http://www.nytimes.com/2010/07/12/opinion/12madoff.html -----------------------------------snip Congress is feeling pressure to deal with taxes on inherited wealth, which have fallen to zero this year thanks to lawmakers’ inaction. In the process, it should address the more pernicious problem of dynasty trusts.
This type of trust is new because until very recently most states had a “rule against perpetuities,” which limited the term of any family trust to about 90 years, after which time the family members would own the property outright. This rule derived from the idea that property is best controlled by the living. In the mid-1990s, however, many states repealed the perpetuities rule, and now any wealthy American can set property aside for his heirs forever, simply by hiring a trustee from one of these states. What caused state legislatures to abandon a rule that had existed since the late 1600s? Banking industry lobbyists persuaded them that it would be a lucrative move because it would bring business to their states. But it was Congress that set the stage nearly 25 years ago. In 1986, Congress instituted the generation-skipping transfer tax. This closed a loophole in the estate tax by ensuring that property would be subject to tax as it passed through each generation, even if it would otherwise have avoided estate taxes because it was held in trust. (It prevented “generation skipping.”) However, in enacting this tax, Congress gave each taxpayer a $1 million exemption, which was raised over the years to $3.5 million. Naturally, estate planners began to create trusts that could take advantage of the exemption, and avoid taxes for the term of the trust. The term, however, was limited by the rule against perpetuities. Bankers then realized that if they could persuade their state legislatures to repeal that rule (as well as state income taxes on trusts), they could attract business. And in more than a dozen states the banking lobbyists were successful. The rule against perpetuities was repealed, and dynasty trusts — tax-exempt trusts that could benefit generation after generation of heirs — were born. This did generate business. One study found that nearly $100 billion in trust funds moved to states that repealed their rule against perpetuities. -raghu. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
