Professors Michael Heller and James Salzman, Columbia and UCLA law respectively, add their voices to growing alarm over the emergence of several Western U.S. states from obscure trust repositories to preeminent tax and privacy havens for billionaires worldwide. From dedicated trust vehicles in Utah and Wyoming for registering foreign-owned private jets with the FAA to the famed South Dakota Dynasty Trust, several U.S. states have utilized the separation of federal and state oversight on matters like trust establishment and wealth transfer to become international destinations for the assets of the wealthy.
Ironically, the U.S. drove the international community to embrace more asset transparency, diligently negotiating FATCA agreements with most potential global asset havens. But neither FATCA nor federal agreements with international partners preclude U.S. states from filling the void left when countries like Switzerland embrace transparency over privacy.
In light of long-standing principles of comity and reservation of state powers, it would seem that Heller and Salzman's call for taxation of the estimated trillions stashed in the U.S. mountain states will face an uphill battle. Perhaps a more expedient means to pierce the dynasty trust will arrive in the form of a U.S. District Court. Well-settled laws establishing the long-arm of federal courts to compel discovery globally are already on the books. It seems to be only a matter of time before those laws cross paths with South Dakota's privacy laws. When the right asset recovery case results in a federal court ordering disclosure of accounts of a judgment debtor and South Dakota privacy law protects against such disclosure, who blinks first?
Nevada, Alaska, Delaware and other states also participate in this race to the bottom. South Dakota fends off competition with annual legislative giveaways: new “asset protection” and “decanting” tools for rejiggering existing trusts to stiff spouses, children, business partners and accident victims — while making wealth transfer taxes optional and ensuring ever-stricter secrecy.