South Dakota is becoming the perfect place for wealthy families to create trusts designed to
shield their fortunes from the estate tax indefinitely. The state provides the secrecy of foreign tax havens like Bermuda and Switzerland, with the ease of never having to leave the country - in person or on paper.
South Dakota law, unlike most US states, allows for the creation of trusts that continue to exist in perpetuity. While charitable trusts can do this elsewhere, South Dakota's trusts allow generations of beneficiaries to spend money in the trust as they wish without ever actually "inheriting" it and thus making it subject to inheritance taxes. Conventional trusts "die" along with their original beneficiary, and the new beneficiaries must pay inheritance taxes if the trust is larger than $5 million (a situation very few Americans face in any given year).
All that is needed is a physical address in South Dakota, creating a booming demand for office space that more or less sits empty.
It's not clear how much South Dakota or its residents benefit from this, as the lack of a state income tax limits substantive additional revenue from being gained from the presence of these trusts.
The trusts aren't job creators either.
Even Governor Daugaard, a proponent of his state's unique trust loophole, can't point to any tangible benefits from them.
And some state politicians say the trusts may indirectly be
hurting the state, from a revenue standpoint.
