Faculty Bibliography

There is broad consensus that the law of conflict of trust laws is outdated. Both the American Law Institute and the Uniform Law Commission have initiated reform projects to address this obsolescence. But there is no consensus around what went wrong or how to fix it. This Article, prepared for a Symposium on Conflict of Laws in Trusts and Estates, responds to that gap by providing a historically, theoretically, and institutionally grounded account of the rise and fall of the old regime with an eye toward informing ongoing law reform efforts. We first show that the prevailing regime--that of the 1971 Restatement (Second) of Conflict of Laws--was purpose-built to encode then-common norms of trust law and practice. We then explain how and why modern trust law and practice has departed from those norms, upending the Restatement's foundational assumptions. In the Restatement's era, conflicts of trust laws rarely arose and were easily resolved through reliance on the locational anchors of land, probate, and court supervision. Today, by contrast, provoking a conflict of trust laws by drafting a trust to capture the benefits of interstate variation in law is a routine estate planning strategy, and the locational anchors of land, probate, and court supervision have become unmoored. Indeed, our account recasts nearly every significant development affecting trust law and practice over the past fifty years as a contributor to the revolution in conflict of trust laws. Informed by this understanding of the old regime's obsolescence, we offer tentative suggestions for the law reform efforts currently underway.

Media narratives are based on radical proposals. But the final rules always prioritize risk and return.

This Article develops an interpretive theory for statutes that originate as Uniform Acts promulgated by the Uniform Law Commission. Although overlooked in the literature on statutory interpretation, state-enacted Uniform Acts are ubiquitous. They shape our life cycles—governing birth, adoption, marriage, divorce, and death—and structure trillions of dollars in daily commercial transactions. Largely focusing on textualism, today’s dominant form of statutory interpretation, we focus on the interpretive consequences of two unusual features of state-enacted Uniform Acts. First, the text of every Uniform Act directs courts to interpret it to “promote uniformity.” Second, each provision is ac-companied by an official explanatory comment, analogous to a user manual for interpreters. We argue that, in light of these features, foundational textualist principles obligate courts to consider legislative intent as expressed in the official comments—a form of what textualists would otherwise dismiss as legislative history—when they interpret a statute originating as a Uniform Act. More specifically, the Article explores what we call the “directives” and “signals” that state legislatures send when they enact a Uniform Act. As en-acted statutory text, the promote-uniformity clause directs courts to treat the official comments as persuasive authorities on the statute’s meaning. Moreover, even if a legislature enacts only a portion of a Uniform Act, the legislature signals that courts should treat the comments as persuasive authorities by virtue of the choice to incorporate language from a Uniform Act rather than some alternative text. Moving from theory to practice, we develop a canon of construction for interpreting this significant but understudied species of positive law. We also present a series of puzzles and complications arising from “hybrid” enactments of bespoke and Uniform statutory language. More generally, by colliding textualist theory with the two-step political economy of state-enacted Uniform Acts, the Article broadens our understanding of textualism and adapts it to this critical but overlooked category of statute.

This chapter, prepared for the 2021 Annual Heckerling Institute on Estate Planning, examines the law and economics of environmental, social, and governance (ESG) investing by a trustee. Trustees of pensions, charities, and personal trusts invest tens of trillions of dollars of other people’s money subject to a sacred trust known in the law as fiduciary duty. Recently, these trustees have come under increasing pressure to use ESG factors in making investment decisions. ESG investing is common among investors of all stripes, but many trustees have resisted its use on the grounds that doing so may violate the fiduciary duty of loyalty. Under the “sole interest rule” of trust fiduciary law, a trustee must consider only the interests of the beneficiary. Accordingly, a trustee’s use of ESG factors, if motivated by the trustee’s own sense of ethics or to obtain collateral benefits for third parties, violates the duty of loyalty. On the other hand, some academics and investment professionals have argued that ESG investing can provide superior risk-adjusted returns. On this basis, some have even argued that ESG investing is required by the fiduciary duty of prudence. Against this backdrop of uncertainty, this chapter examines the law and economics of ESG investing by a trustee. We differentiate “collateral benefits” ESG from “risk-return” ESG, and we provide a balanced assessment of the theory and evidence about the possibility of persistent, enhanced returns from risk-return ESG.We show that ESG investing is permissible under American trust fiduciary law if two conditions are satisfied: (1) the trustee reasonably concludes that ESG investing will benefit the beneficiary directly by improving risk-adjusted return; and (2) the trustee’s exclusive motive for ESG investing is to obtain this direct benefit. In light of the current theory and evidence on ESG investing, we accept that these conditions could be satisfied under the right circumstances, but we reject the claim that the duty of prudence either does or should require trustees to use ESG factors. We also consider how the duty of loyalty should apply to ESG investing by a trustee if such investing is authorized by the terms of a trust or the beneficiaries, or is consistent with a charity’s purpose, clarifying with an analogy to whether a distribution would be permissible under similar circumstances. We conclude that applying the sole interest rule (as tempered by authorization and charitable purpose) to ESG investing is normatively sound.The chapter is based on Max M. Schanzenbach and Robert H. Sitkoff, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, 72 Stanford Law Review 381 (2020), available at https://ssrn-com.ezp-prod1.hul.harvard.edu/abstract=3244665.

