Wills, Trusts & Estates Prof Blog

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

Friday, September 25, 2020

Article on ESG Investing: Theory, Evidence, and Fiduciary Principles

Max M. Schanzenbach and Robert Sitkoff recently published an article entitled, ESG Investing: Theory, Evidence, and Fiduciary Principles, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

Trustees and other investment fiduciaries of pensions, charities, and personal trusts, and those who advise them, face increasing pressure to rely on ESG factors in the investment management of tens of trillions of dollars of other people’s money. At the same time, however, confusion abounds about the intersection of fiduciary principles and ESG investing. This article cuts through that confusion to provide guidance about when and how ESG investing by trustees and investment fiduciaries is permissible. We make four interrelated points:

(1) we provide a clarifying taxonomy on the meaning of ESG investing, differentiating between risk-return ESG (i.e., using ESG factors to improve risk-adjusted returns) and collateral benefits ESG (i.e., using ESG factors for third-party effects);

(2) we discuss the subjectivity inherent to identifying and applying ESG factors, which complicates assessment of ESG investing strategies;

(3) we summarize the current theory and evidence on whether ESG investing can improve risk-adjusted returns, finding the results to be mixed and contextual; and

(4) we show that American trust fiduciary law generally prohibits collateral benefits ESG, but risk-return ESG can be permissible if supported by a reasoned and documented analysis that is updated periodically.

September 25, 2020 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0)

Article on Inheritance Crimes

David Horton and Reid K. Weisbord recently published an article entitled, Inheritance Crimes, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

The civil justice system has struggled to resolve disputes over end-of-life transfers. The two most common grounds for challenging the validity of a gift, will, or trust—mental incapacity and undue influence—are vague, hinge on the state of mind of a dead person, and allow factfinders to substitute their own norms and preferences for the donor’s intent. In addition, the slayer doctrine—which prohibits a killer from inheriting from her victim—has generated decades of constitutional challenges.

But recently, these controversial rules have migrated into an area where the stakes are significantly higher: the criminal justice system. For example, states have criminalized financial exploitation of an elder, which includes obtaining assets through undue influence. Likewise, prosecutors are bringing theft charges against people who accept transfers from mentally diminished owners. Finally, legislatures are experimenting with abuser statutes that extend the slayer doctrine by barring anyone from receiving property from the estate of a senior citizen whom they mistreated.

The Article evaluates the benefits and costs of this trend. It explains that these new sanctions deter elder abuse: wrongdoing that is rampant, pernicious, and underreported. Nevertheless, the Article also exposes the dangers of criminalizing this unique area of law. First, criminal undue influence and the abuser doctrine may be unconstitutional in some situations. Second, inheritance crimes suffer from the flaws that make probate litigation so unreliable. Third, because inheritance law and criminal law are so different, jurisdictions have not yet figured out how to gracefully merge them. Finally, the Article builds on these insights to argue that states should abolish criminal undue influence, harmonize civil and criminal rules, and create exceptions to abuser laws.

September 25, 2020 in Articles, Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0)

Sunday, September 13, 2020

Article on Comment Letter of Professors Max M. Schanzenbach and Robert H. Sitkoff on the Department of Labor’s Proposed Rulemaking on Financial Factors in Selecting Plan Investments

Max M. Schanzenbach and Robert H. Sitkoff recently published an article entitled, Comment Letter of Professors Max M. Schanzenbach and Robert H. Sitkoff on the Department of Labor’s Proposed Rulemaking on Financial Factors in Selecting Plan Investments, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

In June of 2020, the Department of Labor proposed a rule-making on financial factors in selecting ERISA plan investments (“Proposal”), in particular environmental, social, and governance factors (“ESG”). In general, we are supportive of the Proposal’s central purpose of subjecting ESG investing to the same fiduciary principles of loyalty and prudence that are applicable to any type or kind of investment.

We do, however, have some criticisms. Our basic point is that the law neither favors nor disfavors ESG investing. Any investment decision by an ERISA trustee or other fiduciary — whether in the context of a direct investment, shareholder engagement (including proxy voting), or menu construction, and whether reliant on ESG factors or otherwise — is subject to the same fiduciary principles embodied in the duties of loyalty and prudence. Our chief criticisms, therefore, reflect instances in which the Proposal differentiates or could be construed as differentiating ESG investing from other types or kinds of investment strategies.

