Why does Congress stand by and allow one state to pick the pocket of another state?
The latest example, reported today in The New Yorkerinvolves members of the Getty family wealth dynasty using trusts formed in Nevada to dodge $300 million in tax obligations to California over the last decade.
Blame it on the enablers — the tax attorneys, accountants and wealth managers — who provide financial services to the world’s wealthiest families. These professionals claim they are just helping their clients obey the law. But as our research has found, this industry is actively involved in lobbying for changes in trust law and manipulating it to serve the narrow financial interests of their billionaire clients. In some states, it would be accurate to say the industry has entirely captured trust law.
As stated in a 2022 report we co-authored, “Billionaire Enabler States: How U.S. States Captured by the Trust Industry Help the World’s Wealthy Hide Their Money,” there are at least a dozen states that have apparently surrendered their sovereignty to the trust industry. Leading offenders are South Dakota, Delaware, Nevada, Alaska and Wyoming, states that have led the way in changing the rules to attract global billionaire wealth hiders.
But many more states have joined the chase, altering their laws and rolling out the carpet to a wealth management industry that is undermining the rule of law and coddling oligarchs and kleptocrats around the world.
The global release of the Pandora Papers in October 2021 — a leak of millions of documents outlining tax avoidance of the rich and powerful — revealed that billionaires around the world use the U.S. as a tax haven. This wouldn’t be possible without the U.S. trust industry — and the states beholden to it.
What does this trust industry for the ultra-rich demand from states? First, these practitioners want secrecy, so states won’t require disclosure of trust beneficiaries, even in litigation. They want no taxes on trust income or assets. And they want trusts that can last centuries, if not forever, thus enabling dynastic accumulations of wealth. To accomplish this last objective, states must alter or repeal the “rule against perpetuities,” which limits the lifespan of trusts.
Trust and estate lawyers may also lobby for special asset protection trusts that seemingly enable deadbeats, ex-spouses and even criminals to avoid accountability. Others want “self-settled trusts” (selfie trusts), enabling wealthy people to create trusts for themselves, thrusting assets into “ownership limbo” — and confusing tax authorities.
South Dakota has checked most of these boxes, being one of the first states to eliminate its rule against perpetuities, seal court records involving trusts and promote the state’s anti-tax bonafides. The state even formed a governor-appointed task force composed of trust industry representatives that reviews state law every year and recommends industry-friendly changes.
Although they may not get as much press as South Dakota did upon the publication of the Pandora Papers, other states are not far behind. In 2022, the Florida legislature changed their laws to extend the life of trusts to 1,000 years, weaken accounting-disclosure requirements for certain family trusts and seal all court proceedings involving certain family trusts. Investigative journalists in Florida reportedly discovered this legislation was advanced by advocates for the billionaire heirs of Sam Walton, the founder of Walmart.
To be clear, the ordinary residents of South Dakota, Florida and other trust haven states don’t benefit from these changes. Because states limit taxation to market the trust industry, there is no tax revenue to be gained from trusts. And there are no tourism dollars, as the billionaires don’t need to even visit to set up a trust. Only a tiny industry in each of these states is served by this apparent mass manipulation of law.
The reported case of the Getty family using Nevada trusts to avoid California tax obligations is just one example of the damage caused by allowing trust haven states to flourish. Lawmakers should act to level the playing field within the U.S. and ban manipulations of trust law with federal reforms.
Based on the reported revelations of a Getty whistleblower, Congress should convene hearings on state trust law abuse. Lawmakers should consider legislation to require federal registration of trusts and disclosure of beneficiaries. In addition, trusts should have limited lifespans, with a federal rule against perpetuities. Finally, trusts should not be allowed to evade taxation so easily — trusts with assets over $25 million should be subject to an annual excise tax.
The world’s wealthy already operate by a different set of rules and laws. But allowing the full scale carveout and manipulation of U.S. state trust law to serve their interests should not be one of them.
Chuck Collins is author of “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions” and co-edits Inequality.org at the Institute for Policy Studies.
Kalena Thomhave is freelance journalist and a researcher at the Program on Inequality at the Institute for Policy Studies.
They are co-authors of the report, “Billionaire Enabler States.”
Collins was interviewed for The New Yorker’s expose, “The Getty Family’s Trust Issues.”