A trust is a legal entity created by a person known as the trustor, grantor, or settlor who owns assets (cash, stocks, bonds, real estate, art, jewelry, machinery, etc.) and transfers ownership of the assets to the trust—while directing a person or entity known as the trustee to hold and manage the assets for the benefit of a certain person or persons, or classification of persons (descendants) known as the beneficiary or beneficiaries. The assets or property in a trust are sometimes referred to by the Latin word res (pronounced “rays”).

Beneficiaries are often descendants or heirs of the trustor, grantor, or settlor, but in some states (and other countries) the trustor, grantor, or settlor may be the beneficiary—and in that case the trust is known as a self-settled trust.

A trust is generally created when a trustor, grantor, or settlor shows or manifests an intent to create a trust by signing or executing a written trust agreement that is also signed by the trustee.

Domestic Asset Protection Trust

An asset protection trust (APT) is a special kind of trust that is not recognized or allowed under the law in all states in the United States. In states that do recognize an APT, a trustor, grantor, or settlor may create the trust to protect assets from claims in divorce or bankruptcy, or by other creditors.

In states that do recognize an asset protection trust under state law—also known as a domestic asset protection trust (DAPT)—the trust generally must be irrevocable (not easily changed, if at all). A DAPT is usually a self-settled trust in which the trustor, grantor, or settlor is also the beneficiary of the trust.

Laws vary from state to state and may be changed by the state legislature or interpreted differently by the courts at any time, so you should be sure to confirm the status of the law in your state before making any decisions.

States that may recognize a DAPT include:

• Alaska

• Delaware

• Hawaii

• Michigan

• Mississippi

• Missouri

• Nevada

• New Hampshire

• Ohio

• Oklahoma

• Rhode Island

• South Dakota

• Tennessee

• Utah

• Virginia

• West Virginia

• Wyoming

Foreign Asset Protection Trust

A foreign asset protection trust—also known as an offshore trust—is a trust formed under the laws of another country. Foreign asset protection trusts usually cost more to create but may offer greater privacy protection and tax benefits. The protection against creditors offered by offshore trusts may vary depending on the country in which the trust is created.

In South Dakota, trusts are recognized as a means to manage and protect assets for beneficiaries. South Dakota is one of the few states that allow the creation of Domestic Asset Protection Trusts (DAPTs), which are designed to shield assets from creditors, divorce settlements, and bankruptcy claims. These trusts must be irrevocable, meaning they cannot be easily altered or revoked once established. South Dakota's DAPT laws are favorable for those seeking to protect their wealth, as the state offers strong privacy protections and has no state income tax on trusts. Additionally, South Dakota has no rule against perpetuities, allowing trusts to last indefinitely. It's important for individuals to consult with an attorney to ensure that a trust is properly established in accordance with South Dakota laws and to understand the ongoing legal obligations of managing a trust. As laws can change and vary by state, and court interpretations can affect how laws are applied, it is crucial to obtain current legal advice before proceeding with the creation of any trust.