Is NH losing trust in trusts?

State to study long effort to lure them here

“The fiduciary services sector is an important and growing part of this state’s economy. It provides well-paying jobs.” That was the language that introduced Senate Bill 98, an obscure bill again tweaking — for the 15th time in the last 16 years — laws that make it easier for the half-trillion-dollar trust industry to thrive in the Granite State.

But by the time lawmakers got though with the bill, this time around, that language — the bipartisan conventional wisdom behind transforming the state into a trust haven — was gone.

Instead, the bill now sets up a study group to see whether “trust legislation is having its desired effect” and whether there were any “unintended consequences.”

“We need to step back to see if the changes have been beneficial to the state,” Rep. Kristina Fargo, D-Dover, explained to the House, which passed the measure, 209-142 and was signed into law by Gov. Chris Sununu on July 12.

The bill represents a shift from certainty to skepticism about the economic benefits of attracting the trust industry to New Hampshire. Lawmakers are starting to mistrust the trusts.

‘Best of intentions’

The testimony of Scott Baker, once the president of Hampton-based Perspecta Trust and head of the New Hampshire Trust Council, once advocated for the trust laws. But Baker had a falling out with Perspecta CEO Paul Montrone, who fired him, resulting in some nasty litigation. He now recommends that the state press the “pause button” on its efforts.

“We had the best of intentions. I’m saying we made all these changes, and they haven’t worked out as we had hoped.  It hasn’t brought the state any benefits.”

But Montrone maintains that the laws have created jobs and revenues for the state. “People should be cheering,” he said.

There is no question that there has been a “seismic shift” in the trust laws in New Hampshire, in the words of Amy Kanyuk, a trust attorney and founder of Concord Trust Company, which employs 11 people.

Back in 2003, “trust law was the sleepiest thing that was going,” she said.

The trust reforms started after that, and they really took off in 2006 with passage of the Trust Modernization and Competitiveness Act. That is also around the time Montrone sold Fisher Scientific to Thermo Electron for $10.6 billion, and went on to found Perspecta.

“We had the idea of creating a whole industry by making legislative changes,” Montrone said.  “I found that interesting.”

“I believe that it is one of the post-industrial business segments that New Hampshire needs,” said Glenn Perlow, a former New Hampshire banking commissioner who took over Baker’s roll at both Perspecta and the trust council.

Out-of-state trusts

New Hampshire has been successful in growing that segment, increasing the number of trusts from 14 in 2003 to 32 today. In 2017, the state’s trusts managed  more than $500 billion in assets, a fivefold increase since 2003. The companies themselves earned $81 million in net income.

But unlike the state’s chief trust competitor, South Dakota, trusts don’t have to be in New Hampshire to take advantage of our trust laws. Even some companies that list a New Hampshire address are primarily based elsewhere.

Banking Commissioner Gerald “Jerry” Little estimates that three-quarters of them are really based out of state, but he isn’t sure. (Little requested, lawmakers passed and the Governor signed House Bill 474 on July 10, to help the department get a better handle on the trusts’ locations.)

NH Business Review found 10 out of 32 with a plausible New Hampshire address. But that’s only four more than the six firms that were based in the Granite State in 2003.

Out-of-state firms could have local trustees, as Kanyuk says, meaning they at least “have a warm body in New Hampshire.” She also thinks that most will hire local counsel and accountants more familiar with New Hampshire laws and judicial system.

It’s unclear how many New Hampshire jobs have been created because of the laws. According to the latest census figures (2016), there were 74 trust-related jobs in New Hampshire, but that’s actually down from 2003-2006, when there were between 100 and 249.

Indeed, NH Business Review conducted a brief survey of the New Hampshire-based firms and the four that replied reported a total of 42 employees, more than half the census total.

Then there are the trust companies based in other trust havens states — South Dakota, Alaska, Nevada and Delaware —  that set up shop in New Hampshire to take advantage of the state’s laws and the New England market. There also are the trusts handled by law firms or by individual trustees. And then there are family offices, such as Crosby Advisors, which handles the wealth of Ned Johnson, owner of Fidelity Investments. And there is indirect employment from accounting, financial and legal firms.

A study commissioned by the trust industry, conducted by Russ Thibeault of Applied Economic Research, says there are between 225 and 275 direct jobs in the trust industry and a total of 300 to 600 when you include indirect jobs. That’s a fraction of the nearly 4,000 jobs a 2005 industry study predicted for the state. The study came at a time when the industry was trying to sell lawmakers on the advantages of making the state a trust haven.

Tax revenues

Of course, employees in the trust industry are well paid, pulling in about $87,400, more than $30,000 above the average New Hampshire worker. Throw in the standard economic multiplier, and that results in some $25.2 million and $42.8 million dollars of economic activity.

