Thursday, May 29, 2014
Jonathan J. Ossip (New York University School of Law) recently published an article entitled, Diversity Jurisdiction and Trusts, New York University L. Rev., Vol. 89, No. 6 (Dec. 2014 Forthcoming). Provided below is the abstract from SSRN:
The federal courts are currently divided on how to determine the diversity citizenship of trusts. Several circuits hold that trusts take the citizenship of their trustees. Another takes the citizenship of the trust’s beneficiaries, and yet another uses both the trustees and the beneficiaries. But beyond this circuit split, a more significant problem plagues the law in this area: The courts of appeals have failed to recognize the distinction between traditional and business trusts. The former — what is most commonly thought of as a trust — is a gift and estate planning tool. The latter is an alternative to incorporation, and is designed to run a business and generate profit for investors.
In this Note, I examine the differences between traditional and business trusts in the context of federal diversity jurisdiction. After discussing the history of diversity jurisdiction and the nature of these two forms, I explore the current circuit split over the citizenship rules for trusts. I then propose a new rule that fits within the current Supreme Court case law in the field: Traditional trusts take the citizenship of their trustees, while business trusts take the citizenship of their members — the beneficiaries. Having proposed a rule that depends upon the type of trust at issue, I conclude by explaining that a trust can be classified by determining the primary purpose for which it was organized.