Photo (cc) by pmarkham
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.