Fiscal Soundness: An Important Factor in Trust Jurisdiction Selection

It has been said that the choice of where to place a trust is as important as the decision to create one. Concerns around asset protection, privacy, maintaining control and direction over trust creation and administration, and prudent tax planning — particularly under The Supreme Court’s recent holding in Kaestner — makes selecting the proper trust jurisdiction more important now than ever. As the “devil is in the details” when comparing nuances among top tier trust jurisdictions, objective information and charts comparing the various states — similar to this chart — are important tools for advisors and the families they serve.

An often overlooked, but extremely important factor is a state’s fiscal soundness and stability.  Currently, top tier trust jurisdictions like South Dakota have no state income tax which is one of the factors that renders the state so attractive to planners. However, there is no guarantee this will always be the case which is why evaluating the fiscal strength of a state when selecting a trust jurisdiction is essential. An objective evaluation, considering multiple factors, reveals that South Dakota is unequivocally the most fiscally sound of all the top tier trust jurisdictions.

With respect to the likelihood that South Dakota will ever impose a state income tax, consider the following facts and watch the video below to learn more.

  • South Dakota has a constitutional prohibition against estate and inheritance taxes, and requires a 2/3 vote of both houses of the legislature to impose an income tax.
  • South Dakota has had a balanced budget each year since statehood, and again has one this year.
  • Despite having no income tax, South Dakota ranks 1st out of all 50 states according to The Pew Charitable Trusts research and analysis with respect to tax revenue volatility with an extremely stable state income stream. (Alaska is 50th, Wyoming 48th, Delaware 38th, Nevada 29th, and New Hampshire 7th)  1
  • In terms of debt and unfunded retirement costs with public pensions over 100% funded, South Dakota ranks lowest of all states at 1st. (Alaska is 50th, Delaware 43rd, Nevada 32nd, New Hampshire 26th, and Wyoming 10th)  2
  • South Dakota ranks in the top 10 in budget surpluses for how long the state can run on just rainy day funds.  3
  • South Dakota has a AAA bond rating by all 3 rating agencies, indicating a very strong state government and fiscal presence.  4
  • In 2018, the nonprofit Mercatus Center at George Mason University ranked all the states by fiscal condition considering a number of factors including cash solvency, budget solvency, long run solvency, service level solvency, and trust fund solvency. South Dakota ranked as 2nd, just behind Nebraska. (Wyoming is 6th, Nevada 10th, Alaska 11th, New Hampshire 12th, and Delaware 44th.)  5
  • Finally, South Dakota has the second highest bank assets in the nation, slightly behind Ohio, reporting in excess of $3.16 trillion, ahead of New York and every other top tier trust jurisdiction.

When planning for families and looking to the future, the fiscal soundness of a state is an extremely important factor to consider in conjunction with a careful comparison of each state’s trust laws — particularly with trusts that are designed as dynasty trusts — with the intention to exist for many years, over multiple generations. South Dakota trust law and its relative fiscal soundness, when compared with that of other top tier jurisdictions in the aggregate, clearly indicates that it is the superior jurisdiction in the nation, and the most compelling choice for trust situs.

For more information regarding fiscal soundness and its importance while selecting trust jurisdiction, please contact Bridgeford Trust via our contact page.

 

 

1 https://www.pewtrusts.org/en/research-and-analysis/articles/2018/08/29/tax-revenue-volatility-varies-across-states-revenue-streams.
2 https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/fiscal-50#ind4
3 https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/fiscal-50#ind5
4 https://en.wikipedia.org/wiki/List_of_U.S._states_by_credit_rating
5 https://www.mercatus.org/publications/urban-economics/state-fiscal-rankings?utm_source=twitter&utm_medium=social&utm_campaign=fiscalrankings2018

Affirmation of Powerful State Tax Planning Using Trusts

In a unanimous decision, the Supreme Court in the Kaestner case struck down North Carolina’s attempt to tax undistributed income of a resident trust properly sitused and administered in a no income tax state like South Dakota. In the same session, the Supreme Court denied cert in Fielding, upholding the Minnesota Supreme Court’s decision also striking down that state’s attempt to tax undistributed trust income within a resident trust. The Court, in both cases, indicated that taxation of undistributed income within a resident trust is a violation of the United States constitution, affirming and validating powerful state tax planning tools available in non-income tax jurisdictions like South Dakota. The decisions underscore the vital importance of selecting the proper trust jurisdiction, and again accentuates that the choice of a state in which to establish a trust is as critical as the decision to create one in the planning process.

