Sunday, February 09, 2020

Where the Primary is Early but Trusts Last Forever

Tuesday brings New Hampshire’s “first in the nation” primary, after which hordes of political operatives and mainstream media types will move on.

What happens the rest of the year? Trusts. New Hampshire boasts dozens of trust companies, all eager to help wealthholders take advantage of the state’s willingness to let trusts last forever.

New Hampshire’s seal honors
Portsmouth’s shipbuilding heritage.
Best known: John Paul Jones’ Ranger.
As this well-crafted promo from Fiduciary Trust  indicates, New Hampshire also offers other incentives for trustors. Freedom from state income tax on trust income, for instance. (Your obedient blogger pays New Hampshire income tax on his dividends and interest, but irrevocable trusts have an exemption.)

The politicians, pollsters and pundits who descend on New Hampshire every four years give the state economy a significant boost. Does tolerance for perpetual trusts also pay off? Some have their doubts.


Jim Gust said...

I read the linked article. Bizarrely, the author persistently used "trusts" as a synonym for "trust company," which suggests a high degree of financial illiteracy and an absence of editorial supervision.

The great thing about federalism is that encourages competition and innovation among the states. Innovation is working when it comes to trust administration and trust situs. CT just overhauled its trust code, now allowing perpetual private trusts and modernizing the law. We did not, however, exempt trusts from state income taxes, so the effort is largely pointless.

The only downsides I could discern from the article was a hypothetical loss of tax revenue and that the projected gains in employment were not met. The alternative, undoing the trust reforms in NH and bringing back taxation, would obviously lower employment and tax revenue further, because no other states are backsliding. Rather, they are playing catchup, as CT did.

The mania for perpetual private trusts is a relatively new phenomenon, spurred by the adoption of the federal generation-skipping transfer tax. Naturally that tax includes an exemption, naturally estate planners devised ways to take advantage of the exemption, naturally people looked for ways the maximize the benefit of the exemption. Hence, the destruction of the venerable rule against perpetuities. I think it's an understandable mistake.

JLM said...

Indeed, a sloppy article. The author is probably a political reporter who doesn't know a fiduciary from a filibuster.

As for the mania for perpetual trusts, I sometimes wonder whether it is demand driven or the result of an oversupply of estate planners.