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Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes


Robert H. Sitkoff


Harvard Law School

Max M. Schanzenbach


Northwestern University - School of Law


Yale Law Journal, Vol. 115, p. 356, 2005
Northwestern Law & Econ Research Paper No. 05-07
NYU, Law and Economics Research Paper No. 05-26

Abstract:     
This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

Number of Pages in PDF File: 83

Keywords: Rule against perpetuities, jurisdictional competition, regulatory competition, trust funds, estate tax, generation skipping transfer tax, fiduciary income tax, self-settled trust, asset protection trust, wealth transfer taxes

JEL Classification: C13, D31, H24, H71, H73, K11, K34

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Date posted: February 14, 2005  

Suggested Citation

Sitkoff, Robert H. and Schanzenbach, Max M., Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes. Yale Law Journal, Vol. 115, p. 356, 2005; Northwestern Law & Econ Research Paper No. 05-07; NYU, Law and Economics Research Paper No. 05-26. Available at SSRN: http://ssrn.com/abstract=666481 or http://dx.doi.org/10.2139/ssrn.666481

Contact Information

Robert H. Sitkoff (Contact Author)
Harvard Law School ( email )
1575 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 384-8386 (Phone)
(617) 812-6195 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=649
Max Matthew Schanzenbach
Northwestern University - School of Law ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
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