As a retired US Marine turned full-time RV, Ken Lewis admits that he doesn't have much in common with the world's millionaires and billionaires – "no retired military, no way," he told MarketWatch.
That is, except for one thing: a money-conscious connection to the state of South Dakota. Both RVs like Lewis and some of the richest people in the world share an affinity for the state, a quirky commonality that reveals a lot about America's different tax laws.
Why RV Drivers Flock to South Dakota
South Dakota is a prime RV destination like Lewis, who spend their time wandering America's highways, back roads, and campsites in RVs – a lifestyle many Americans adopted during the pandemic – but need a place to get out of Call home for tax reasons.
With no income tax and simple business start-up rules, the state even has a home industry that helps newcomers make South Dakota their official home. The process begins with just one night's stay in the state, according to a company committed to helping people become South Dakota residents on paper.
Lewis, 70, and his wife became a South Dakota resident in 2013 when they retired and started full-time RVing across the country. Lewis was from California and took into account the lack of a South Dakota income tax, low sales tax, low registration fees, and ease of getting a driver's license for his RV. When he takes his Winnebago to a campsite, Lewis says it's common to see a lot of license plates in South Dakota.
Ken Lewis, a full-time RV, with his Winnebago. Many RVs are settling in South Dakota for the same reasons that the state is a haven for wealthy people.
Photo courtesy Ken Lewis
Two sides of the same coin
On the flip side, if your finances get you into the top ranks not just in the country but around the world, in South Dakota – with state-level laws that allow trusts to go on forever, free from state income tax, capital gains tax and supported by court-sealed documents – is also a goal. There is also a home industry that helps build and maintain these trusts that the wealthy can use to mortgage assets.
The state plays a recurring role in the recent Pandora Papers research by the International Consortium of Investigative Journalists into the ways powerful people in the United States and beyond are hiding their wealth around the world.
In America, South Dakota had 81 trusts audited in the Pandora Papers based on nearly 12 million leaked documents. That's way ahead of Florida, the runner-up state, with 37 trusts under the microscope.
The fact that South Dakota is attracting RVs like Lewis and a pile of trusts for the elite shows two sides of the same coin, according to Jared Walczak, vice president of government projects at the Tax Foundation, a right-wing think tank.
"People and their property move around according to state tax laws and regulations," he said, noting that South Dakota has "one of the lowest tax rates in the country."
People all over the income ladder will find a way to maximize their money by sticking to the basic rules that they have – but are these rules fair, especially for the rich? It is a sensitive question to be asked at a time of growing income inequality and the debate over tax policy for the rich in America.
Why South Dakota is popular with billionaires
In 1983, South Dakota became the first non-income tax state to allow trusts to continue operating with no end date – that's a long time to waive state income taxes.
Other states have followed suit, and others set long, if fixed, time frames for a trust to exist. A trust can last 365 years in Nevada and 1000 years in Wyoming.
These time spans appeal to people who want to help their families for generations. Promotional materials for perpetual trusts in each state are "replete with thinly veiled appeals to the vanity and dynastic aspirations of the settlers," according to an article in the Pepperdine Law Review.
Even without state income tax, South Dakota trusts are still subject to state income tax obligations, said Tom Simmons, a trust and estates professor at the University of South Dakota Knudson School of Law. (Trust beneficiaries also pay federal taxes on distributions they receive from the trust, and also state taxes depending on where they live.)
The top tax rate of 37% on normal income is currently $ 13,051 for trusts, according to Fidelity Investments. The 20% capital gain rate starts at a threshold of $ 13,250, according to Fidelity.
The maximum rate hits a trust much faster than people filing their taxes.
But in order to face taxation at all, a trust would have to sell a capital value or generate income. That could be things like interest on a bank account, stock dividends, the sale of capital assets, or leases on a farm, Simmons noted.
One criticism from Pandora Papers is that trusts allow the rich to amass assets with little transparency.
Trusts "create dynastic concentrations of wealth," said Chuck Collins, author of The Wealth Hoarders, How Billionaires Pay Millions to Hide Billions. “When you are that rich, you think very long term. You think about your unborn great-grandchildren and make sure that they never have to work. "
South Dakota also has appeal for its trust statue, which clearly and in detail describes the rules that trusts and their creators, beneficiaries and administrators must follow, Simmons said.
Simmons has served on the South Dakota Governor's Task Force on Trust Review and Reform for approximately eight years. The Expert Group on Trust Law and Industry of the State was established "with the aim of establishing and maintaining South Dakota's status as the premier trust jurisdiction in the United States," according to the state's Department of Labor and Regulation.
South Dakota trusts can be written to protect a child's assets in the event of a future divorce, and Simmons noted that this is different from certain other states. At the same time, state law states that a person cannot fraudulently transfer assets to a trust in order to hide them from someone who may be entitled to them, Simmons noted
But good luck to the public in learning about litigation. “South Dakota has the most comprehensive data protection law in the United States for fiduciary matters with a court; H. automatic full seal over time, ”said the South Dakota Trust Company.
Different views on the fairness of tax laws
Simmons read the article in the Pandora Papers but said he was still trying to "track down any serious, substantial concern that South Dakota should address."
According to Simmons & # 39; Reading the article's objection was that wealthy Americans followed South Dakota laws to set up trusts that legally reduced the tax burden they might have if they set up the trust in another state. Regarding international families with reported links to South Dakota trusts, Simmons said he expected them to be "largely targeted by tax treaties".
"I think we tend to say that when I do tax planning, if I do the standard deduction it is acceptable," Simmons said. "But when the rich choose the deductions they're entitled to, that's tax avoidance."
There are big differences between a person who might come to South Dakota in their plans to drive around the country and complex trusts in the state, Simmons said. The trust remains in South Dakota and some RVs may not be truly blue South Dakota residents and may be responsible for state income taxes elsewhere.
But there is a common motivator, he said. "I think people see South Dakota as a fair place that doesn't overwhelm its citizens."
Collins agrees that at some technical level, "nothing is broken" with the trust rules and industry of South Dakota – but that's because lawmakers have been "vigilant over the years to adjust their laws in the race to the bottom" .
The state competes with other places like Nevada and Wyoming to attract and keep trusts and the money and jobs they bring to cover administrative costs, said Collins, director of the Inequality and Welfare Program at the Institute for Policy Studies.
“The problem for the rest of us is that rich people shouldn't be able to hide their wealth forever. … And the rest of us have to pay the bill, "said Collins.
Collins sees similarities between the South Dakota Trust crowd and the financial considerations of some of the full-time RVs coming to South Dakota. But the "big difference is that I don't see RVs doing a lot of damage," he said.
He cannot say the same of trusts and the laws surrounding them in South Dakota and elsewhere, which he believes contribute to "grotesque inequality."
Simmons acknowledges that many trusts are built by people with wealth in order to keep those wealth in the family. But without the rules and safeguards of a trust, a windfall for a child unwilling to make money can also be detrimental, he said – and the money could end in crooks and unsavory followers. "I don't think there is any guarantee that it will go where you want it," he said.
Lewis, speaking from Ohio with a purpose in Georgia, said he may not know what it says about South Dakota law that RVs and wealthy households both keep an eye on the state.
But for both groups "it shows that people have done their due diligence".
If Lewis had his way, there would be a flat tax “with no loopholes or depreciation”. But until that moment comes, Lewis said that the tax rules in the written form are fair game. "As long as there is a law that a person can take advantage of, he should take every chance to take advantage of it."