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Robert H. Sitkoff & Max Schanzenbach, Perpetuities or Taxes? Explaining the Rise of the Perpetual Trust, 27 Cardozo L. Rev. 2465 (2006).

Abstract: By abolishing the Rule Against Perpetuities, twenty-one states have validated perpetual trusts. The prevailing view among scholars is that enactment of the generation skipping transfer (GST) tax in 1986 prompted the movement to abolish the Rule by conferring a salient tax advantage on long-term trusts. However, an alternate view holds that demand for perpetual trusts stems from donors preference for control independent of tax considerations. Proponents of both views have adduced supporting anecdotal evidence. Using state-level panel data on trust assets prior to the adoption of the GST tax, we examine whether a state's abolition of the Rule gave the state an advantage in the jurisdictional competition for trust funds. We find that, prior to the GST tax, a state s abolition of the Rule did not increase the state s trust business. By contrast, in a prior study we found that, between the enactment of the GST tax and 2003, states that abolished the Rule experienced a substantial increase in trust business. Accordingly, we conclude that theenactment of the GST tax prompted the rise of the perpetual trust. These findings bear on the debate over proposals to liberalize the law of trust termination and modification and to amend the GST tax. Our findings also contribute to the literature on the bequest motive.