Thursday, November 21, 2019
Sioux Falls, South Dakota is a sweet little city with a population of around 180,000, some decent bars downtown, and quaint sculptures dotting the streets. But generally, there is not much to attract the super-wealthy to this town in an almost unknown state in the union, except for one thing: its trust laws.
Over the years, billions of dollars from American and foreign billionaires have been transferred to South Dakota firms to be placed in trusts. “To some, South Dakota is a ‘fly-over’ state,” the chief justice of the state’s supreme court said in a speech to the legislature in January. “While many people may find a way to ‘fly over’ South Dakota, somehow their dollars find a way to land here.” A South Dakotan trust provides several benefits for the rich: it protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and almost anyone else. By the end of 2020, trusts in the state will total to $355.2 billion, compared to just $57.3 billion ten years ago.
In 1981, Governor William “Wild Bill” Janklow abolished laws that at the time set an upper limit to the interest rates lenders could charge. Soon after, Citibank and other major companies came to South Dakota to dodge the restrictions imposed by the other 49 states. Now many people blame South Dakota for the country trillion-dollar credit card debt. Wild Bill then set about freeing wealthy citizens, and deregulated trusts to essentially make South Dakota the American version of Switzerland. The state now allow dynasty trusts, which last indefinitely, and does not apply the rule against perpetuities.
See Oliver Bullough, The Great American Tax Haven: Why the Super-Rich Love South Dakota, The Guardian, November 14, 2019.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.