U.S. Trust Situs Selection in Unprecedented Times: The Vital Importance of Fiscal Soundness Post COVID-19

Selecting the proper U.S. trust jurisdiction in the planning process is perhaps more important now than ever as the nation and world navigates the COVID-19 crisis and soon emerges into a new “normal” socially, politically, and economically. Undoubtedly, the nation and world will recover, heal, and be stronger than ever because of the sheer power, adaptability, and unbreakable will of the human spirit.

The federal and state governments across the nation have taken swift historic action to support struggling businesses and families. These actions, and the hard work of many great political leaders, have been inspiring to watch over the past several weeks as thousands of businesses and families are helped across the nation by federal and state government funded support measures. However, the difficult reality is that state governments across the nation are dealing and will deal with extremely difficult economic issues in the aftermath of tremendous spending. As reported in the The New York Times,

“State governments are facing a fiscal crisis born of collapsing revenues, increased demand for safety-net programs like Medicaid, and the direct costs of leading the COVID-19 response.”

Therefore, as we look to wealth and trust planning in a post COVID-19 world, a critically important factor to consider when selecting proper U.S. trust situs will be 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, particularly during these unprecedented and uncertain times, which is why evaluating the fiscal strength of a state when selecting a trust jurisdiction is more essential now than ever.

An objective evaluation, considering multiple factors, reveals that South Dakota unequivocally entered the COVID-19 crisis as the most fiscally sound of all the top tier trust jurisdictions and has the greatest likelihood to be the strongest and most stable post crisis.

With respect to the likelihood that South Dakota will ever impose a state income tax, even after the COVID-19 crisis, consider these factors:

  • South Dakota did not shut down business or commerce to the degree or severity as most other states during the crisis, therefore maintaining jobs, essential tax revenue, and not placing strain on the state’s “safety-net” programs.
  • 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 entered the crisis ranking 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 entered the crisis ranking lowest of all states at 1st (Alaska is 50th, Delaware 43rd, Nevada 32nd, New Hampshire 26th, and Wyoming 10th). 2
  • South Dakota entered the crisis ranking in the top 10 in budget surpluses for how long the state can run on just rainy day funds. 3
  • South Dakota entered the crisis with 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 entered the crisis the second highest bank assets in the nation, only 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 post the COVID-19 crisis, the fiscal soundness of a state is a critically important factor to consider in conjunction with a careful comparison of each state’s trust laws. South Dakota’s powerful modern trust law and its relative fiscal soundness and stability, 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 in a post COVID-19 economic world.

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

 

 

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
https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2014/fiscal-50#ind5
https://en.wikipedia.org/wiki/List_of_U.S._states_by_credit_rating
https://www.mercatus.org/publications/urban-economics/state-fiscal-rankings?utm_source=twitter&utm_medium=social&utm_campaign=fiscalrankings2018