From across the country, the wealthy trust in South Dakota

Bob Mercer
Capitol Bureau

PIERRE - Year by year, South Dakota is gaining a reputation among the nation's wealthy, and among those who manage their money, as a haven where their assets can be protected very well, very quietly, for a very, very long time.

Under South Dakota law a trust can operate in perpetuity. These are known as dynasty trusts.

South Dakota has no state income taxes on trusts, although trust companies are subject to the bank franchise tax.

Most of these trusts operate for the benefit of people who don't live in South Dakota. Some of the trusts carry names such as Wrigley, Biltmore and Guggenheim.

There are 30 state-licensed trust companies headquartered in South Dakota, at least on paper. They operate under the state Banking Commission's oversight. The commission recently approved two more to start here.

The trusts' South Dakota paperwork is handled primarily by a handful of Sioux Falls lawyers. In most cases the actual investments are managed elsewhere by others.

Now the Banking Commission plans to ask the Legislature to make it easier for trusts to open in South Dakota.

Under proposed changes, trust company applications which are uncontested could be decided for approval or denial by the state director of banking (currently Roger Novotny) without being presented to the commission. The director's decision could be appealed.

Currently only the commission can approve or deny applications, after a review by the director.

Trust companies also would no longer need to show there is a community need for their services. This standard hasn't appeared to be a consideration in approving recent applications.

Existing law requires that trust companies be organized by a minimum of five people. A proposed change would reduce that minimum to three.

The question which is likely to arise, again, is: What does South Dakota get in return for such favorable treatment of trusts?

Twenty-seven of the 30 trusts currently operating in South Dakota list their official addresses in Sioux Falls, include 10 in various suites at 309 S. Phillips Avenue.

That is the headquarters of South Dakota Trust Company, operated by Al W. King III and Pierce C. McDowell III, both former executives for Citibank's trust services.

Their company and a few others aggressively market South Dakota as a site to locate trusts, much as Delaware has long been considered the best place for corporations to put their headquarters.

The hope is that South Dakota's reputation as wealth-friendly rubs off on corporate decisions regarding economic development and investment.

The commission approved six trust charters this year, and six others in 2006. There has been a small, steady flow of trust charters into South Dakota for the past decade.

A group known as the Governor's Trust Task Force was established in about 1996 under Bill Janklow's administration.

Janklow appointed Sioux Falls lawyer Dave Knudson as its chairman. Knudson, now the Republican majority leader in the South Dakota Senate, has held the task force seat ever since.

Gov. Mike Rounds appointed Lt. Gov. Dennis Daugaard, a former bank trust executive, as co-chairman of the task force in 2003.

"We have had one to three (legislative) bills coming from the task force almost every session since 1997. They have all passed by healthy margins," Knudson said

"South Dakota is always listed as one of the top five jurisdictions for trust situs (location) in any survey of the 50 states you might see, and often at No. 1 or 2."

Knudson said the key to South Dakota's reputation has been constant tweaking and updating of the trust laws.

He said there is no down side to trusts locating in South Dakota. They pay for their own regulation through examination fees. There is some direct employment for back office and related operations.

The Banking Commission at its latest meeting approved the applications of two more trust businesses. They are Concord Trust, run by a board of directors who live in Florida, and Alta Trust, operated by a board of directors from the state of Washington.

Both aim to make money by investing and protecting other people's wealth.

Concord's prospective clients are people age 70 and older with net worth exceeding $1 million or annual incomes greater than $200,000. Concord doesn't plan to market its services in South Dakota, according to its principal, Manley Thayer.

The West Palm Beach, Florida, attorney specializes in personal trusts and estates. "I hope we can be of help to South Dakota, and South Dakota will be a help to us," Thayer told the commission.

The second is Alta Trust. It serves Compass Investment Partners, owned by Mark Ponder of Des Moines, Washington, and Adam Ponder, of Federal Way, Washington.

They are pioneers in spreading the use of 401k types of retirement investment plans in the Pacific Northwest, according to Mark Ponder.

He said there is potential for Alta to provide services in South Dakota to clients, including through approximately 50 state-chartered banks which don't offer trust services of their own.

The state Division of Banking doesn't have the staff at this point to provide the necessary regulatory oversight for an operation such as Alta Trust, according to director Novotny.

"We are going to gather the expertise we need to properly examine this institution," he said.

The world keeps turning, and South Dakota with it.