In addition to PFTCs, there are other powerful modern trust structures that can offer families the benefits of with SDTC’s expertise.
South Dakota Directed Trusts
Many families without PFTC structures use South Dakota directed trusts to act similarly to PFTCs, with both investment and distribution committees comprised of family members and family advisors. Like PFTCs, South Dakota directed trusts generally trifurcate the traditional corporate administrative trustee function: South Dakota Trust Company LLC acts as a directed administrative corporate trustee in the directed trust situs providing the required trust administrative functions; SDTC takes direction from an investment and/or distribution committee usually comprised of family members and family advisors in the family’s resident jurisdiction. As with the PFTC, many families prefer directed trusts because they typically have confidence in their own family and family advisors to make proper decisions as fiduciaries for both the trust investments and distributions. Additionally, families can obtain the guidance and oversight of the directed administrative corporate trustee.
South Dakota Special Purpose Entities
Another modern trust structure that operates to supplement a directed trust and as an alternative to the PFTC is a South Dakota unregulated SPE. SPEs are typically South Daktoa LLCs and must be used in combination with the directed trust structure with a qualified directed administrative trustee. South Dakota SPEs are used for many of the key reasons PFTCs are used, such as governance, trustee succession issues and liability protection. As previously mentioned, it’s very difficult, if not impossible, to acquire individual liability insurance coverage for investment and distribution committee members and/or trust protectors of a directed trust or any personal trustees for that matter. However, some insurance companies will provide D&O and E&O coverage to an entity established specifically for these purposes, thus protecting the trust protector and the investment and distribution committee members.
As with a PFTC, a South Dakota SPE, as a result of its corporate existence, will have the ability to continue without regard to any single individual fiduciary’s death, disability or resignation. The entity typically has bylaws allowing for additional members to be added or removed so that the entity can continue with the trust. These entities also have to be properly structured so as to avoid estate tax inclusion issues. These entities aren’t PFTCs, although they provide some PFTC benefits. They have very limited defined duties. One South Dakota SPE can generally serve for all of a family’s trusts, so that a separate entity isn’t needed for each family trust. South Dakota SPEs can’t generally hold themselves out to the public as PFTCs or serve more than one family. The South Dakota SPE typically has quarterly board of manager meetings to make investment, distribution and other decisions for the family trusts. The operating agreements may indicate that the board of managers meetings will take place in a jurisdiction other than the family’s resident jurisdiction, for example, Florida, along with a vacation. Consequently, the combination of a South Dakota directed trust and a South Dakota SPE provides a very cost-effective alternative to the PFTC for families, while also providing an answer to many of their key desires regarding their trust planning.