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