The prudent investor rule, now enacted in every state, is the centerpiece of trust investment law. In accordance with modern portfolio theory, the rule directs a trustee to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. This article, recently published in Trusts & Estates magazine, summarizes the results of an earlier empirical study of the effect of the rule on asset allocation and management of market risk by bank trustees. We had two main findings. First, enactment of the rule was associated with increased stockholdings by bank trustees, but not among banks with average trust account sizes below the 25th percentile, a result that is consistent with sensitivity in asset allocation to trust risk tolerance. Second, enactment of the rule was associated with increased portfolio rebalancing by bank trustees, a result that is consistent with increased management of market risk. Given these findings, we concluded that reallocation toward additional stockholdings after enactment of the rule was correlated with trust risk tolerance and that the increased market risk exposure from those additional stockholdings was more actively managed.

In this chapter, prepared for The Oxford Handbook of New Private Law, we identify the principal ways in which the common law trust has been used as an instrument of private ordering in American practice. We argue that in both law and function, contemporary American trust law has divided into distinct branches. In our taxonomy, one branch involves donative trusts and the other commercial trusts. The donative branch divides further to include separate sub-branches for revocable and irrevocable donative trusts. We explain the logic of this branching in both practical function and doctrinal form.

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.

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.

In March 2020, the Securities and Exchange Commission asked for public comment on the names rule (rule 35d-1) for mutual funds in light of developments since the rule's adoption in 2001. Among such developments, the request for comment identifies burgeoning investor interest in environmental, social, and governance (“ESG”) investing and the corresponding proliferation of funds that purport to make use of ESG factors. This response to the SEC’s request for comment has two purposes: First, we provide clarifying context for the ESG investing phenomenon and a summary of the current state of theoretical and empirical literature in financial economics on it. Second, we discuss how this context informs the critical relationship between ESG disclosure by a mutual fund, both in the fund’s name and in its prospectus, and the rules (e.g., state trust law or ERISA) that govern the extent to which a trustee or other fiduciary may use ESG factors in fiduciary investment. We organize this response in four parts: (1) we provide a clarifying taxonomy on the meaning of ESG investing and the methods for implementing it; (2) we discuss the inherent subjectivity in identifying and applying ESG factors; (3) we assess the current theory and evidence on whether ESG investing can improve risk-adjusted returns; and (4) we identify four interrelated questions of regulatory policy stemming from growing investor interest in ESG investing, situating the request for comment toward potential revision of the names rule within that four-part framework. This response 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.

In recent years, the study of fiduciary law has undergone a paradigm shift. Rather than treat fiduciary principles as subsidiary elements of various fields of law, such as trust law or corporate law, a burgeoning group of scholars has undertaken to study fiduciary law as a coherent, general field of study that encompasses aspects of private and public law. Case law and academic commentary have progressed to the point that it is now possible to generate a detailed mapping of the field.

