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State Premium Tax Savings

Competitive state premium taxes, excellent asset protection and modern domestic trust laws, as well as improved domestic regulatory costs and state consumer laws for insurance policies have resulted in much larger life insurance contracts being issued onshore in South Dakota versus the traditional route of offshore or domestically in another state.

Generally, state premium taxes are imposed on life insurance premiums paid to the state in which the applicant for the insurance policy is resident, domiciled or sitused. The insured's resident state does not generally levy a premium tax on premiums paid for a life insurance policy purchased by a South Dakota trust (either revocable, with a separate tax ID number, or irrevocable) or a South Dakota LLC. The premium tax is generally paid in the state of the trust or LLC situs (i.e., South Dakota). South Dakota has the lowest state premium tax (i.e., 8/100ths of 1% or 8 basis points) in the United States for premium payments in excess of $100,000. Additionally, South Dakota has very favorable trust, lending and insurance statutes. The majority of the other states' premium taxes average about 1.75% -2.5%. Please see the chart below:

Source: Al W. King III and Pierce H. McDowell III, "State Premium Tax Planning," Trusts & Estates (June 2011) at p. 26

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