The two cases addressed and confirmed that it is violation of both the Due Process and Commerce Clauses for states to tax undistributed income in a trust where the only contact with the state is the domicile of the beneficiary (Kaestner) or the settlor (Fielding). The holdings in both cases provide great clarity and guidance for planners and practitioners, and affirms the power of modern trust law and trust jurisdiction selection. If you missed it, click here for a webinar discussing practical implications of the ruling. In addition, click here for information about compelling state tax planning opportunities using trusts properly sitused in top tier, no-income tax jurisdictions like South Dakota. You can also view an objective and well-researched chart comparing top tier U.S. jurisdictions by clicking here.

For more information on these cases and state tax planning tools, please contact Bridgeford Trust via our contact page.

South Dakota Again Ranked As Top U.S. Dynasty Trust State

For the 8th consecutive year, South Dakota is ranked as the top Dynasty Trust state in the nation while Delaware – long considered a top tier trust jurisdiction – ranks in 8th position, outside the top tier. A Dynasty Trust, not available in all states, is a powerful planning tool that essentially allows a trust to live in perpetuity (forever), therefore never subjecting the assets to federal estate taxation through a forced distribution. South Dakota was the first state in the nation to abolish the Rule Against Perpetuities in 1983, clearing the way for the creation of the first Dynasty Trust.

The rankings chart – an annual ranking of Dynasty Trust states published by Nevada attorney Steve Oshins – is an excellent resource for advisors and clients due to the methodical and objective approach of evaluating the factors that impact the viability of Dynasty Trust states, such as whether they have an asset protection trust statute and state taxation on trusts, a particularly relevant and important topic given the Supreme Court’s recent unanimous decision in the Kaestner case and the Court’s denial of Cert in the Fielding case. Click here for a recent webinar focused on these cases. The holdings in both cases affirm and confirm powerful state tax planning opportunities using trusts in non-income tax states like South Dakota. The chart accentuates the vital importance of selecting the proper trust jurisdiction in the wealth and trust planning process to ensure that clients are availing themselves of the most progressive and modern trust laws in the country, accessing powerful tax planning and asset protection.

A very important factor to consider relative to whether a Dynasty Trust state is the best for clients, which is not considered in Steve Oshins’ chart, is privacy. Most states have no privacy provisions and in Delaware, after 3 years, sealed trust information can become public. However, South Dakota is the only Dynasty Trust state that has a total, non-discretionary seal on trust information forever, prompting Trusts & Estates Magazine to observe,

“Of the top tier trust jurisdictions, South Dakota has the best trust privacy laws.”

Click here for more information about South Dakota’s powerful privacy provisions.

Other important factors not considered in Steve Oshins’ chart are the availability of the Special Purpose Entity, as well as the created Community Property Trust and Family Advisor, powerful planning tools not available in other U.S. trust jurisdictions that deliver far more direction and control over trust creation and administration to settlors of trusts, beneficiaries, and their advisors than ever before. Learn more about these very progressive and cutting edge trust laws offered by South Dakota, and view an objective chart comparing top tier trust jurisdictions by clicking here, which clearly shows that, in the aggregate, South Dakota is the superior U.S. trust jurisdiction.

Steve Oshins’ chart can be viewed by clicking on the image below.

For more information regarding Dynasty Trusts, please contact Bridgeford Trust via our contact page.

Bridgeford Trust to present on “Trusts and Situs after Kaestner: Establishing Domicile, Relocating a Trust and Taxing Beneficiaries” Webinar – October 31

Bridgeford Trust Company is very pleased to be participating in an upcoming webinar – “Trusts and Situs after Kaestner: Establishing Domicile, Relocating a Trust and Taxing Beneficiaries” – scheduled for Thursday, October 31, 2019 at 1:00pm EDT. The program is produced by Strafford, a leading education company providing premium CLE and CPE courses designed for planning professionals in over 40 legal, accounting, and tax practice areas.

This webinar will provide professionals who advise and prepare returns for trusts updated information on trusts’ situs in light of the Kaestner decision. The speakers will cover the criteria states use to tax trusts and trust beneficiaries, steps to relocate a trust, and when it is best to do so. The panel includes David Warren, Co-Founder and Chairman of the Board of Bridgeford Trust Company; William Lipkind, Partner at Wilson Elser; and S. Gray Edmondson, Partner at Edmondson Sage Dixon.

