To subscribe to Capitol Fax, click here. *** UPDATED x1 - Pritzker responds *** “A massive exploitation of a federal tax loophole” Tuesday, Dec 5, 2017 * From a pal’s text message today… You checked out the South Dakota Pritzker trust stuff yet? Um, no, but I just Googled it. * Bloomberg, 2014… Among the nation’s billionaires, one of the most sought-after pieces of real estate right now is a quiet storefront in Sioux Falls, S.D. A branch of Chicago’s Pritzker family rents space here, down the hall from the Minnesota clan that controls the Radisson hotel chain. Other rooms are held by Miami and Hong Kong money. Most days, the small offices of this former five-and-dime are shut. But even empty, they provide their owners with an important asset: a South Dakota address for their trust funds. In the past four years, the amount of money administered by South Dakota trust companies such as these has tripled to $121 billion — almost all of it from out of state. The families needn’t move to South Dakota, deposit their money at a local bank, or even touch down in the private jet. Little more than renting an address in Sioux Falls is required to take advantage of South Dakota’s tax-friendly trust laws. States such as South Dakota are “creating laws that are conducive to a massive exploitation of a federal tax loophole,” said Edward McCaffery, a law professor at the University of Southern California. “We have a tax haven in our midst.” South Dakota’s sudden popularity illustrates how the wealthiest Americans are embracing ever more creative ways to reduce taxes legally. Executives at South Dakota Trust Co., one of the state’s biggest, estimate that one-quarter of their business comes from special vehicles known as dynasty trusts that are designed to avoid the federal estate tax. Creation of such trusts has surged in recent years as changes in federal law have enabled more money to be placed in them. While the super-rich use various tools to escape the levy, the advantage of dynasty trusts is that they shield a family’s wealth forever. That defies the spirit of the estate tax, enacted almost 100 years ago to discourage the perpetuation of dynastic wealth. […] In 2010, the Pritzker family, whose members include Commerce Secretary Penny Pritzker, revealed in a securities filing that one branch had moved $360 million of Hyatt Hotels stock to trusts overseen by a native South Dakotan named Thomas Muenster. Muenster, whose sister married [JB] Pritzker, maintains an office in the Kresge building. […] Jay Robert [JB] Pritzker, his sister Penny Pritzker and his brother-in-law Muenster didn’t respond to messages seeking comment By the way, Thomas Muenster, the brother-in-law, was also involved with that hugely controversial and successful attempt to lower JB Pritzker’s property tax bill in part by removing the toilets from an empty mansion… Pritzker’s name isn’t mentioned in the documents the assessor’s office released for the mansions. Both are owned by a limited liability company managed by Thomas Muenster, whose sister is Pritzker’s wife. But the Pritzker campaign acknowledges that the LLC is owned by a trust for Pritzker. Muenster and the law firm Schmidt Salzman & Moran filed the appeals with Berrios. * MarketWatch, 2014… In the 1990s, most states limited the duration of family trusts to the lifetime of a living heir, plus 21 years; South Dakota, in contrast, had no limits at all. That made it possible, in theory, for a wealthy benefactor to create a trust that could benefit not only her kids, but her great-great-great-great-grandkids. Since then, more states have removed their duration limits, but the Mount Rushmore State has stayed ahead of the competition. South Dakota laws go the extra mile to shield trust assets from creditors and spouses, and let families control their own trust investments, rather than hiring trustees. What’s more, the state levies no income tax on investments. Trusts in the state became particularly popular toward the end of 2012, when wealthier families feared that Congress might make more of their assets subject to estate tax (a fear that wasn’t realized). According to regulatory filings, wealthy folks who have taken advantage of prairie generosity in recent years include the Pritzker family, who moved $360 million worth of Hyatt Hotels Corp. stock to the state in 2010 * Quartz Media, 2014… Most recently, McDowell and his crew persuaded the state legislature to pass laws that make it harder for the former spouses of wealthy people and their children to access assets hidden in South Dakota. That’s just the gravy, however, on laws that attract everyone from the billionaire Pritzker family to the heirs to the Wrigley fortune: They exempt dynastic trusts from federal inheritance taxes and income taxes, allowing generations of heirs to collect money tax-free. South Dakota was one of the first states to make such a law, but now almost a dozen others are following it in a race to the bottom. The South Dakotans cite around a hundred jobs created by the trust industry, and figure that’s enough. But the state is also a net taker from the federal government, which supplies almost half its budget, even as its trusts drain perhaps billions of dollars from federal coffers and hundreds of millions from states where the beneficiaries of these trusts actually live. * Financial Times, 2016… Andy Holmes relocated from Kansas City last year to help his firm, the Great Plains Trust Company, increase its presence in South Dakota after clients, including celebrities and famous athletes, asked about the state’s benefits. Great Plains worked with SDTC to learn the ropes, but last year leased a windowless office in a brick and glass building for its two employees. Down the hall is Maroon Trust, which manages the money of Chicago’s Pritzker family. Elsewhere on the floor is a roofing company. They share a receptionist. Mr Holmes estimates that 90 per cent of the registered trusts in the state “are what I call shell companies where you basically have a PO box or an office and somebody will come here twice a year to have board meetings and meet regulatory requirements.” *** UPDATE *** Pritzker campaign… JB does not have any dynasty trusts; all of the trusts for his benefit have a rule against perpetuities so the “massive exploitation of a federal tax loophole” that is referenced in the article does not apply to JB. - Posted by Rich Miller

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