in South Dakota, unique assets can be combined with traditional assets to fully fund trusts, simplify administration, and ensure the estate tax exemption is maximized.

Why are directed trusts not often thought of as an option to hold unique assets?

While directed trusts can be very helpful in holding unique assets, directed trusts in general are not recognized in many states. Additionally, some states that do recognize directed trusts are more limited in how you may use them, and they do not provide strong asset protection benefits. Therefore, some local trust companies do not provide this option to hold unique assets.

The benefits of using South Dakota trusts to protect any asset is increasing in awareness and popularity. South Dakota’s statutes provide maximum asset protection and privacy features in their trusts that limit the exposure of unique and other personal assets to the threats that come with litigation.

Bankers Trust Company and its affiliates and their representatives do not provide tax or legal advice. You should consult with your tax and legal advisors regarding your unique situation and needs.

The Wealth Management Team

The Wealth Management Team

At Bankers Trust, Wealth Management is not a product or even a series of products, but an approach to assisting our clients through comprehensive financial planning, sound advice and sophisticated solutions. Whether new to Bankers Trust or customers who have worked with us for a generation, our clients rely on us to provide all-inclusive, seamless support in the accumulation, growth, and transfer of wealth. We prioritize quality service and genuinely build relationships with each client. In every interaction, we are committed to exceeding service expectations. Visit our website to learn more about our services and contact us.

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