South Dakota Is a Popular Tax Haven for the Wealthy

You don't have to live in South Dakota, or even visit, to take advantage of its tax-friendly trust laws, Bloomberg says.

South Dakota Is a Popular Tax Haven for the Wealthy Photo (cc) by pmarkham

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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