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Though only 223 trust employees work in the state, trust companies headquartered in South Dakota surpassed $226 billion in assets during 2015.  

Forget Switzerland; South Dakota is actually one of the best places in the world for the wealthy to stash their cash in secret.

In 2015, trust companies held $175 billion in assets within the state, which is an increase of 45 percent in just two years, according to the South Dakota Department of Labor and Regulation.

Private trusts are often used to help rich people or families preserve their wealth for the long term. 

Such private trusts are booming in South Dakota because the state has some of the most permissive trust laws in the country. And dozens of trust companies have popped up throughout the state, with industry leaders evangelizing about South Dakota's loose trust laws.   

"My goal is to make South Dakota the Switzerland of trusts in the United States," said Andrew Buks, vice president and trust officer for Dakota Guardian Trust in Rapid City.

That lofty goal does spark some criticism of South Dakota and other states, such as Delaware, Nevada and Wyoming, which have been accused of being tax havens that welcome those trying to hide their wealth from tax collectors.

America is emerging as a top tax haven alongside the likes of Switzerland, the Cayman Islands and Panama, critics seeking reform of the international tax system say. "There's a big neon sign saying the U.S. is open to tax cheats," said John Christensen, executive director of the Tax Justice Network, an international think tank.

South Dakota offers significant advantages to the many millionaires and billionaires who have funneled their vast fortunes into private trusts throughout the state.

No income or estate tax on trusts 

The primary reason the elite are flocking to South Dakota to invest their millions is that the state places no tax burden on them.

"South Dakota has no state income tax," Buks said, "so that’s huge."

The funds placed in private trusts are not taxed by the state. Even if income is generated from the trust funds, South Dakota does not collect income taxes.  

Even after death, the state will not collect an estate tax on the trust funds. 

The state did collect $1.1 million in fees from trust companies in 2015, up 24 percent from the previous year, according to the Department of Labor and Regulation.

South Dakota law does not require the people investing in local trusts to actually live in the state, according to Buks. Thus, even though billions of dollars are sitting in trusts within the state, the investors are not directly contributing to any sales or property tax revenues. 

Sealed records

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South Dakota stands out as having some of the strongest privacy laws related to trusts, Buks said. A simple petition is all that is required to permanently seal court records related to trusts. 

That privacy protection can shield the rich from disclosing how much money they possess from a spouse or any other entity interested in their assets. 

Such an emphasis on privacy has also attracted foreign investors who are holding their cash in secret trusts. According to the South Dakota Trust Company, with locations in Sioux Falls and Rapid City, 15 percent of its business is for foreign investors.  

Anonymity, especially for foreign investors, could help the richest people in the world avoid paying taxes in their home jurisdictions.

Indefinite trusts 

South Dakota has become a national leader in what is known as dynasty trusts, which allow families to avoid paying taxes on the money transferred to the beneficiaries of the trust. 

Most states require family trusts to disband after the owner of the trust dies plus 21 years, according to Nolo, a publisher of legal guides and software and operator of a popular legal website. In South Dakota, there is no limit on the length of time a trust can exist. That means a billionaire could set up a trust within South Dakota and continue to disburse funds to their great-great-great-(add as many "greats" as you wish) grandchildren, untaxed, indefinitely. 

Do South Dakotans benefit from being a tax haven?

No taxes are generated directly from the $175 billion in funds administered by South Dakota trust companies. The only taxes generated are from the earnings of the trust companies themselves. The state also collects fees from the companies, such as the $1.1 million in 2015.

Trust companies appear to be growing job market within the state, especially in the last several years.

Of the 81 registered trust companies in the state, nearly half have formed in the last five years, according to the Department of Labor and Regulation. Over 80 percent of these companies are based out of Sioux Falls, with others sprinkled among Rapid City, Pierre and Mitchell.  

To benefit from South Dakota laws, many trust companies based in other states have satellite offices in Rapid City. The Minnesota-based First Lawyers Trust has a Rapid City office, as does the the New Hampshire-based Concord Trust Company.  

Wealthy South Dakotans can certainly benefit from the state's relaxed trust laws. According to Buks, baby boomers are the ones really generating the increase in trust assets.

"Over the next 10 to 20 years," he said, "we are going to experience the largest wealth transfer in human history."

He said that boomers are also more financially savvy than previous generations, which is why many are seeking out private trusts for a safe place to stash cash for future generations to enjoy. 

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The Associated Press contributed to this story.

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