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The offshore tax haven is a haven for wealthy individuals trying to hide their assets.
Now, South Dakota, Nevada and other states have also become magnets for taxpayers.
According to the Pandora Papers, a collection of about 12 million leaked private financial records compiled by the International Consortium of Investigative Journalists.
The documents revealed money hidden in mansions, boats and other properties in low-tax sanctuaries around the world.
“These people would call Charlie Murphy ‘regular line steppers,'” said Eric Pierre, Austin, Texas-based certified public accountant, owner of Pierre Accounting and co-host of the CPA Huddle podcast.
Historically, when the super-rich wanted to seek refuge from borrowers or tax officials, they deposited money in places like Switzerland or the Cayman Islands, said Michael Heller, vice president and professor of real estate law at Columbia Law School.
While banking abroad was not illegal, some American and US companies failed to report earnings. Congress cracked down on the Foreign Accounts Tax Compliance Act in 2010, which required international banks to report US-owned accounts.
A few years later, other countries agreed to disclose foreign assets to each other, known as the Common Reporting Standard. However, the United States does not follow this practice, Heller said.
US tax haven
Without rules for investors to register foreign-owned assets to their respective countries, the U.S. has become “the world’s dumping ground for hot money,” Heller said.
He said, “Foreign wealthy families wanted to come to the United States because they got both security from the US banking system and secrecy from places like Switzerland in the past.”
And some states have made changes to tax and estate policies to curb the flow of wealth, Heller said, driving the appeal of domestic and foreign investors.
Tax Shelter in South Dakota
According to Pandora Papers, South Dakota, in particular, has become a “major destination for foreign assets,” the report names 81 trusts.
The state’s trust assets have quadrupled to $ 360 billion in the last decade, the report said.
“Over the years in South Dakota, state legislators have passed legislation created by trust industry insiders, providing greater protection and other benefits to trust customers in the U.S. and abroad,” the papers said.
The biggest incentive is the state-imposed ban on “rules against eternity” for so-called dynasty trusts, which allow families to transfer property indefinitely to generations without property taxes at the time of each death.
“You can establish a [dynasty] trust in South Dakota and it can go on forever,” said Rick Kahler, certified financial planner and chairman of Kahler Financial Group in Rapid City, South Dakota.
In contrast, many states limit dynasty trusts, in some places to 21 years after the death of the last beneficiary after creation.
Another advantage in South Dakota is access to the so-called Home Property Protection Trust, which can protect investments against borrowers while giving them some control over the property.
Pierre said these trusts can make it easier for someone to protect money from ex-spouses, separate business partners and other decisions.
South Dakota joins Bermuda as a tax haven for the rich
The person in charge of the trust, known as the trustee, may have the flexibility to transfer from one trust to another in South Dakota, called decanting, Heller said.
Moreover, the state does not have income, capital gains, property or inheritance taxes.
“There’s no doubt a lot of money has come into South Dakota,” Kahler said.
“It’s good financially,” he said. “And quite frankly, I’ve never heard of this kind of abuse.”
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Economyessential journalist was involved in the writing and production of this article.
