Federal Tax Rules Should Not Be Used to Limit Trust Duration
Excerpt taken from the article.
Professor Lawrence Waggoner's recent article titled "Effectively Curbing the GST Exemption for Perpetual Trusts" raises the practical and policy problems with the existence of perpetual trusts and indicates that the enactment of the generation-skipping transfer tax (GSTT) is responsible for encouraging several states to repeal their limits on perpetual trusts. We admire and respect Waggoner and acknowledge that the concerns he raises may be perfectly valid. We also agree that the federal tax policy in the form of the GST exemption encouraged perpetual trusts and that the federal government can legitimately end that incentive.
However, we strongly disagree with Waggoner's solution because it is intended to, and would, impose a tax penalty on perpetual trusts rather than merely eliminate the existing tax incentive to create them. In our view, discouraging perpetual trusts is simply not an appropriate use of federal tax law, regardless of the arguments one can legitimately make about their evils. Moreover, as is discussed below, there are simple ways to eliminate the tax incentive to create perpetual trusts.
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