By Ashley Kraus, Trust & Estate Planning Attorney
When couples start thinking about legacy planning, long-term stability, and the tax implications of passing down meaningful assets, it’s easy to assume their options are limited by where they live. The truth is that families have far more choice — especially when they look to trust-friendly jurisdictions like South Dakota.
One option that continues to gain attention is the Special Spousal Trust (SST). For the right couple, it may be a strategic way to simplify future tax burdens, align assets with long-term goals, and create more control over how wealth moves from one generation to the next.
What Is a Special Spousal Trust?
A Special Spousal Trust is a trust designation that treats specified trust assets as community property — regardless of the state where the creator of the trust lives.
Why does this matter?
Under federal tax law, community property can receive a full step-up in basis when the first spouse passes away. The step-up may lead to significant capital gains tax savings if the surviving spouse chooses to sell or restructure appreciated assets.
Although South Dakota isn’t a community-property state, the Special Spousal Trust allows couples (including non-residents) to “opt in” to community property treatment for specified assets and potentially receive many of the same benefits.
Why Couples Consider a Special Spousal Trust
For families with meaningful assets — whether a business, real estate, or investments that have grown over time — an SST can offer several advantages:
- A Potential Tax Opportunity
In most states, couples only receive a partial step-up basis when one spouse dies. An SST may allow the entire value of the designated property to be stepped up upon the death of the first spouse. For appreciated assets like:
- long-held real estate
- a closely held business
- a concentrated stock position
…that step-up may significantly reduce capital gains taxes in the future.
- Flexibility to Match a Couple’s Goals
South Dakota trust law is known for giving families greater control and customization. While Alaska, Tennessee, Kentucky and Florida have similar “opt in” community property laws, their trust laws do not provide the same flexibility when it comes to formation and administration. Additionally, there are more trust companies chartered in South Dakota than in other states. A South Dakota trustee is required for administration of an SST, so the state offers a range of choices in selecting a South Dakota corporate trustee.
An SST is not a standalone type of trust and may be built into a joint revocable trust, irrevocable or “dynasty” trust, or other trust structure. The result is a highly customized trust that reflects a family’s long-term vision for growing and protecting multigenerational wealth.
- Support for Complex or High-Value Asset Planning
An SST can be especially helpful for couples who have:
- a real estate portfolio with low-cost basis
- a business or partnership interest
- out-of-state or multi-state assets
- concerns about future tax exposure
An SST can be crafted to solve specific planning challenges without over-complicating an existing plan because couples can select which assets are included.
Important Considerations Before Moving Forward
Like any sophisticated planning strategy, SSTs come with nuances worth understanding. A good advisor will walk through these early to make sure the trust is the right fit.
- Federal Tax Clarity
While the law is drafted to allow a full step-up in basis, the IRS has not issued a definitive ruling affirming the effectiveness of South Dakota SSTs. However, Alaska has had similar “opt in” laws in place since 1998, and to date, the IRS has not issued rulings invalidating or disallowing these laws. Nonetheless, this area of tax law technically remains unsettled and should be evaluated with experienced tax counsel.
- Marital and Creditor Considerations
Assets inside an SST are treated as community property, so they can be allocated differently in the event of divorce or a creditor judgment in South Dakota. Other states do not have to treat SST property as community property, but may consider the classification in legal proceedings.
- The Trust Must Fit the Family Situation
An SST is not ideal for every couple. For example:
- A blended family may prefer to keep assets separate
- If assets already have a high basis, the tax benefit may be minimal
- Last-minute transfers may create tax issues or limit the trust’s effectiveness
- Administrative Requirements
To be valid, the trust must follow requirements of South Dakota law, including specific language, signatures from both spouses, and the involvement of a qualified South Dakota trustee. For families with multi-state assets, it’s also important to consider ongoing administration, movement between states, and long-term trustee options.
Questions Every Couple Should Consider
When we talk with clients about whether an SST makes sense, we often start with questions like:
- Do you own assets that have significantly appreciated over time?
- Are you and your spouse aligned with your long-term goals for your assets?
- Do you have assets across multiple states, or concerns about future tax exposure?
- Are you comfortable using a South Dakota trustee and following the state’s trust structure?
- How would the trust fit into your broader estate plan?
These conversations help ensure decisions are grounded, intentional, and built to last.
Why This Matters
At Goosmann Law Firm, we work with clients who are thinking big — about their businesses, their families, and the legacy they want to build. Tools like the Special Spousal Trust allow us to bring sophisticated, forward-looking options to the table. They open doors that many families may not even realize exist.
When done well, this kind of planning becomes more than tax strategy. It becomes a way to protect what matters most, align resources with values, and create stability for the next generation.
Final Thoughts
A Special Spousal Trust is not a one-size-fits-all solution. But when the timing, the assets, and the goals line up, it can be a powerful tool to support long-term planning.
If you’re interested in learning whether an SST might be a fit for your family or your business, our team is here to guide you. We help clients clarify their goals, evaluate their options, and build an estate plan that’s strategic, thoughtful, and truly “worth it.”
This content is provided for informational purposes only and does not constitute legal or tax advice. Legal services are offered by Goosmann Law Firm, with principal offices in Sioux City, Sioux Falls, and Omaha. Attorney advertising.