First, the Proposal and accompanying commentary could be read to suggest that all manner of ESG investing is inherently suspect, presumably on fiduciary loyalty grounds, and therefore that ESG investing by an ERISA trustee or other fiduciary is always subject to enhanced scrutiny that requires extra process relative to other types of kinds of investment strategies. Such a position is inconsistent with law and sound policy. To be sure, an ERISA trustee or other fiduciary violates the duty of loyalty if she uses ESG factors to provide benefits for third parties (what we call “collateral benefits ESG”). However, use of ESG factors in pursuit of enhanced risk-adjusted returns (what we call “risk-return ESG”) is not suspect under the duty of loyalty. Instead, risk-return ESG is analyzed under the duty of prudence, which applies in the same manner to risk-return ESG as to any other type or kind of investment strategy. Departure from neutral application of fiduciary principles also requires drawing distinctions between ESG investing and other investing, a definitional morass that would create uncertainty and invite litigation.

Second, portions of the commentary are unclear or phrased in a manner that could be construed as taking positions, such as with respect to active versus passive investing, that are not consistent with neutral application of the principles of fiduciary investment law. The commentary is also notable for not addressing certain other relevant matters, such as the use of ESG factors in shareholder engagement (sometimes called “stewardship” or “active shareholding”). We identify material instances of such language or omissions and urge appropriate clarification, particularly regarding the “tiebreaker” rule for purportedly economically equivalent investments.

This comment letter is largely but not entirely based on “Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee,” 72 Stanford Law Review 381 (2020), https://ssrn.com/abstract=3244665.

September 13, 2020 in Articles, Estate Planning - Generally | Permalink | Comments (0)

Saturday, September 12, 2020

Article on Properties of Intimacy

Emily Stolzenberg recently published an article entitled, Properties of Intimacy , Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

Today, 19 million U.S. adults are cohabiting with an intimate partner. Yet family law continues to struggle with the question whether these unmarried partners should have relationship-based rights in one another’s property. Generally speaking, states answer “no.” Because cohabitants are not spouses, they’re treated like strangers. As a result, their property rights usually follow title, and richer partners tend to walk away with a large proportion of the property acquired during the relationship.

This Article shows the “cohabitant problem” to be no anomaly, but rather the clearest manifestation of family law’s overarching structure. In marital property regimes as well as in cohabitant disputes, states and scholars have taken title as both a starting and a presumptive ending point, which means that assigning property rights in any other way is “redistribution” requiring special justification. This deferential approach to title limits family law’s ability to achieve sharing outcomes, not only between cohabitants, but also between spouses.

Rather than bowing to title and then redistributing, family law should reconsider how it assigns property entitlements in the first instance. Non-family property law offers a promising model, for it often weighs intimacy in determining entitlements. In relationships marked by dependence, interdependence, and vulnerability—for example, those between neighbors, co-owners, and decedents and heirs—property rights do not always hold with the same force as they might against strangers. Instead, property law acknowledges the social facts of ongoing, hard-to-exit relationships by blunting the sharp edges of owners’ prerogatives. This approach, which I describe as instantiating a “spectrum of intimacy,” allows property law to recognize and support a broad range of close, complex relationships.

Family law should adopt property’s spectrum of intimacy to reshape marital property regimes and re-situate unmarried partners in the space between spouses and strangers. Just as property law permits multiple forms of joint ownership, family law should offer a menu of family statuses of which marriage is but one. For partners who do not elect a status, family law should apply a property-flavored equitable approach to distribution. By protecting sharing between both cohabitants and spouses, this approach reflects and honors the wide diversity of modern family relationships.

September 12, 2020 in Articles, Estate Planning - Generally | Permalink | Comments (0)

Article on Cruzan and Surrogate Decision-Making

David Orentlicher recently published an article entitled, Cruzan and Surrogate Decision-Making , Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

When the U.S. Supreme Court issued its landmark “right to die” decision in Cruzan v. Director, Missouri Department of Health thirty years ago, the dissenting Justices and many observers criticized the Court for rejecting a right of Nancy Cruzan’s parents to refuse medical care on her behalf. Ms. Cruzan had not written a living will or a durable power of attorney, nor did it appear that she had left clear oral instructions about her wishes. But she did have loving parents who were dedicated to doing what was best for her. Nevertheless, according to the Cruzan Court, “If the State were required by the United States Constitution to repose a right of ‘substituted judgment’ with anyone, the Cruzans would surely qualify. But we do not think the Due Process Clause requires the State to repose judgment on these matters with anyone but the patient herself.”

This article argues that the Cruzan Court neglected an important justification for the right of patients to have medical decisions made for them by family members. If patients leave clear evidence of their treatment preferences, treatment must be based on those preferences. Similarly, if patients leave clear evidence that they would want a spouse or other family member to make medical decisions for them, the desired surrogate should be able to make medical decisions for the patient. A formal power of attorney appointment is an important way to provide clear evidence, and just as oral statements and other evidence can be used to establish the patient’s treatment preferences, so should oral statements and other evidence be able to establish the patient’s preferences for a surrogate decision-maker.