The panel will review these and other important issues:

  • State methods for taxing trusts
  • Situs considerations when forming a trust
  • When and how to relocate a trust
  • Impact of Kaestner on trust taxation
  • Amending returns in light of Kaestner

 To learn more and to register, please click here.

And if you missed Bridgeford Trust’s webinar focused on the Kaestner case and its practical implications with respect to state tax planning and the power of utilizing sophisticated modern trust law planning techniques, only available in top tier trust jurisdictions like South Dakota, click here for a full recording of the presentation.

Bridgeford Trust to Sponsor STEP LatAm’s 2019 Conference

Bridgeford Trust Company is excited to once again be sponsoring the STEP LatAm Conference taking place this year on October 17-18 in Brazil! The theme of the conference is “Building Knowledge Across Borders: Advising Families Today and Tomorrow” and the two days feature cutting edge speakers and a program designed to inform and engage wealth structuring and trust and estate practitioners.  The United States continues to be the jurisdiction of choice for international families. Click here for an informational webinar about many of the factors bringing international families to the United States and modern trust law planning tools available in top tier jurisdictions like South Dakota.

David A. Warren, Chairman and Co-Founder of Bridgeford Trust Company and President and CEO of Bridgeford, along with Terry L. Harris, Managing Director of Bridgeford, will be attending the STEP LatAm Conference. If you are going to be there as well, we would love to see you so please stop by Bridgeford Trust Company’s booth, or reach out to us in advance so we can be sure to connect.

STEP is a global professional association for advisors specifically specializing in family inheritance and succession planning in the international space. STEP works to improve public understanding of issues facing international families, promote education, and strongly encourage very high professional standards among their members and practitioners. To learn more about STEP, click here.

If you would like additional details about the event, visit the conference website at www.steplatamconference.com.

Bridgeford Trust to Co-Sponsor and Speak at McKonly & Asbury’s Collaborate 2019 Conference – November 7th in Harrisburg, PA

Bridgeford Trust is excited to once again co-sponsor and speak at McKonly & Asbury’s upcoming Collaborate 2019 Conference. McKonly & Asbury is an accounting, consulting, and tax firm headquartered in Harrisburg, Pennsylvania that provides advisory, assurance, entrepreneurial, internal audit, professional placement, and tax services to many of the MidAtlantic region’s largest and most well-known companies and organizations. This 7th annual conference incorporates a keynote, general sessions, and a variety of breakout sessions for attendees to choose from. It is taking place on Thursday, November 7, 2019 at the Sheraton Harrisburg-Hershey Hotel from 7:30am-5:00pm.

Conference Keynote: Eric Maddox, Lead Interrogator in the Saddam Hussein Capture            

Staff Sergeant Maddox conducted over 300 interrogations and collected the intelligence which directly led to the capture of Saddam Hussein. Eric has honed his systematic methods of creating influence in hostile environments but has found they are equally as useful in building or retaining business relationships. Eric’s keynote presentation – Trust Through Empathy Based Listening – shares the psychology of influence and how he believes it can be created in any environment.

Bridgeford Trust’s Breakout Session: “Powerful Tax Planning Opportunities Using Trusts” 

David A. Warren, Co-Founder and Chairman of Bridgeford Trust Company and President and CEO of Bridgeford will be presenting in an afternoon breakout session on the “Powerful Tax Planning Opportunities Using Trusts.” As you may be aware from previous posts and webinars, Bridgeford has presented extensively on the Supreme Court’s recent important, and unanimous, decision striking down North Carolina’s attempt to tax undistributed income of a resident trust properly sitused and administered in a no-income tax state like South Dakota. Indicating that to do so is a violation of due process, the Court’s decision is an important affirmation and validation of powerful state tax planning tools available in no-income tax jurisdictions.

This session will explore practical applications of the Supreme Court’s decision and various tax planning strategies using trusts. It will also compare “top tier” trust jurisdictions and factors that distinguish them when selecting where to establish a trust.

For more information on the day’s events and to register, visit https://collaborate2019conference.eventbrite.com. We hope to see you there!

Delivering Direction and Control Podcast Series – Episode 6

Episode 6 is now available on Bridgeford Trust Company’s Delivering Direction and Control Podcast Series! Head on over to our podcast page at bridgefordtrust.com/podcasts to hear the latest episode!

