Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, August 31, 2006

Undoing RAP Repeal?

Joel C. Dobris (Professor of Law, University of California—Davis) has published his article Undoing Repeal of the Rule Against Perpetuities: Federal and State Tools for Breaking Dynasty Trusts, 27 Cardozo L. Rev. 2537 (2006).  Admitting to be a “trust guy”, he looks at the Rule through that lens.
   
He begins by noting that perpetual trusts are here to stay, but goes on to say that there are mechanisms to terminate them.
   
First, there is federal tax law. “Taxes will cause fiduciaries with the power or determination to undo their trusts. Fiduciaries without power can lobby for changes in state law. At worst, tax payments will weaken trusts.” 
    
Second, bankruptcy law is also an option. “We could change the bankruptcy statute. That would be useful to the extent these trusts are asset protection trusts. We could change our definition of fraudulent transfer.”
   
Third, he notes that while property law could be a solution at the state level, Congress can really regulate most trusts. For example, “by canceling only the interests of unborn beneficiaries”, Congress could “legislate perpetual trusts out of existence in a reasonable fashion.”
    
Fourth, in turning to the states, he notes that states could either “repeal their race to the bottom statutes” or “give courts a cy pres power over perpetual trusts.”
    
Concluding he says,
   
Courts have been trying to find ways to deal with asset protection trusts. They'll try to find ways to deal with this, too. I can't believe that reverence for some dead guy's intent is going to determine major outcomes. We have the capacity to eliminate economically inefficient property forms. Maybe we don't have to end all perpetual trusts, just the outliers where the abuses are untenable. As Justice Weintraub said, "Property rights serve human values. They are recognized to that end and are limited by it."
   
Never forget economist Herb Stein's law. "If it can't go on forever, it won't." * * *

August 31, 2006 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

More on Trust Protectors

Gregory S. Alexander (A. Robert Noll Professor of Law, Cornell Law School) has recently published his article Trust Protectors: Who Will Watch the Watchmen?, 27 Cardozo L. Rev. 2807 (2006).
   
In this article, Prof. Alexender looks at the Trust Protector Office as discussed by Stewart Sterk’s article, Trust Protectors, Agency Costs, and Fiduciary Duty, 27 Cardozo L. Rev. 2761 (2006). Sterk’s paper analyzes the office of the Trust Protector via the agency theory of trusts. It then proceeds to lay out the rules that would govern the Trust Protector.  Alexander says that,
   
[t]he trust protector office may turn out to be an effective device in dealing with the agency cost problems that [Sterk], [Robert] Sitkoff, Melanie Leslie and others have identified in trust relationships. At the same time, though, I do worry that trying to ameliorate those problems will create its own set of agency cost problems. If I am right about that, then it is hard to know whether the trust protector position is worth the candle. That is, will the result in most cases be a net reduction in agency costs or will the trust protector office create its own agency costs that offset the reduction in the costs associated with the trustee's position?
   
Alexander then proceeds to note three complications that may accompany brining another party into the tangled web of relationships already involved in a trust.
   
First, it is not entirely clear who is the trust protector's principal--the settlor or the beneficiaries, or perhaps in some situations, both?[***] 
   
[Second,] the trustee's de facto principal might now become the trust protector rather than either the settlor or the beneficiaries. […]The more power you give to the trust protector over the trustee, the more you risk making the trustee look like a mere agent, a development that the settlor probably neither contemplated nor would have wanted. [***]
   
[Third,] [t]he more power you give the trust protector, the more you simply swap one set of agency cost problems for another. (This is point made by Kenneth Arrow in the excerpt that Sterk quotes.)  On the other hand, if you give the trust protector fewer powers in order to avoid the kinds of problems I've just identified, then you don't fully address the agency costs that initially led you to introduce the trust protector into the picture.

August 31, 2006 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

Mythology and Estate Planning

G. Warren Whitaker (partner, Day, Berry & Howard L.L.P., New York, NY) has published a most interesting article entitled Estate Planning in World Mythology, Prob. & Prop., July/Aug. 2006, at 65 [link requires membership in the ABA RPPT Section].

This article examines well-known stories from mythology, discusses the estate planning issues they raise, and considers what advice modern advisors might have given in today's world.

Stories covered include The Iliad and The Odyseey, Thousand and One Arabian Nights, and The Godfather.

August 31, 2006 in Articles, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Survey shows courts lack verification of appropriate care

In the August, 2006 edition of Bifocal (Vol. 27, No. 6), Naomi Karp and Erica F. Wood have published their article National Survey of Guardianship Monitoring Practices Shows Courts Lack Verification of Appropriate Care.  They have published their findings from a survey of guardianship oversight practices by courts.
   
