Dynasty Trust: Delaware vs Nevada vs South Dakota — Which State Is Best?

We're a California-based family with ~$25M in assets. Our estate attorney recommended setting up a dynasty trust to move appreciated assets out of our estate and protect them for future generations. Makes sense for the estate tax savings (40% on everything above $13.99M).

But the question is: which state? Attorney mentioned Delaware, Nevada, and South Dakota as the top three. Each seems to have different strengths. We don't live in any of these states — does that matter?

Key priorities: (1) perpetual duration, (2) no state income tax on trust, (3) asset protection from creditors, (4) flexibility to change terms later.

I set up these structures regularly for tech wealth in Silicon Valley. Quick comparison:

South Dakota:

• No rule against perpetuities — truly perpetual
• No state income tax (on anything)
• Strongest asset protection (2-year statute of limitations for fraudulent transfers)
• Domestic Asset Protection Trust (DAPT) statute
• Fewer trust companies, less infrastructure than DE

Nevada:

• 365-year perpetuity period (effectively perpetual)
• No state income tax
• Strong DAPT law (NRS 166)
• 2-year fraudulent transfer window
• Good trust company infrastructure

Delaware:

• No rule against perpetuities (abolished 1995)
• No state income tax on trusts with out-of-state beneficiaries
• Premier directed trust statute — separate investment and distribution advisors
• Most sophisticated trust company infrastructure
• Chancery Court for trust disputes (predictable, expert judiciary)

For a $25M California family, I'd lean Delaware. The directed trust flexibility and Chancery Court are worth a lot when the numbers are this large. The Delaware estate planning guide covers the directed trust structure in detail.

I work at a Nevada trust company so I'm biased, but: Nevada's combination of no income tax + strong DAPT + 365-year term is hard to beat for asset protection. Delaware's DAPT is weaker (4-year fraudulent transfer window vs. Nevada's 2-year).

The real differentiator is what you're protecting against. If it's creditors and lawsuits, Nevada or South Dakota. If it's trust administration flexibility and dispute resolution, Delaware.

Also: California will try to tax the trust income if the beneficiaries are California residents, regardless of where the trust is sitused. This is the "throwback tax" issue. The trust needs to be structured carefully (usually as a non-grantor trust with discretionary distributions) to minimize CA's reach.

We manage trust structures for about 40 families. In practice, the state choice matters less than the trust terms and the quality of the trustee. All three jurisdictions (DE, NV, SD) are excellent. The differences are marginal for most families.

What matters more: (1) Is the trustee competent and responsive? (2) Does the trust have proper decanting/modification provisions? (3) Is there a trust protector who can fix problems without court involvement?

One practical note: South Dakota trust companies tend to be smaller and more personalized. Delaware trust companies are larger and more institutional. Nevada is in between. Pick the trustee first, then the jurisdiction often follows.

Really helpful perspectives. The California throwback tax issue is concerning. Do most California families just accept the state tax hit, or is there a way to actually avoid it?

California taxes trust income when: (1) the trust was created by a CA resident, OR (2) the trust has CA-resident beneficiaries who receive distributions, OR (3) the trust has CA-source income. For most CA families, conditions 1 and 2 apply.

Strategies to minimize CA tax: accumulate income inside the trust (CA can't tax undistributed income if the trustee is out-of-state), make distributions strategically in years when beneficiaries are in lower tax states, and consider moving trust situs to a non-CA state with a non-CA trustee.

The estate tax savings (40% federal + 0% state with proper planning) still dwarf any CA income tax exposure. At $25M, you're looking at $4-5M in estate tax savings vs. maybe $200-300K/year in CA income tax on trust distributions. The dynasty trust is still overwhelmingly worth it.

Don't sleep on Florida for dynasty trusts. The perpetuity period is 360 years (since the 2000 amendment to F.S. 689.225), and Florida has no state income tax. Plus, if you're already a Florida domiciliary, it simplifies the administration. The Florida estate planning guide covers the dynasty trust option.

The main weakness: Florida doesn't have a DAPT statute. So for asset protection, Nevada or South Dakota still wins. But for tax-free multigenerational wealth transfer, Florida's 360 years is plenty.

Update: After extensive discussions with our estate attorney and interviewing trust companies in all three states, we're going with Delaware. The deciding factors: Wilmington Trust (strong institutional trustee), Delaware's directed trust statute (lets us keep our own investment advisor), and the Chancery Court for any future disputes. Setting up a dynasty trust funded with $11M in appreciated stock. The GST exemption covers the full amount.

Good choice on Delaware. One thing to add for others reading: don't forget about the Generation-Skipping Transfer (GST) tax. Dynasty trusts are most powerful when you allocate your GST exemption ($13.99M in 2026) to the trust at funding. This lets the trust assets pass to grandchildren, great-grandchildren, etc., without additional estate or GST tax at each generation. That's the "dynasty" part — one-time transfer tax, then tax-free forever.

For those of us with smaller estates ($5-10M range), is a dynasty trust overkill? Or does it still make sense even below the federal exemption?

Below the federal exemption, a dynasty trust is mainly about asset protection and keeping assets out of beneficiaries' estates for the next generation. If the TCJA sunsets and the exemption drops to ~$7M, a $5-10M estate could suddenly face federal estate tax. A dynasty trust funded now under the higher exemption locks in the benefit — the IRS has confirmed no clawback. So even at $5-10M, there's a reasonable case for it if you believe the exemption will drop.