Episode 6 features David Warren – Chairman of the Board/Co-Founder of Bridgeford Trust Company and President/CEO of Bridgeford – and guest speaker, Jonathan Gopman – Partner and Chair of Akerman’s Trusts and Estates Practice – for part 2 of our discussion focused on the international trust space including asset protection, cryptocurrency, privacy concerns, and more.

Bridgeford Trust Company’s Podcast Series was developed to educate, challenge, and inspire listeners. As we interview experts in the trust planning arena, we will keep listeners updated on developments regarding modern trust law and provide practical discussion on the powerful planning opportunities available to advisors around the country and the world – all in an effort to deliver far more direction and control to clients and their advisors than ever before.

We hope you enjoy Episode 6!

Bridgeford Trust to present at “Credits and Cocktails at Vault634” on October 3

Bridgeford Trust is very pleased to be presenting at an upcoming event on October 3, 2019 in Allentown, PA at the exquisite Lehigh Valley Trust Building. The program – Credits and Cocktails at Vault634 – will be held in conjunction with RiverWealth Advisors and Cornerstone Advisors.

David Warren, Co-Founder and Chairman of the Board of Bridgeford Trust Company along with Paul Fabiano, Corporate Counsel of Cornerstone Advisors will present “Modern Trust Law and the Power of Collaboration: A New Wealth Management Paradigm.” The evolution of modern trust law has created an environment for the possibility of tremendous collaboration among investment managers, insurance professionals, and trust companies, therefore eliminating – almost entirely – conflicts of interest that exist in the traditional approach to wealth management and trust administration. This presentation will explore cutting-edge modern trust law concepts that make this environment possible such as the directed trust, trust protector, and decanting. The session will also consider powerful asset protection and privacy capabilities by simply selecting a progressive trust jurisdiction.

This presentation provides CLE and CPE for attendees. In addition, the event will celebrate River Wealth Advisors’ new office location in Allentown. The agenda for the evening is:

4:30pm – 5:00pm: Networking and Registration
5:00pm – 6:00pm: Modern Trust Law and the Power of Collaboration Presentation
6:00pm – 7:00pm: Heavy Hors D’Oeuvres, Cocktails and Conversation in Vault 634’s Speakeasy

To register for this complimentary event, please visit: https://www.surveymonkey.com/r/Vault634. We hope to see you on October 3!

Delivering Direction and Control Podcast Series – Episode 5

Episode 5 is now available on Bridgeford Trust Company’s Delivering Direction and Control Podcast Series! Head on over to our podcast page at bridgefordtrust.com/podcasts to hear the latest episode!

Episode 5 features David Warren – Chairman of the Board/Co-Founder of Bridgeford Trust Company and President/CEO of Bridgeford Advisors – and guest speaker, Jonathan Gopman – Partner and Chair of akerman’s Trusts and Estates Practice – for a discussion on the Kaestner case, Community Property Trusts, and Directed Trusts.

Bridgeford Trust Company’s Podcast Series was developed to educate, challenge, and inspire listeners. As we interview experts in the trust planning arena, we will keep listeners updated on developments regarding modern trust law and provide practical discussion on the powerful planning opportunities available to advisors around the country and the world – all in an effort to deliver far more direction and control to clients and their advisors than ever before.

We hope you enjoy Episode 5!

Delivering Direction and Control Podcast Series – Episode 4

Episode 4 is now available on Bridgeford Trust Company’s Delivering Direction and Control Podcast Series! Head on over to our podcast page at bridgefordtrust.com/podcasts to hear the latest episode!

Episode 4 features David Warren – Chairman of the Board/Co-Founder of Bridgeford Trust Company and President/CEO of Bridgeford Advisors – and guest speaker, William Lipkind – Attorney, Partner, and Chair of Wilson Elser’s Tax Planning & Controversies Practice – for Part 2 of a discussion on Incomplete Non-Grantor Trusts along with the Kaestner case and the concept around undistributed trust income.

Bridgeford Trust Company’s Podcast Series was developed to educate, challenge, and inspire listeners. As we interview experts in the trust planning arena, we will keep listeners updated on developments regarding modern trust law and provide practical discussion on the powerful planning opportunities available to advisors around the country and the world – all in an effort to deliver far more direction and control to clients and their advisors than ever before.

We hope you enjoy Episode 4!