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.

3 comments:

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.

Geoffrey Sadler said...

Middle class people now displaying a mania for trusts, as Mr. Gust indicated. He really does have expertise on these issues, so I’d be inclined to listen to what he has to say. In terms of the popularity of trusts, I’d like to point to California... where a unique use of trusts, for estate beneficiaries, is in play all over that state. Where you have a trust servicing beneficiaries, or heirs of an estate in probate, when an estate has real property being inherited by multiple beneficiaries, with for example one beneficiary wanting to keep an inherited house, let’s say, and you have several beneficiaries who insist on selling the property. A trust lender enters the picture, usually enlisted by the beneficiaries who wish to sell. A trust loan entering this scenario enables the one beneficiary, often it’s more than one, to keep the inherited property, while the other beneficiaries walk off happy, with more cash from the trust loan buying out their shares in the property, than if the property had actually sold to a buyer, at market value. Without having to actually sell the property. Middle class beneficiaries typically do their own research on inheriting property taxes... on property tax transfer and the right to keep parents property taxes... and on having the right to transfer parents property taxes at the same low tax rate that their parents had. As opposed to hiring an attorney, they usually do their own research on parent to child transfer or parent to child exclusion from current tax evaluation – on California based information-Websites such as https://cloanc.com/tag/california-prop-58 or a niche Blog like https://propertytaxtransfertrusts.com, both focusing on 1978 California Proposition 13 and 1986 California Proposition 58; as well as parent to child property transfer involved with a sale of real property… inherited from a mom and/or dad in California. Researching how you transfer parents property taxes, how the process works, and of course inheriting property taxes from parents in California, inheriting a house and/or land and moving forward to sell that property – or, as I mentioned, avoiding all that sibling conflict, and getting a trust loan from a trust lender to buy out beneficiaries’ shares in inherited property. And if you don't have a good estate attorney on the case – you’d be smart to study upon trust loans used for this purpose… plus property tax transfer, and all the issues involved with a property sale to a relative. A lot of beneficiaries go to BOE at https://www.boe.ca.gov/proptaxes/proptax.htm And if that doesn't do it, you can always get a free consultation with an estate or real estate lawyer. It is always good to make sure you are doing everything correctly when dealing with an estate property sale…. Any errors will usually come back to bite you.