Residents of Clark, Nevada, are probably familiar with the fact that national companies sometimes move certain operations or assets overseas to reduce tax burdens. Individuals who have accrued a certain amount of wealth can mimic this tactic by creating trusts in states with a lower tax burden. Residents of Nevada, which is considered one of the better states for trusts, can take advantage of tax benefits in their home state.
According to the managing director of a bank corporation in another state, tax laws regarding trusts on the state level vary widely. This opens the door to strategic planning on the part of wealthy individuals. One attorney, who has moved as much as $500 million for a single client, isn't surprised people take advantage of the opportunity in other states to safeguard funds for beneficiaries or themselves.
Not everyone is happy that there are options, however. One state has lost an estimated $150 million a year in tax revenues due to movement of trusts outside of its borders. Trust funds are private, so there isn't a total accounting of how much money is changing states. However, the fact that Nevada had $8 billion in trust assets in 2008 and $18 billion in 2013 indicates that the total is likely quite high.
The practice of avoiding taxes by shifting trusts out of state is legal and can save individuals and beneficiaries tens of thousands of dollars. According to some reports, the practice is a win-win situation for states like Nevada. Many believe the relaxed income and estate taxes in such states attract businesses to the area, which generates more revenue than the taxes would.
Taxes should play a role in estate planning, regardless of where you are planning to set up trusts. There is nothing wrong with trying to maximize the amount of funds you can leave your family, and taxes in some areas can take a sizable chunk of your wealth.
Source: St. Louis Post-Dispatch, "Wealthy avoid taxes by moving assets to no-tax states" No author given, Dec. 29, 2013