But Baker challenges some of those figures, alleging that the report was “artificially inflating” them.

“I did not cook the numbers,” responded Thibeault, “nor was there any pressure to do so.”

He said that he used standard techniques, but added that the specifics of the trust industry are “elusive” and that “in the absence of comprehensive hard data on the industry, reasonable analysis will differ on the specifics of their findings.”

How much the industry pays in taxes is also elusive. The companies that manage the trusts pay business profits tax and must file if they have a “nexus” in New Hampshire, according to Jim Usseglio, an accountant at Baker Newman Noyes, and would pay taxes if the business activity is in New Hampshire.

If a company’s main office is in Massachusetts (and there are more in the Bay State than in New Hampshire), then presumably that state will get most of the tax revenue.

The companies that are primarily located in New Hampshire roughly made $12 million in profits in 2017, so if all of that were allocated here, that would translate into less than $1 million in taxes. But many of the smaller trusts are partnerships and might swallow their profits in “reasonable compensation” to the partners, only paying the much lower business enterprise tax rate.

The trusts themselves might pay some business taxes if they include a New Hampshire business.

According to the Department of Revenue Administration, fiduciary trusts paid about $3.3 million in taxes in 2016. But those businesses would have to pay the same taxes even if they weren’t in a trust. In any case, that revenue stream is small compared to the $567 million of business taxes paid in that year.

Fiscal impact?

Trusts — or, to be more specific, irrevocable non-grantor trusts, the most common formed after a person who set up the trust dies — used to pay the state’s interest and dividends tax, at least on what New Hampshire beneficiaries were earning.” That amounted to about $5.1 million in 2012, according to the DRA. But lawmakers passed SB 326 in 2012, which taxes only a trust’s New Hampshire beneficiaries when they receive interests and dividends. Supporters claimed that the bill was “revenue neutral” because it only shifted when the tax was collected, but made the law less confusing.

“It would create jobs, and very significant jobs,” explained Rep. Steve Stepanek, R-Amherst, at the time. “This is part of ongoing adjusting and tweaking to keep us on the cusp.” (Today, Stepanek is chair of the New Hampshire Republican Party.)

At the time, Gov. John Lynch warned of “the potential fiscal impact and unintended consequences” of the measure, saying it might result in a loophole that would enable some people and corporations to totally avoid paying the tax, who vetoed the bill. But lawmakers easily overrode it.

Both sides had a point in the argument. Beneficiaries could avoid years of I&D tax if the trusts don’t distribute to them every year. Then those unpaid interest and dividends would be converted into capital within the trust, and capital gains are not taxed at the state level. Kanyuk agrees that this is possible, but it doesn’t always happen.

For one, there is an incentive for the trust not to hold on to the money because it is often taxed at a higher tax bracket as a trust then as a beneficiary, and that outweighs avoiding the I&D tax.  Also, “the tax shouldn’t wag the dog,” she said.  Many estate planners would rather pay out their inheritance slowly, to give a younger beneficiary a prudent steady annual income.

It so happens that there was a drop of $13 million, or 14.2%, in I&D revenue in 2013, the year the tax change was made, causing some lawmakers to propose a repeal.  However, trust supporters noted that, nationally, interest and dividends tax revenue went down 15.2%, due to an economic slowdown.

Finally, supporters argued that New Hampshire had nothing to gain by re-imposing the tax because it could be avoided by registering the trust elsewhere. But they could have done that in 2012, Baker pointed out, and trusts still paid $5.1 million in taxes.

There are also concerns about more recent trust changes. A bill passed last year that let European-style foundations be based in New Hampshire could let some “bad actors” into the state, Baker said. “At the end of the day it’s business that we really don’t want,” he told lawmakers.

Little’s major concern is unregulated family trusts.   Regulated trusts — even those out of state — still have to apply in person and “look us in the eye,” said Little.   Unregulated trusts “don’t even have to tell us they are here.”

The trust council dismisses both of these concerns. “Money laundering can happen anywhere, even a pizza shop,” said Perlow, pointing out federal laws that would prevent such things from occurring.  And family trusts only include family members, not consumers that don’t have to be protected.

Or, as Montrone put it, money laundering concerns are a “complete hoax. If they are going to hide money, they are going to hide money,” and “if I have a trust run by my brother-in-law, what does the state have to do with that?”

Montrone complained that bad publicity about trusts could hurt the state’s reputation as a trust haven, costing it jobs. He particularly was upset about another article about trusts that was published in NH Business Review in August 2017, headlined “NH trust laws undergo yet another alteration: Is competition among states a ‘race to the bottom’?”

“It is a race to the top,” said Montrone.

Bob Sanders can be reached at

Categories: Government