Here is an excerpt:
   
Guardianship is a powerful legal tool that can bring good or ill for an increasing number of vulnerable people with cognitive impairments, affording needed protections, yet drastically reducing fundamental rights. Court monitoring of guardians is essential to ensure the welfare of incapacitated persons, identify abuses, and sanction guardians who demonstrate malfeasance. The need for oversight is heightened by ongoing demographic trends that will sharply boost the number of guardianships in coming years. These trends include: growing numbers of older people, individuals with dementia, and people with intellectual disabilities; the rising incidence of elder abuse; and the increasing number of public and private guardianship agencies that must make critical decisions about multiple wards.
   
The purpose of this study is to better understand how courts are monitoring the performance of guardians. It is the first detailed look at guardianship monitoring in over fifteen years. Almost 400 judges, court managers, guardians, elder law attorneys, and legal representatives of people with disabilities responded to the survey. Respondents came from 43 states and the District of Columbia. Of these, over half identified their role as guardians. The 35-question survey focused on actual court practices, seeking to ascertain whether the practices meet, exceed, or fall short of requirements imposed by statutes and court rules and to identify practices that may be “ahead of the curve.”
   
The results of the survey are posted on the AARP website and may be found here.

August 31, 2006 in Articles, Guardianship | Permalink | Comments (0) | TrackBack (0)

Trust Protectors

Jeffrey E. Stake (Professor of Law, Indiana School of Law) has recently published his article entitled A Brief Comment on Trust Protectors, 27 Cardozo L. Rev. 2813 (2006).
   
Here is the introduction to his article:
   
In Trust Protectors, Agency Costs, and Fiduciary Duty, Professor Stewart Sterk has provided a valuable and insightful exposition of many of the issues arising from the recent importation of trust protectors from offshore asset protection trusts into domestic trusts. Naturally, there are many other questions that he could not address. This Comment adds one point to Professor Sterk's extensive discussion. Much of his analysis applies the agency cost approach suggested by Professor Robert Sitkoff in his seminal article, An Agency Costs Theory of Trust Law, and in so doing focuses on many considerations that should be important to settlors of domestic trusts. There is another level of consideration that also deserves attention, that of the common good. What are the social welfare costs and benefits of adding trust protectors to the toolkit available to settlors or testators?
   
This Comment divides the analysis into two strands, with the criterion of division being the purpose of the trust protector. A trust protector can be employed for the benefit of beneficiaries or solely for the purpose of protecting the wishes and designs of the settlor. The first part of this Comment addresses those situations in which the trust protector is employed, at least in substantial part, for the benefit of the trust beneficiaries. The second part discusses some of the consequences that flow when the protector is employed to further the intention of the settlor separate and apart from the interests of the beneficiaries. This Comment ends with a tentative recommendation for law reform.

August 31, 2006 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 30, 2006

Trust Protectors

Stewart E. Sterk (Professor, Cardozo Law School) has recently released his article entitled Trust Protectors, Agency Costs, and Fiduciary Duty, 27 Cardozo L. Rev. 2761 (2006).
   
Here is his conclusion:
   
The relationship between the trust's settlor and a trust protector is founded primarily on trust; the settlor trusts the protector to act as a faithful agent. In this respect, the relationship resembles that between fourteenth century landowners and their feoffees--precursors to the modern trustee who agreed to do the bidding of their principals by holding, and transferring, legal title in accordance with instructions given to them by those principals. Initially, the feoffee's obligations were entirely moral; his duties were not enforceable at all. But the history of the early trust suggests that the relationship between the protector and the settlor, like the relationship between landowner and feoffee, will not long escape the scrutiny of the legal system; trust alone has proven inadequate to ensure that trustees act as faithful agents. Fiduciary duties have emerged to play a significant, albeit supplementary, role.
   
Fiduciary duties are likely to play a similar role in disciplining trust protectors. But protectors are not simply trustees by another name. The settlor who names a protector chooses to forego more traditional arrangements for shared responsibility for trust decisions, presumably out of a belief that the protector model adds value that traditional arrangements cannot capture. That added value is most likely to come in two forms: reduced agency costs in monitoring trustee behavior, and increased ability to adapt the trust to changed circumstances. But the agency costs associated with policing the protector threaten to dissipate this added value. If the protector is to survive as a trust institution, it will do so because the fiduciary duty regime that surrounds protectors minimizes those agency costs while maintaining the advantages associated with protectors.
   
