According to a South Dakota Domestic Asset Protection Trust lawyer, Oklahoma is one of several states in the U.S. that has enacted legislation allowing for Domestic Asset Protection Trusts (DAPTs). These trusts offer a way for individuals to protect their assets from potential creditors while still retaining some degree of control and benefit from those assets. However, while Oklahoma’s DAPT laws provide a level of asset protection, they are often compared to those of South Dakota, a state widely recognized for having some of the strongest and most flexible DAPT laws in the country.
What Is A Domestic Asset Protection Trust (DAPT)?
A Domestic Asset Protection Trust is a type of irrevocable trust that allows the trust creator, also known as the grantor, to protect their assets from future creditors while still retaining some benefits from those assets. Unlike traditional trusts, where the grantor must give up all control and benefits of the assets to achieve protection, a DAPT allows the grantor to be a beneficiary of the trust. This means that, under certain conditions, the grantor can still receive distributions from the trust while keeping the assets safe from creditors.
Oklahoma’s DAPT
Oklahoma’s DAPT laws were designed to provide residents with a way to shield their assets from creditors. The Oklahoma DAPT requires that the trust be irrevocable and that it includes a spendthrift provision, which limits the ability of creditors to access the trust’s assets. To create a DAPT in Oklahoma, the trust must have at least one trustee who is an Oklahoma resident or a bank or trust company authorized to do business in Oklahoma.
Benefits Of Oklahoma’s DAPT
Oklahoma’s DAPT offers several benefits, including:
1. Asset Protection: The primary benefit of an Oklahoma DAPT is the protection it provides against creditors. Once assets are transferred into the trust, they are generally out of reach of creditors, provided the trust is properly established and the transfer was not made with the intent to defraud creditors.
2. Retention Of Benefits: Unlike traditional asset protection strategies that require the grantor to completely give up control and benefit from the assets, Oklahoma’s DAPT allows the grantor to retain some benefits, such as receiving distributions from the trust.
3. Flexibility In Trust Structure: Oklahoma’s DAPT laws provide flexibility in how the trust is structured, allowing the grantor to tailor the trust to meet their specific needs.
Comparing Oklahoma’s DAPT To South Dakota’s DAPT
While Oklahoma’s DAPT laws offer significant benefits, they fall short when compared to South Dakota’s DAPT laws, which are often regarded as the gold standard in asset protection.
1. Privacy Laws: South Dakota is renowned for its strong privacy laws. In South Dakota, trust information is not publicly accessible, which means that the details of your trust and its assets are kept private. This level of confidentiality is especially appealing to high-net-worth individuals who value their privacy. Oklahoma, on the other hand, does not offer the same level of privacy protection.
2. State Income Tax: One of the most significant advantages of establishing a DAPT in South Dakota is the absence of state income tax. South Dakota does not tax trust income, which can result in substantial tax savings over time. In contrast, Oklahoma does have a state income tax, which could diminish the overall benefits of a DAPT by subjecting the trust’s income to state taxes.
3. Dynasty Trusts: South Dakota allows for the creation of dynasty trusts, which can last for multiple generations without being subject to estate taxes. This feature allows families to pass down wealth through generations while minimizing tax liabilities. Oklahoma does not offer the same flexibility for dynasty trusts, limiting the long-term benefits of their DAPTs.
4. Decanting Flexibility: Decanting refers to the process of transferring assets from one trust to another, allowing for changes to the trust’s terms without court intervention. South Dakota has some of the most flexible decanting laws in the country, giving trustees the ability to modify the trust to adapt to changing circumstances or to improve the trust’s terms. Oklahoma’s decanting laws are more restrictive, which can limit the ability to make adjustments to the trust as needed. It is important to remember that you should regularly update your legal plans because life is constantly changing.
5. Trust Protector Laws: South Dakota also has strong laws regarding trust protectors, who are individuals appointed to oversee and make changes to the trust if necessary. These laws provide an additional layer of flexibility and protection, ensuring that the trust can be managed in the best interests of the beneficiaries. Oklahoma’s laws regarding trust protectors are less developed, which may limit the options available to the grantor.
The Advantage Of Experience In South Dakota’s Trust Companies
Another significant advantage of South Dakota’s DAPT laws is the presence of well-established trust companies with decades of experience in asset protection planning. These trust companies are experts in executing DAPT strategies and can provide valuable guidance and support throughout the process. They have a deep understanding of South Dakota’s laws and how to maximize the benefits of a DAPT for clients.
In contrast, Oklahoma’s trust companies may not have the same level of experience, especially since Oklahoma’s DAPT laws are relatively newer compared to South Dakota’s. This difference in experience can be critical when it comes to effectively managing and protecting your assets.
You Don’t Have To Be A South Dakota Resident
One of the most attractive aspects of South Dakota’s DAPT laws is that you do not have to be a resident of South Dakota to take advantage of its benefits. Non-residents can establish a South Dakota DAPT and enjoy the same level of asset protection, privacy, and tax benefits as residents. This flexibility makes South Dakota an appealing option for individuals across the United States who are looking to protect their assets in a secure and advantageous environment. Since our firm’s founding in 2021, we have helped clients nationwide with South Dakota DAPTs.
South Dakota Vs. Oklahoma – Which Is Better?
While Oklahoma’s DAPT laws provide valuable asset protection and allow the grantor to retain some benefits from the trust, they are not as robust as South Dakota’s DAPT laws. South Dakota offers superior privacy protections, no state income tax, the ability to create dynasty trusts, more flexible decanting laws, and stronger trust protector provisions. Additionally, South Dakota’s trust companies have a long history of expertise in managing DAPTs, providing an additional layer of confidence for individuals looking to protect their assets.
If you are considering setting up a DAPT and are looking for the most advantageous state to do so, South Dakota should be at the top of your list. The combination of privacy, tax benefits, and legal flexibility makes it a superior choice for asset protection. Whether you are a resident of South Dakota or another state, you can establish a South Dakota DAPT and take full advantage of the state’s favorable laws and experienced trust companies. Licensed in Texas, Kentucky, Pennsylvania, and South Dakota, let’s work together on your trust — contact Stuart Green Law, PLLC today to get started.