South Dakota has become a domestic tax haven due to its own low taxes, privacy laws and trust laws. It has no income tax for individuals or corporations. Assets held in trusts there have grown fourfold in the past decade to $360 billion. South Dakota allows perpetual trusts, enabling the ultra-wealthy to pass assets to future generations without inheritance taxes. This has made it an attractive spot for the mega-rich looking to secure their wealth.
Other states copied South Dakota, changing their laws to encourage residents to create similar perpetual trusts. States with no income tax like Nevada and Alaska now also compete for trust assets. However, there is little evidence the trusts create jobs.
Trust Laws and Global Impact
The protections offered by South Dakota undermine global attempts to control tax dodging and money laundering. South Dakota has robust privacy laws and protections that provide anonymity and shield assets from creditors – key features sought when setting up trusts. There is also no residency requirement. According to the Pandora Papers, trust companies in South Dakota and other US states have made it easier for the elite to dodge taxes by taking advantage of opaque financial laws.
Indeed, 81 trusts identified in the Pandora Papers worth over $1 billion are based in South Dakota. South Dakota now rivals notorious tax shelters like Panama, the Cayman Islands and Switzerland as a destination for the wealthy to shield their riches.