“One of the revelations of the Pandora Papers leaked in 2021 was the proliferation of tax havens inside the US. They’re used not just by wealthy Americans but by foreign politicians, business leaders, and criminals as well. South Dakota in particular has become a destination for the wealthy to stash their riches, and it currently hosts more than $512 billion in trusts, according to the IPS report. The ultrarich have parked trillions of dollars in secretive trusts within US tax haven states.
“It’s not just South Dakota, it’s not just Delaware,” said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies and one of the authors of the tax haven report. “A bunch of states are in the chase.”
The benefit for states is attracting businesses and jobs, but there’s little evidence that becoming a trust-friendly tax haven boosts job growth for states. Populous states like Texas and Florida are getting in on the game, too. It could accelerate what Collins calls a “race to the bottom,” in which more states change laws to attract the trust industry.
A trust is a contract that stipulates what assets one person wants to pass on to another. When assets are put into a trust, the original wealth-holder technically no longer owns them. A third-party entity, known as a trustee, manages the assets for a named beneficiary until the terms of the trust are fulfilled — for example, a parent establishes a trust for their child that will transfer assets to them when they turn 25 or upon the parent’s death. A trust is supposed to end at some point, and ownership of assets is supposed to pass to the beneficiary; it’s a way station for wealth, not the final destination.
Except that a growing number of trusts don’t end. None of the 13 tax haven states has a strict life span limit on trusts. Several states have abolished a rule limiting the life span of trusts altogether. Others set the limit somewhere between 300 and 1,000 years. By carefully setting up a dynasty trust that lasts generations, a wealthy family can avoid paying inheritance or estate taxes for millennia. These trusts often obfuscate who really owns the assets, so they can continue using them — assets like real estate or yachts — or take out “loans” from the trust without triggering gift taxes. The secrecy and confusing ownership structures of trusts are big problems. The government can’t tax something that legally doesn’t belong to a person anymore, and it certainly can’t tax assets that it doesn’t even know exist.”
https://www.vox.com/the-goods/2023/1/4/23413342/us-tax-havens-billionaires-wealthy