For trust companies, South Dakota is an alluring place to charter

Michael Sadowski//January 10, 2014

For trust companies, South Dakota is an alluring place to charter

Michael Sadowski//January 10, 2014

But it’s one of about two dozen trust companies across the country to choose South Dakota to charter because of less-stringent regulations that result in thousands of dollars in savings for its clients and more-flexible investment options.

Bridgeford set up its South Dakota charter in 2012, the culmination of about four years of planning a business that the company’s executive team said was started to fill a void in the Central Pennsylvania marketplace.

Bridgeford serves about 20 clients and manages about $250 million in assets, catering to the wealthy and ultra-wealthy, according to David A. Warren, its president and CEO.

“When we did the research, and we did a lot of research, it was pretty clear for us to see that South Dakota is where we wanted to be chartered,” Warren said. “What we could offer clients, because of the charter, no one else in Central Pennsylvania can. And they are qualities our clients are looking for in a trust company. Truthfully, we wonder why other people aren’t (chartering in South Dakota).”

South Dakota has 69 trust companies with established charters, believed to be the most of any state, though no national figures are maintained. Forty-one of the trust companies are public, and about 25 of those are based in other states, according to Bret Afdahl, director of the South Dakota Division of Banking.

Public trust companies can take on anyone as a client; private trust companies are set up for one family or business.

Pennsylvania has 17 state-chartered public trust companies, according to Edward Novak III, director of communications for the Pennsylvania Department of Banking and Securities. Six of them are in the midstate. There are also four national trust companies headquartered in the state, Novak said.

Warren and his executive team cited a number of reasons — all based on advantages for clients — for the South Dakota charter: The Midwest state has more-favorable asset protection and privacy laws, does not have a state tax on trust assets and has a directed trust statute that allows nontraditional assets (real estate, art, cars) to be held in trust.

“Not everyone is dealing in liquid assets,” Warren said. “It’s an attractive option for a lot of families.”

Pennsylvania — like other states — hasn’t followed suit to relax some of the laws that attract trust companies to South Dakota, which Warren believes could cause a future exodus of such companies from the state.