South Dakota Is a Popular Tax Haven for the Wealthy

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More and more very wealthy people are setting up trusts with a South Dakota address, Bloomberg says.

In the past four years, the amount of money administered by South Dakota trust companies like these has tripled to $121 billion, almost all of it from out of state. The families needn’t actually move to South Dakota, or deposit their money at a local bank, or even touch down in the private jet. Little more than renting an address in Sioux Falls is required to take advantage of South Dakota’s tax-friendly trust laws.

States like South Dakota are “creating laws that are conducive to a massive exploitation of a federal tax loophole,” Edward McCaffery, a law professor at the University of Southern California, told Bloomberg. “We have a tax haven in our midst.”

What’s the state’s attraction?

  • You can set up “dynasty” trusts, which protect the family fortune from the federal estate tax — forever.
  • South Dakota doesn’t have an income tax.
  • “Still others are drawn to South Dakota’s iron-clad secrecy, and protections of trust assets from creditors and ex-wives,” Bloomberg says.

It’s all perfectly legal. What do you think about this practice? Let us know in the comments below or on our Facebook page.

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Comments & discussion

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  • D Lowrey

    If this and other states like it were that concerned with helping the country as a whole…they would change their state laws to require physical residency as a condition to enjoy many of the benefits. Having been to South Dakota in the past…the ones who are using the state as an excuse to keep from paying their fair share would find this tax haven is the only thing “pleasant” about the state.

    • c23634697

      doesn’t sound like anything is pleasant or pleasing about you. it is prefectly legal and conforms to IRS tax codes.

  • usingROwater

    I am just an almost- comfortable retiree, by no means wealthy. Wondering how such an SD Trust differs from a regular Revocable Living Trust in any State, for instance Florida?

  • Robert Eisman

    What do you mean about “renting an address”?? Renting a home or just an post office box or something else???