If you look at the Forbes 400 Richest People in the US or the World, you can rest assure only the tiny minority are not using tax havens somewhere in the world. It used to be European countries, then it expanded to Caribbean Countries and now there are countries around the world how offer tax havens. It turns out some US states are also becoming tax havens, even though there are few billionaires in the state. The leading states are South Dakota, Florida and Delaware.
In an article by Randall Chase of the Associated Press, a key reason why many wealthy people turn to a certain tax is that lawmakers have abolished the rule against perpetuities. Eliminating the rule has allowed the establishment of dynasty trusts in which wealth can be passed from generation to generation while avoiding federal estate taxes.
One might guess why the law changed in South Dakota – to allow farms to be passed onto one generation to the next. However the dynasty trust has attracted billions of dollars. Another law in South Dakota and Delaware allows for asset protection trusts, which protects wealth from claims of creditors. Such trust can be attractive to wealthy lawyers and doctors as a measure to shield their assets from malpractice claims. Trusts can also protect assets against ex spouses, disgruntled business partners or angry clients. The trusts can be changed as the trustees desire it to be changed.
Delaware has a long history of corporate protections and many of the fortune 500 companies are incorporated in Delaware or have assets or trusts in shell companies set up in Delaware.
Linking to dividend paying stocks, while most of us expected the companies we invest in to be good corporate citizens, they are also likely to have trusts designed to protect the wealth and most CFOs are well aware of the use of tax avoidance. There is a reason why Apple has a Ireland address. Papers such as the Panama Papers or the Pandora Papers shed light on how the elite and the corrupt use offshore accounts and most companies use them. The tax havens likely will be with us for many years to come.
There are more questions than answers, till the next time – to raising questions.