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Sitkoff, Robert

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Sitkoff, Robert

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Now showing 1 - 10 of 22
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    The Fiduciary Obligations of Financial Advisors Under the Law of Agency
    (Financial Planning Association, 2014) Sitkoff, Robert
    This paper considers how agency fiduciary law might be applied to a financial advisor with discretionary trading authority over a client's account. It (i) surveys the agency problem to which the fiduciary obligation is directed; (ii) examines the legal context by considering how the fiduciary obligation undertakes to mitigate this problem; and (iii) examines several potential applications of agency fiduciary law to financial advisors, including principal trades and the role of informed consent by the client, organizing the discussion under the great fiduciary rubrics of loyalty and care. This paper was sponsored by Federated Investors, Inc.
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    An Agency Costs Theory of Trust Law
    (Cornell Law Review, 2004) Sitkoff, Robert
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    The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis
    (American College of Trust and Estate Counsel, 2010) Sitkoff, Robert; Schanzenbach, Max
    This article reports the results of an empirical study of the effect of the new prudent investor rule on asset allocation by institutional trustees. Using federal banking data spanning 1986 through 1997, the authors find that, after adoption of the new prudent investor rule, institutional trustees held about 1.5 to 4.5 percentage points more stock at the expense of "safe" investments. This shift to stock amounts to a 3 to 10 percent increase in stock holdings and accounts for roughly 10 to 30 percent of the over-all increase in stock holdings in the period under study. The authors conclude that the adoption of the new prudent investor rule had a significant effect on trust asset allocation.
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    Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes
    (Yale Law School, 2005) Sitkoff, Robert; Schanzenbach, Max
    This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.
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    Trusts and Estates: Implementing Freedom of Disposition
    (St. Louis University School of Law, 2014) Sitkoff, Robert
    The Trusts and Estates course is about the law of gratuitous transfers at death, that is, the law of succession. Lately such courses have come to cover both probate succession by will and intestacy, and non-probate succession by inter vivos trust, pay-on-death contract, and other such will substitutes. The organizing principle of the American law of succession, both probate and non-probate, is freedom of disposition. My suggestion in this essay, which I have implemented in my Trusts and Estates class and in the casebook for which I am the surviving co-author, is that the Trusts and Estates course can likewise be organized around this principle. The Trusts and Estates course is perhaps best conceptualized as a survey of the law and policy of implementing freedom of disposition. (This essay was prepared for the Teaching Trusts and Estates special issue of the St. Louis University Law Journal.)
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    Perpetuities, Taxes, and Asset Protection: An Empirical Assessment of the Jurisdictional Competition for Trust Funds
    (Matthew Bender, 2008) Sitkoff, Robert; Schanzenbach, Max M.
    This chapter provides an accessible overview of our previous work on the impact of the abolition of the Rule Against Perpetuities (RAP) on trust fund situs. The implementation of the Generation Skipping Transfer (GST) Tax by the Tax Reform Act of 1986 sparked a movement to repeal the RAP. Since 1986, nearly half the states have abolished or effectively abolished the RAP as applied to interests in trust. Prior to 1986, only three states had abolished the RAP. We find no evidence that abolishing the RAP prior to the 1986 GST tax attracted trust business. By contrast, between 1986 and 2003, abolishing states reported an average increase in trust assets of $6 billion (a 20 percent increase). In addition, average account size in abolishing states increased by $200,000, implying that abolishing the rule attracted relatively larger trusts. Our findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the RAP. Further, we can trace these results to the subset of abolishing states that did not levy a tax on income accumulated in trusts attracted from out of state. This finding, which implies that abolishing the RAP does not directly increase state tax revenue, bears on the scholarly debate over the mechanisms of jurisdictional competition. Our analysis also controls for whether a state validated the so-called self-settled asset protection trust (APT). We did not find consistent evidence that validating APTs increases a state's reported trust business, but in the period studied few states had validated APTs, so we draw no firm conclusions. We conclude that the jurisdictional competition for trust funds is real and intense, with the primary margin of competition being the rules that bear on trust duration, and that the enactment of the GST tax sparked the rise of the perpetual trust. In future work using more refined data, we intend to revisit the jurisdictional competition for trust funds and to expand our inquiry to include directed trustee statutes and the recent reforms to trust-investment laws.
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    Politics and the Business Corporation
    (Cato Institute, 2004) Sitkoff, Robert
    This essay explores the policy bases for, and the political economy of, the law's long-standing regulation of corporate political speech. The essay has three parts. First, it contends that the conventional justifications for regulating corporate interventions in politics -- that corporate donations unnaturally skew the political discourse (bad politics) and that corporate political donations harm shareholders (agency costs) -- assume irrational investors and substantial capital market inefficiency. Drawing on public choice theory, the essay also explores the aim of retarding rent-seeking as an alternative justification for regulating corporate interventions in politics. Second, the essay reexamines the history of the regulation of corporate political speech and suggests a political economy analysis whereby corporations favored limitations on corporate donations in order to obtain protection from rent extraction by politicians. Finally, the essay explores the implications of this analysis for the modern regulation of corporate political donations.
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    Trust Law as Fiduciary Governance Plus Asset Partitioning
    (Cambridge University Press, 2013) Sitkoff, Robert
    The theme of this essay, a commentary on two papers forthcoming in the same volume on “The Worlds of the Trust,” is that trust law is not a species of property law or contract law, but rather is a species of organizational law. Organizational law supplies a set of contractarian rules, some of a fiduciary character, that provide for the governance of the organization. These are the rules that provide for the powers and duties of the managers and the rights of the beneficial owners. Organizational law also supplies a set of proprietary rules that provide for asset partitioning. These are the rules that provide for the separation of the property of the organization from the property of the organization’s managers, beneficial owners, and other insiders. Classifying trust law as organizational law removes the tension between the contractarian governance and the proprietary asset partitioning features of trust law.
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    Agency Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey's Kiss-Off
    (Columbia Law Review Association, Inc., 2008) Sitkoff, Robert; Klick, Jonathan L.
    In July 2002 the trustees of the Milton Hershey School Trust announced a plan to diversify the Trust's investment portfolio by selling the Trust's controlling interest in the Hershey Company. The Company's stock jumped from $62.50 to $78.30 on news of the proposed sale. But the Pennsylvania Attorney General, who was then running for governor, opposed the sale on the ground that it would harm the local community. Shortly after the Attorney General obtained a preliminary injunction, the trustees abandoned the sale and the Company's stock dropped to $65.00. Using standard event study methodology, we find that the sale announcement was associated with a positive abnormal return of over 25% and that canceling the sale was followed by a negative abnormal return of nearly 12%. Our findings imply that instead of improving the welfare of the needy children who are the Trust's main beneficiaries, the Attorney General's intervention preserved charitable trust agency costs of roughly $850 million and foreclosed salutary portfolio diversification. Furthermore, blocking the sale destroyed roughly $2.7 billion in shareholder wealth, reducing aggregate social welfare by preserving a suboptimal ownership structure of the Company. Our analysis contributes to the literature of trust law by supplying the first empirical analysis of agency costs in the charitable trust form and by highlighting shortcomings in supervision of charities by the state attorneys general. We also contribute to the literature of corporate governance by measuring the change in the Company's market value when the Trust exposed the Company to the market for corporate control.