One of the least populated states, South Dakota is probably best known for the vast expanses of the Badlands and the presidential carvings on Mount Rushmore. But according to a review of millions of pages of financial records by the International Consortium of Investigative Journalists, the state is also a surprisingly popular place for wealthy business owners, investors and heirs to park billions of dollars in private trusts.
Known as the Pandora Papers, the financial records reveal that South Dakota is now home to trusts worth half a trillion dollars. “We’re the Cayman Islands of the prairie,” one local critic told Bloomberg News.
The state has no income tax or capital gains tax, a big part of its appeal to a global assortment of the superrich. But there’s another key reason for the state’s popularity: It allows unlimited amounts of money to be placed in so-called dynasty trusts, which continue in perpetuity. The arrangement provides the safety inherent in American economic and political stability, such as it is, while saving beneficiaries millions in federal tax bills as their capital continues to grow forever, tax-free.
South Dakota’s defenders say the great majority of the trusts are from legitimate sources, with the global rich representing only a fraction of the total, so there’s little reason to worry about the state’s growing reputation as a tax haven. But the secrecy around the trusts is troubling to some critics.
“My concern is that … we become like Switzerland or Panama,” former South Dakota state senator Craig Kennedy (D) told The Washington Post, which participated in the analysis of the financial records. “I don’t know who the beneficiaries are, what kind of assets are being managed. People use banking and trust laws for inappropriate purposes. I can’t say that’s happening in South Dakota. But I don’t know.”