Congress Promotes Perpetual Trusts: Why?

36 Pages Posted: 16 Sep 2013 Last revised: 28 Apr 2016

Date Written: April 27, 2016


By unwittingly granting a tax exemption for perpetual trusts, Congress undermined state perpetuity law and promoted private trusts that can last and remain tax exempt for many centuries and maybe forever. As a direct result of Congress’s action, and then of lobbying by financial institutions and other interest groups holders to convince state legislatures to remove the obstacle of perpetuity law, the very wealthy can now create tax-exempt private trusts for generations upon generations of their descendants. And they are taking advantage of the opportunity.

Congress as an institution has known of its blunder for years, but has failed — so far — to remedy its mistake. On February 26, 2014, the House Ways and Means Committee unveiled its long-awaited proposal for comprehensive tax reform, but the proposal did not address the tax exemption for perpetual trusts and, in any event, was not enacted.

The author asks why Congress has not acted to correct its mistake and why it seems so uninterested in doing so. There is no federal interest in promoting perpetually tax-exempt trusts and, in fact, the federal interest cuts the other way. Tax revenues are lost by Congress’s action and subsequent inaction. A plausible explanation for Congress’s persistent indifference to the problem is that the revenue gain by correcting the oversight would be a long way off. Congress is not known for giving a high priority to problems of that sort. The longer Congress procrastinates, however, the amount of wealth that is safely sheltered in perpetually tax-exempt trusts — already estimated to be in the billions of dollars — continues to grow.

The Treasury Department has a proposal before Congress for remedying the situation, but the Treasury’s proposal is not nearly as effective as it could and should be. The author proposes a remedy that would be entirely effective and would be consistent with the original purpose of the tax law.

Regrettably, the prospect that Congress will ever address the problem, much less address it effectively, grows dimmer with each passing year.

Keywords: tax, tax exemption, Congress, perpetual trusts, private trusts, treasury department, perpetuity law

JEL Classification: H2, K34

Suggested Citation

Waggoner, Lawrence W., Congress Promotes Perpetual Trusts: Why? (April 27, 2016). U of Michigan Law & Econ Research Paper No. 13-015, U of Michigan Public Law Research Paper No. 349, Available at SSRN: or

Lawrence W. Waggoner (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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