At this point in the development of the trust protector, any attempt to describe a fiduciary duty regime that minimizes agency costs is necessarily tentative and incomplete. My objective here has been to provide a framework for developing that regime.

August 30, 2006 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)

Wisconsin Guardianship Reform Bill

In the August, 2006 edition of Bifocal (Vol. 27, No. 6), Betsy Abramson has published her article Wisconsin Legislature Passes Major Guardianship Reform Bill.
   
Here is an excerpt:
   
Wisconsin’s new guardianship law, enacted in May 2006 and effective December 2006, is the work of a great number of dedicated members of the State Bar of Wisconsin’s Elder Law Section and other advocates for nearly a dozen years. These practitioners corrected many problems with Wisconsin’s current law. The statute is now reorganized, removes antiquated terms (e.g., “infirmities of aging”), and creates separate, specific criteria and standards for guardianships of persons and guardianships of estates. It also greatly improves due process; for example, the new provisions reverse the current presumption that all rights are removed unless a court specifically retains certain rights and more deference is given to previously-executed powers of attorney. The reforms specify in great and separate detail the duties and responsibilities of guardians of the person and estate and create a procedure for removal of a guardian, reinstatement of rights, and other post-appointment matters.
   
The original Senate bill may be found here.

August 30, 2006 in Guardianship, New Legislation | Permalink | Comments (0) | TrackBack (0)

"Income" in the Trust and Estate Context

In the Monday, August 28, 2006 issue of the I.R.S. newsletter e-News For Tax Professionals, the Service reminds estate practitioners about the 2004 regulations regarding the definition of “income” for trusts and estates as follows:
   
In 2004, the IRS published new final regulations regarding the definition of "income" for trust and estate purposes, responding to changes in state law in this area.  In particular, these regulations concern those circumstances in which trust or estate distributions may be considered as carrying out income, with the associated income tax liability, to the beneficiaries of the trust or estate. However, questions submitted at recent liaison meetings and seminars indicate not all practitioners, administrators, and trustees are aware of the changes.

If you prepare estate and/or trust returns, you may want to review the Regulations for § 643.

August 30, 2006 in Estate Administration, Trusts | Permalink | Comments (1) | TrackBack (0)

More on Transfer on Death Deeds

Previously on this blog, I have discussed transfer on death deeds. 

In the August, 2006 edition of Bifocal (Vol. 27, No. 6), Nathaniel Sterling discusses the non-probate transfer of real property by Transfer on Death deeds in his article Legislative Interest in Transfer on Death Deeds Continues to Grow: State Efforts to Help Senior Homeowners.
   
Here is an excerpt:
   
Nine states have now enacted legislation authorizing a revocable transfer on death (TOD) deed of real property, also known as a beneficiary deed. The oldest and most complete statute is Missouri’s, enacted in 1989. The newest is Wisconsin’s, enacted in 2006. Other states are investigating the concept, including California and Utah. The National Conference of Commissioners on Uniform State Laws has decided to draft uniform legislation on the subject.
   
A property owner may use a revocable TOD deed to transfer property to a named beneficiary on the owner’s death. The property passes by operation of law outside probate, much like survivorship in joint tenancy. ***
   
It has been argued that the revocable TOD deed is preferable to an inter vivos trust in some circumstances. If the decedent’s only significant asset is the family home, the revocable TOD deed provides a simple, inexpensive, understandable means of passing the property to heirs without probate.

August 30, 2006 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (7) | TrackBack (0)

Tuesday, August 29, 2006

Different Standards for Professional and Non-professional Trustees?

Melanie B. Leslie (Professor of Law, Cardozo Law School) has recently published her article entitled Common Law, Common Sense: Fiduciary Standards and Trustee Identity, 27 Cardozo L. Rev. 2713 (2006).
   
Here is the conclusion of her article:
   
There are sound reasons to have separate fiduciary standards for non-professional and professional trustees. Courts intuitively understand this, and have developed fact-specific standards to take account of the particular difficulties that non-professional trustees face. The argument that classic fiduciary rules should be weakened to protect the non-professional should be rejected; generally, courts offer adequate protection to non-professionals. Traditional fiduciary rules, such as the no further inquiry rule and the prohibition against delegation of the investment function, grew organically from the need to compensate for information asymmetries and market imperfections in the trust context. Because the UTC and other statutes gut those strict standards, they will generate serious costs for beneficiaries in the coming years. To the extent those statutes suggest that courts ought to abandon the sensible common law approach to fiduciary duty issues, they are severely misguided.

August 29, 2006 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)