The Questions Within Every Trust

Most people think creating a trust is the decision. You sign the paperwork, name a trustee, fund it, and you’re done. But the moment you create a trust, you’re already answering a handful of much bigger questions — whether you realize it or not. Who gets to know about this, and when? What happens if someone sues me? Will this wealth still be intact three generations from now, or will it get taxed away piece by piece? The trust structure you choose is really just the answer to whichever of these questions keeps you up at night. 

Here’s how a few of the more common questions actually get answered — and which structures answer them. 

“Will my kids know about this before they’re ready?”

Plenty of parents want to provide for their children without handing them a roadmap to a future inheritance while they’re still finding their footing. The concern isn’t secrecy for its own sake — it’s timing. Will knowing about this money change how hard they work, who they trust, or the choices they make in their twenties? 

A silent trust is built for exactly this. South Dakota is one of the few states that allows a trust where beneficiaries aren’t required to be notified of its existence, or are only given information once certain conditions are met — reaching a specific age, for example. It doesn’t mean permanent secrecy. It means you get to decide what information your child receives and when, instead of a default state law making that decision for you. 

“What happens if I get sued?”

This one tends to surface for business owners, physicians, or anyone in a profession with potential personal liability.  Tt Most states do not allow you to create a trust for your own benefit, fund the trust with your own assets, and also shield those trust assets from your own creditors.  

South Dakota is one of a small number of states that allows for self-settled asset protection trusts, in which the person who creates the trust can benefit from creditor protection for the trust assets while still benefiting from those assets. The degree of protection depends on the specific facts and timing involved, and it isn’t absolute. But for someone whose greatest fear is losing everything to a single bad year or a single lawsuit, this is the structure built to help address that.  

“Will trust assets be taxed at each generation?”

Every time wealth passes from one generation to the next, there’s an opportunity for it to diminish — through estate taxes, generation-skipping transfer taxes, court involvement, or family disputes over how to divide things up. Most states cap how long a trust can exist before it must terminate and distribute assets outright,  which forces this cycle to repeat every generation or so. 

South Dakota has no rule against perpetuities, meaning a trust created under the laws of South Dakota can continue indefinitely, as long as trust beneficiaries exist.  If structured properly, the trust assets, and appreciation on those assets, may never be subject to estate or GST tax.  With this dynasty trust structure, wealth can remain in trust and pass down to future generations indefinitely without being forced back into the transfer tax system. “Who’s in charge of my money after I give it away”? 

This question often comes from a grantor who wants to gift assets during life to reduce their taxable estate but stay involved in how the gifted assets are managed or invested, even after they are transferred to an irrevocable trust.   A directed trust can allow a grantor to stay involved in certain investment decisions without undoing careful tax planning.   

A directed trust splits the traditional trustee role into separate functions — typically an administrative trustee, an investment advisor, and a distribution advisor — with responsibility and liability divided along the same lines. It lets each function sit with whoever is actually best suited for it, instead of concentrating everything, and all the liability that comes with it, in one person — narrower in scope, and typically simpler and less costly to administer than a full family trust. 

The ultimate decision

None of these questions have a single universal answer, and you may end up combining more than one of these structures — a dynasty trust that’s also directed, for example.  South Dakota’s trust laws were built to make these combinations possible, which is why Brighton Jones Trust Company is chartered there: to give our clients access to these benefits.  

If any of these questions resonate with you, please reach out to your Brighton Jones advisor or email trusts@brightonjones.com to discuss whether BJTC is right for your family.   

This content is for informational and educational purposes only and should not be construed as individualized advice. For individualized advice tailored to your specific circumstances, please consult with your adviser. Trust terms, governing law, and individual legal and tax circumstances vary, and the applicability and consequences of any trust strategy will depend on the particular facts.  Brighton Jones, LLC is an SEC-registered investment adviser and is separate from its affiliate, Brighton Jones Trust Company, LLC, a South Dakota-chartered trust company. Fees for trustee and other fiduciary services provided by Brighton Jones Trust Company are separate from and in addition to fees charged by Brighton Jones, LLC.