Powerful Combination for NRAs: U.S. domestic life insurance and a South Dakota Trust.
Domestic life insurance for NRAs is an exempt U.S. situs asset not subject to U.S. estate taxes. Consequently, the proceeds from a life insurance policy paid by a U.S. insurer on the life of a non-U.S. individual aren’t U.S. situs property for estate tax purposes. However, most domestic insurance companies require that the NRA have a tie to the United States to secure the insurance. Thus, a South Dakota trust, although not required to save U.S. estate taxes, is frequently used to serve this purpose. If the policy is large enough and/or private placement life insurance is purchased, then the NRA frequently chooses a low premium tax modern domestic trust jurisdiction. As demonstrated by the chart below, South Dakota has one of the lowest state premium taxes for trusts and the lowest for LLCs.
|Selected State Premium Taxes||Premium Tax|
|New Hampshire||125 bpts.|
|New Jersey||210 bpts.|
|New York||200 bpts.|
|South Dakota||8 bpts. - Both LLCs and trusts|