… South Dakota.
Trusts in South Dakota can exist forever (unlike in many other places), can list the creator as a benefactor (unlike in many other places), are immune from creditors after two years, and are secret, so they are increasingly seen as desirable places to hide money.
Thanks, @ucbalumnus ! I have been so fraught about what to do with my dynastic fortune, and you are a godsend!?
@gardenstategal thanks for the laugh!
I wonder what the real benefit to the state is. No tax revenues, but presumably more local employment in the trusts industry. But does anyone ever hear of college grads flocking to SD for these jobs? It seems like something that could be set up from NYC.
I see little or no humor here. Looks like a way people with money are avoiding taxes they should be paying. In addition, this could be a clever way for someone to cheat family members of an inheritance (it happens).
Many states have no “rule against perpituties”
“in the United States it has been abolished by statute in Alaska, Idaho, New Jersey, Pennsylvania,[6] Kentucky,[7] Rhode Island [8] and South Dakota”
Also many more have established a 90 year vesting rule, say you leave to all your grandchildren and it vests back outside of trust many years after last one has died but within this limit. The last of those remaining from a beneficiary class as it’s known plus a period of time is permitted. It used to be 21 years in English law. Many old trusts are written that way. The trust assets are to be paid out with per stirpes or per capita, 21 years following the death of the last remaining person of alive as of x date (currently). Smart folks used ver young people as that class.
Here’s the list of states with long extensions.
“The Uniform Statutory Rule Against Perpetuities validates non-vested interests that would otherwise be void as violating the common law rule if that interest actually vests within 90 years of its creation;[10] it has been enacted in 29 states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Indiana, Kansas, Massachusetts, Minnesota, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia), the District of Columbia, and the U.S. Virgin Islands, and is currently under consideration in New York.[11][12]
The reason states have moved this way is to avoid the people and assets leaving completely. The loss of tax revenues is offset by the loss of the income taxes on the families and the trusts. Their sales and property taxes. Their philanthropy locally etc.
Also it is a competitive marketplace for companies and taxpayers.
South Dakota doesn’t have income tax, but the US does, at pretty high rates for trusts.
South Dakota was the first state to allow perpetual trusts, part of an aggressive effort to expand its financial services sector which is now the state’s largest industry, accounting for 15% of the state’s GDP. Many major banks including CitiBank and Wells Fargo have major back-office operations there, taking advantage of the low-tax and low-wage environment, and numerous smaller trust companies have set up shop there to grab a share of the trust business. The state gets no tax revenue from the trusts themselves, but it does collect taxes from the trust companies’ profits, and the employees’ salaries and spin-off economic activity generate lots of state and local tax revenue.
Perhaps the biggest loser from a tax perspective is the federal gift & estate and generation-skipping transfer (GST) taxes. The party who establishes the trust will need to pay federal gift tax once when the trust is established, but since assets held in a trust are legally owned by the trust, there’s no taxable estate when a trust beneficiary dies and the beneficial interest passes on the the next generation, so generation after generation enjoy wealth transfers free of gift & estate and GST taxes. And since you don’t need to be a South Dakota resident to park your wealth in a trust there, this also deprives other states of estate and inheritance tax revenue when one of their residents dies with all or most of their wealth in a South Dakota trust. All this makes South Dakota a major tax haven for the wealthy.
Many other states have followed suit, mostly in a defensive effort to keep all this financial business from leaving the state.
South Dakota tries to attract white collar businesses. It also has very favorable credit card laws so banks want their credit card divisions incorporated in SD. It does bring income into the state.