September 12, 2020 in Articles, Estate Planning - Generally | Permalink | Comments (0)

Thursday, September 10, 2020

Article on The End of Fiduciary Accountability

Robert Flannigan recently published an article entitled, The End of Fiduciary Accountability , Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. Fiduciary

Some judges and writers have been moving our regulation of opportunism off its conceptual rails. Numerous departures from convention presently are nesting in the jurisprudence and the literature. None of the departures are justified, and all should be purged. They choke the coherent expression of principle. If not dispatched, they may invite or license the collapse of our prudent strict supervision of the mischief that vitally undermines synergy and community.

September 10, 2020 in Articles, Estate Administration, Estate Planning - Generally, Trusts, Wills | Permalink | Comments (0)

Article on Private Rules and Standards

Tun-Jen Chiang recently published an article entitled, Private Rules and Standards, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. Legal

There is an enormous literature on the question of whether legal directives should take the form of rules or standards. This literature generally focuses on public laws such as statutes and regulations. Private legal instruments such as patents, contracts, and wills are given little thought. This Article analyzes the choice in the private law context.

Beyond making the obvious-yet-overlooked point that the rules/standards choice applies to privately-made laws, the Article makes two contributions. First, it explores the normative arguments for rules and standards when applied to privately-made laws, which are sometimes similar to, and at other times different from, the well-known arguments made in the context of public laws. Second, the Article asks a positive question: will drafters actually choose a rule or standard, given the drafter’s private incentives? The Article answers by providing a model of how clashing incentives between private drafters (who pursue self-interested goals) and courts (who resist those goals) shapes the rules/standards choice. It then explains how this model helps explain drafting choices and interpretative doctrine with respect to contracts, wills, and patents.

September 10, 2020 in Articles, Estate Planning - Generally | Permalink | Comments (0)

Tuesday, September 8, 2020

Article on What Is 'Fair and Reasonable'? Norms and Strategies Guiding the Distribution of Assets by Testators Who Have an Adult Child With Intellectual Disability

Jill Wilson, Cheryl Tilse, Ben White, and Linda Rosenman recently published an article entitled, What Is 'Fair and Reasonable'? Norms and Strategies Guiding the Distribution of Assets by Testators Who Have an Adult Child With Intellectual Disability, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. 

 

Background: Parents making a will most commonly distribute assets evenly to adult children. How parents of an adult child with an intellectual disability use wills to plan for future care and support has had limited policy, practice and research attention.

Method: This research reports on the perceptions of 20 parents regarding the impact of the needs of their child with disability on estate planning. The participants were purposively recruited and interviewed during 2014–15.

Results: Participants were more likely to consider equity of outcomes for their children taking into account retaining access to state services. They report difficulties in future planning in the context of changing service systems and limited specialised advice.

Conclusions: Judgements about what is fair and reasonable in distributing assets reflect differing views of need and entitlement within families. Such families would benefit from specialised advice and support in estate planning, particularly given the changing context.

September 8, 2020 in Articles, Estate Administration, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0)

Article on Trust-owned Companies and the Irreducible Core of the Trust

Jason Fee recently published an article entitled, Trust-owned Companies and the Irreducible Core of the Trust, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article. Trusts

The recent Hong Kong Court of Final Appeal case of Zhang Hong Li v DBS Bank (Hong Kong) Ltd upheld the effectiveness of anti-Bartlett clauses. This gives rise to the question whether a trust-corporate structure, coupled with a well-drafted anti-Bartlett clause, leaves any room for trust obligations. Through the lens of the law on trust-owned companies, this article thus seeks to re-conceptualize the ‘irreducible core of trust obligations’. It argues that the irreducible core means the minimum duties which are necessary to preserve the integrity of the trust concept. It draws a distinction between core and mandatory duties, in that the ‘bells and whistles’ one adds in specific contexts may be mandatory duties reflecting appropriate policies, instead of core duties necessary for a trust to exist. It accordingly considers the proper content of the irreducible core, as distinguished from other mandatory duties.

September 8, 2020 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0)

Monday, September 7, 2020

Article on Property Right of Indian Women (600 BC - 400 AD)

Kumar Sourav recently published an article entitled, Property Right of Indian Women (600 BC - 400 AD), Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.

Women's property rights are property and inheritance rights enjoyed by women as a category within society at any point in time. The patterns and rights of property ownership vary between societies and are influenced by cultural, racial, political, and legal factors. The right has given to this class very late and in even now Middle East and North Africa and South Asia are the regions with most restrictive laws, particularly in inheritance. Voting right and Property right are like the two things that class apart men and women. Due to feminist movement all around the world voting and property right were given and it’s our duty to protect their right as many a place such rights are only in law book and with no practical usage.

September 7, 2020 in Articles, Estate Planning - Generally | Permalink | Comments (0)