Monday, October 26, 2020

Billionaires found solace in South Dakota as tax haven

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South Dakota’s unusual stature as a leader nationwide in chartering trusts has been in the national headlines in recent weeks because of a new turn in a Texas billionaire’s messy divorce.

CNBC said this week: “South Dakota is fast becoming a mini-Switzerland for the world’s rich.”

“Analysts and local politicians estimate that $250 billion to $900 billion is now stashed in South Dakota trusts by the likes of Chinese billionaires looking to keep their fortunes out of reach of the government, Europeans looking to avoid taxes and Americans looking to shield wealth from spouses,” the network added.

“A High-Stakes Divorce Illustrates How the Rich Play Real-Estate Tug of War,” said The Wall Street Journal on April 9.

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Marie Bosarge filed a lawsuit recently against her husband of 30 years, billionaire Ed Bosarge. She’s 66 and he’s 80. They owned 12 homes, a 180-foot yacht with a grand piano, and a $5 million, 3,000-year-old Egyptian mummy.

However, she said he is now living with a mistress. He’s pushing for the divorce and has hidden many of their assets in South Dakota, she said.

Mrs. Bosarge said she learned that up to $2 billion in their assets — money and real estate and mummies — was bought through or transferred into “a series of ever-changing trusts overseas and in South Dakota,” The Wall Street Journal reported on April 9.

Her attorneys said Mr. Bosarge used the trusts, in South Dakota and elsewhere, to hide and keep income and property from her that ordinarily would belong to her as part of the couple’s community estate. She might end up with little or nothing in the divorce, she says.

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Jeff Diament, a Houston divorce trial attorney not involved in the Bosarge case, told the Journal that South Dakota “has the strongest laws protecting trusts,” in the nation. The complicated and confidential trusts can become a form of money-laundering, especially in divorce cases, Diament said.

The Journal reported that several divorce attorneys and others familiar with trust law say they know of “no precedent in which an aggrieved spouse has successfully accessed the assets in a South Dakota trust in a court-ordered divorce settlement.”

South Dakota State Sen. Susan Wismer, a Democrat and accountant from Britton, who has opposed the state’s expansive attitude to trusts, told the Journal there is about $900 billion in the 105 trusts overseen by the state’s Banking Division.

Combined with the fact the state has no income tax, the trust laws that have been made more friendly over the past few decades have attracted a lot of outside wealth, because the state offers secrecy, Wismer says.

The state has chartered 105 trusts, 63 of them public and 42 private, according to online documents with the Banking Division.

They need to have a South Dakota presence. Nearly all the South Dakota addresses for the trusts are in Sioux Falls, with quite a few of them sharing addresses.

Seven of the trusts have Pierre addresses; all but one of them at the same address: 303 S. Poplar Ave., Suite 103. This is just down the street from the Dairy Queen in a brick office building with the name Bridgeford Trust Company LLC on it.

Bridgeford, based in Johnson City, Tennesee, states on its website that it offers, “A new wealth management service paradigm. As an independent, full service trust company with South Dakota Trust powers, Bridgeford Trust Company provides trust and fiduciary services to domestic and international families across the country and the world. Through deliberately selecting South Dakota over other top-tier U.S. trust jurisdictions for its trust charter, Bridgeford Trust Company leverages that state’s industry-leading modern trust laws and represents a new and emerging wealth management paradigm built around delivering direction and control to settlors (cq) of trusts. . . .”

An employee at Bridgeford told the Capital-Journal on Friday the firm also handles administrative and office work, including answering the phone, for five other trusts.

A seventh trust with a Pierre address is the Acorn Trust Company at 2930 Airport Road.

In articles published in the Capital-Journal, veteran political journalist Bob Mercer has tracked for years the way “South Dakota quietly became a leader in the national trust field,” he wrote in 2018.

It began in 1997 under Gov. Bill Janklow and grew to 65 trusts by 2012, and 95 by the end of 2017 to 105 today.

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The state raked in $1.4 million in fees for overseeing the trusts in 2017, Mercer reported.

Wismer has fought against making the state more friendly to the wealthy parking their money here confidentially.

In January 2018 in the legislature, she said trusts and video lottery are comparable, except trusts provide better-paying jobs, Mercer reported.

South Dakota has become a haven for “fiefdoms from generation to generation,” Wismer told lawmakers. “It’s really nothing to be proud of,” she told other committee members and several financial professionals in the room. “It’s the way South Dakota has struggled to find alternative sources of revenue that really, in the long run, are not good for democracy as a whole.”

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