ARI SHAPIRO, HOST:
We're learning more about what the Pandora Papers reveal. Those are millions of leaked records reviewed by a group of media organizations. And among other things, these documents show how some of the world's wealthiest people protect their assets with trusts. Many of those trusts have been established in the U.S. In fact, several states are in competition with one another over attracting business from rich people in the U.S. and around the world. NPR's David Gura is here to break some of this down.
DAVID GURA, BYLINE: Hey, Ari.
SHAPIRO: Explain what trusts are and how they work.
GURA: Well, trusts aren't new. They've been around for hundreds of years. And one person agrees to hold on to someone else's assets, like money or property, for the benefit of other people - usually family members. So you could put some money in a trust, and this person who's called a trustee would be responsible for paying out that money over time to, say, your kids or your grandkids. And what's appealing about this, Ari, is the protection it offers. Those assets are mostly safe from creditors and from taxation. If you get sued, look; no one can take them because technically they belong to the trust. And also, that money up to a point is not subject to what's known as the estate tax in the U.S. Now, if you were to give that money directly to your descendants, you would have to pay the estate tax. It would be taxed by the federal government at 40%.
SHAPIRO: And so is that ability to dodge the tax is what's made trusts become so popular?
GURA: It has, but there are a couple of other reasons. And one is trusts offer this level of anonymity. They make it easier for the rich to hide their wealth, and the Pandora Papers show many people have taken advantage of that, including world leaders like the president of Ecuador and celebrities like Ringo Starr. Another reason is the world's wealthy now have more options. There are more places to put their money in trusts. And something that stands out in the work done by the International Consortium of Investigative Journalists is how rich people living overseas are starting trusts in states like Alaska and Wyoming and South Dakota. Gideon Rothschild is a lawyer who helps his wealthy clients do this, and he told me these states have become more appealing than traditional offshore jurisdictions like the Cayman Islands and the Bahamas because the United States offers this sense of security.
GIDEON ROTHSCHILD: You know, you've got a set of laws in a place like South Dakota that you can rely on in the event something untoward occurs.
GURA: That would be something like if trustees don't do what they're supposed to do. But in many cases, Ari, the assets are also seen as more secure than they would be in other countries.
SHAPIRO: You mentioned that these trusts are starting up in Alaska, Wyoming, South Dakota. How do the states compete with one another for this business?
GURA: Yeah, the short answer is they're changing the rules. States continue to pass legislation that makes them more appealing to the wealthy, both in the U.S. and overseas. Traditionally, trusts had to be dissolved after a set period of time. There was this belief that families shouldn't control a set of assets, be they money or property, forever. In the U.S., there are states now that have done away with those limits entirely. A trust can last in perpetuity. South Dakota is one of these states. Thomas Simmons is a law professor at the University of South Dakota. He also advises the state on trusts. And he says one of South Dakota's former governors recognized something decades ago.
THOMAS SIMMONS: We could attract businesses to the state of South Dakota, which doesn't have a whole lot to offer in terms of large numbers of employees or natural resources or coastlines, by means of legislation. And legislation is pretty cheap, right? It's just words on a page.
GURA: And that's what's led to this kind of cottage industry in South Dakota, Ari. We've seen legislation that creates more favorable conditions for trusts pass in other state legislatures as well.
SHAPIRO: Just briefly, what's likely to change as a result of this reporting?
GURA: Yeah, at the state level, critics are using this as a chance to push for more transparency, for more information about who controls trusts and who benefits from them. And then it could lead to stronger reporting requirements. Europe's requirements, for instance, are much more stringent than they are here in the U.S.
SHAPIRO: NPR's David Gura, thank you.
GURA: Thanks, Ari.
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