South Dakota has been much in the news for its half a trillion dollars worth of assets in recent years. It is considered as the US next haven! Impressive, right? As per the FDIC's bank statistics report, South Dakota ranked first with $3.13 trillion as of the commercial and saving bank assets, widely ahead of Ohio with $2.96 trillion.
According to the South Dakota Department of Labour and Regulation, trust companies held around $175 billion in assets which was an increase of 45% from the last two years. These trust assets are utilised mainly for the rich people to safeguard their wealth for a longer duration. And in South Dakota, these trusts are growing with an exponential graph, mainly because of the country’s permissive trust laws.
But the actual question that arrives here, is how does South Dakota hold such a massive amount of assets? Previously, in October, Pandora Papers (millions of financial records) got in the hands of journalists. Within which, the state data showed how South Dakota held half a billion dollars of assets in its trust.
And that’s what we are discussing in this article in brief. So, let’s get started!
Adoption of Key Laws by South Dakota
Nearly four decades ago, the state adopted a few of the key laws in its financial systems, which are: Eliminated cap on interest rates for lending and No expiry period on trust laws.
This majorly drives the attention of the financial industry towards the state. The state has zero tax income which makes it one of the most popular spots for people who want to pass their assets to the future without any liability of estate taxes. Ever since then, South Dakota has been gaining huge clients.
The Pandora papers revealed how the politicians and businessmen have been transferring their wealth into U.S. trusts funds, saving them from paying taxes or getting directly involved in any deals.
U.S. Low levied Tax Rates
“The U.S. is widely known as the world’s best place for dumping hot money,” said Heller. The main reason behind this is the no rule for reporting foreign assets to the respective countries for the investors.
With the extremely smooth and lenient banking system of the United States, wealthy families and businessmen come here to gain the same level of privacy that they previously got from places like Switzerland.
This makes the United States the second-ranked Tax haven in the world, as per the report of Tax Justice Network. And states like South Dakota and Nevada, are widely considered as the most attractive spot for people who dodge taxes.
South Dakota is a major spot for foreign assets
Pandora papers have revealed many major facts regarding the assets and taxes in the U.S.A, among these, one was South Dakota being a tax shelter for wealthy families and businessmen. The state is considered the main attractive spot for foreign assets.
The report revealed that South Dakota has over quadrupled to $360 billion in the past decades.
The lawmakers of South Dakota have drafted the legislation by the trust industry insiders which gives them great protection and benefits over the trust funds to the trust customers all across the United States and foreign countries.
The biggest flex for the rich people is the state’s ban on the “rule against perpetuities". This builds a very safe space for the wealthy families to establish their dynasty trust and let it go on forever, without any burden of estate taxes.
Zero Income or Estate Tax over Trusts
Another biggest reason for wealthy families and business people to set up their trust in South Dakota is because of its extremely lenient tax rules. The state does not have any income or estate tax over the trusts. Yes, it’s very true!
All the funds placed in the private trusts are not bound with any return of income tax by the state. South Dakota does not ask and collect the income generated through these trust funds, even if it's in the count of billions.
Alongside, the state does not ask for any estate tax, even after the death of the owner.
The people of South Dakota’s law does not necessarily need to invest in any local trust in order to live in the states. Although the investors are lying around the states with billions of trusts funds, they do not directly contribute to any sales or estate tax revenues.
Being one of the most attractive spots for wealthy families and business people, South Dakota is counted among the top tax havens in the United States. The people living in the state earn good benefits from the lenient trust laws of South Dakota.
In fact, the state is expected to experience the biggest wealth transfer that ever occurred in the history of mankind. And because of this only, the trust companies in South Dakota have been growing the job market within the state over the past few years. South Dakota does benefit from its trust laws and so are the rich people living in the state.
Are taxes high in South Dakota?
No, South Dakota is one of the lowest tax state in United States.
What states are considered tax havens?
South Dakota and Nevada are considered as tax havens in United States.
Is there income tax in South Dakota?
No, South Dakota does not levy any income tax.