“Dynasty trusts,” are designed to avoid the federal estate tax. It’s a never-ending trust that pays each generation of heirs only what they spend, while the rest of the money grows. In most states that is not possible because of an ancient rule limiting the duration of trusts to the lifetime of a living heir, plus 21 years. South Dakota repealed that rule in 1983, and in addition it has no income tax. As a result, a large number of very wealthy people opened offices in South Dakota to create a trust that can shield a big fortune from taxes for centuries, escaping tax bills as it hands out cash to great-great-great-grandchildren and beyond.
There is a long an informative article about the way South Dakota has used this as a way of attracting big money by literally renting out rooms in a former five-and-dime store in Sioux Falls.
As we head into the New Year, we hope that some of our readers are in the same league as the Pritzker family, the Carlson Family Trust Co., serving the Minnesota family behind Radisson and the TGI Friday’s restaurant chain, and the heirs of hedge fund pioneer Jack Nash. If not, we hope you get there soon.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.