The rapid expansion of the trust industry in South Dakota can be attributed to favorable tax laws and deregulation, according to experts. South Dakota does not have a state income tax, and trusts can be kept confidential.
Additionally, assets placed in a trust in South Dakota will remain virtually untaxed indefinitely. In 1983, South Dakota became the first state to eliminate the Rule Against Perpetuities, which imposed limits on the duration of trusts. This paved the way for the creation of “dynasty trusts” that allow settlors to preserve their wealth for multiple generations.
Chuck Collins, from the Institute for Policy Studies think tank in Washington, explains that the “wealth defense” industry in the United States has been successfully influencing legislators in South Dakota for decades. The industry claims that by changing the laws to make trusts anonymous and perpetual, it will attract significant global capital and create job opportunities.
Collins highlights the economic benefits for a small state like South Dakota, where the addition of 500 or 600 jobs in the trust industry is highly impactful. These well-paid jobs contribute to the local economy by increasing spending at restaurants and stimulating overall economic growth. As deregulation began in one state, it quickly spread to others, leading to the weakening or repeal of the Rule Against Perpetuities in more than half of US states.
Mark Michel asserts that there has been a competitive environment among states to attract the super-rich by offering the maximum amount of anonymity. Alaska, in 1997, passed a law allowing the creation of domestic asset protection trusts, which permit the person setting up the trust to also be the beneficiary. This arrangement safeguards assets from creditors and tax authorities. Many other states, including Nevada, South Dakota, and Delaware, have followed suit.
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