On April 2019, the Office of the Comptroller of the Currency (OCC) issued an Advance Notice of Proposed Rulemaking (ANPR) on the definition of "fiduciary capacity" regarding "directed trusts." The ANPR references in particular the Uniform Directed Trust Act (UDTA) (Unif. Law Comm’n 2017). We served as the Reporter (Morley) and Chair (Sitkoff) of the drafting committee for the UDTA. Following the UDTA, we use the term “directed trust” to refer to a trust in which the terms of the trust grant a person other than a trustee a power over some aspect of the trust’s administration. As the prefatory note to the UDTA explains, “[t]here is no consistent vocabulary to describe the person other than a trustee that holds a power in a directed trust. Several terms are common in practice, including ‘trust protector,’ ‘trust adviser,’ and ‘trust director.’” The same is true for the trustee in a directed trust, who may be “sometimes called an ‘administrative trustee’ or ‘directed trustee.’” Following the UDTA, we will refer to a trustee in a directed trust as a “directed trustee,” a person who is not a trustee with a power over the administration of the trust as a “trust director,” and the power that a trust director holds over the administration of the trust as a “power of direction.” The hard question of law and policy raised by the proliferation of directed trusts is how to address the many complications created by giving a power of direction to a trust director, including in particular how to allocate fiduciary responsibility among a trust director and a directed trustee. The patchwork of modern state directed trust statutes, which to varying degrees has displaced the older but more consistent common law regime, has given rise to uncertainty that, in the words of the ANPR, may “make it difficult for institutions to assess and manage litigation risk and to understand OCC expectations for managing these accounts in a safe and sound manner.” We are in agreement that additional OCC guidance on directed trusts could be helpful. However, we have six concerns about the way the ANPR frames the issue, which we elaborate in this comment letter.

In recent years, the study of fiduciary law has undergone a paradigm shift. Rather than treat fiduciary principles as subsidiary elements of legal fields, such as trust law or corporate law, a burgeoning group of scholars has undertaken to study fiduciary law as a coherent general field of study that encompasses aspects of both private and public law. Case law and academic commentary have progressed to the point that it is now possible to generate a detailed mapping of the field. To this end, the newly published Oxford Handbook of Fiduciary Law provides a near-encyclopedic survey of the terrain, focusing primarily on U.S. jurisprudence but also incorporating perspectives from other legal traditions. In its breadth and depth of coverage, the Handbook stands alone as a uniquely authoritative guide to the current state of the law and scholarship in the field. This essay, which is the Introduction to the Handbook, explores fiduciary law’s emergence as a general field of study and explains the Handbook’s ambitious contributions to the field. These contributions are grouped thematically into four parts. First, the Handbook surveys fiduciary principles across diverse contexts, ranging from agency law and the law of investment advice, to family law and the law of lawyering, to public offices and public international law. Second, the Handbook identifies and synthesizes several fundamental principles of fiduciary law that apply across these contexts, including the core fiduciary duties of loyalty and care. Third, the Handbook explores how fiduciary principles have developed across time and in different legal traditions around the world. Lastly, the Handbook considers how different legal theories, interdisciplinary approaches, and social institutions may contribute to the academic study and development of fiduciary law. The Handbook thus furnishes a single source to which readers can turn for guidance on fiduciary principles across a host of substantive fields, jurisdictions, and epochs.

Directed trusts have become a familiar feature of trust practice in spite of considerable legal uncertainty about them. Fortunately, the Uniform Law Commission has just finished work on the Uniform Directed Trust Act (UDTA), a new uniform law that offers clear solutions to the many legal uncertainties surrounding directed trusts. This article offers an overview of the UDTA, with particular emphasis on four areas of practical innovation. The first is a careful allocation of fiduciary duties. The UDTA’s basic approach is to take the law of trusteeship and attach it to whichever person holds the powers of trusteeship, even if that person is not formally a trustee. Thus, under the UDTA the fiduciary responsibility for a power of direction attaches primarily to the trust director (or trust protector or trust adviser) who holds the power, with only a diminished duty to avoid “willful misconduct” applying to a directed trustee (or administrative trustee). The second innovation is a comprehensive treatment of non-fiduciary issues, such as appointment, vacancy, and limitations. Here again, the UDTA largely absorbs the law of trusteeship for a trust director. The UDTA also deals with new and distinctive subsidiary problems that do not arise in ordinary trusts, such as the sharing of information between a trustee and a trust director. The third innovation is a reconciliation of directed trusts with the traditional law of co-trusteeship. The UDTA permits a settlor to allocate fiduciary duties between co-trustees in a manner similar to the allocation between a trust director and directed trustee in a directed trust. A final innovation is a careful system of exclusions that preserves existing law and settlor autonomy with respect to tax planning, revocable trusts, powers of appointment, and other issues. All told, if appropriately modified to fit local policy preferences, the UDTA could improve on the directed trust law of every state. The UDTA can also be used by practitioners in any state to identify the key issues in a directed trust and find sensible, well-drafted solutions that can be absorbed into the terms of a directed trust.

The use of environmental, social, and governance (ESG) factors in investing is increasingly common and widely encouraged by investment professionals and non-government organizations. However, trustees and other fiduciary investors in the United States, who manage trillions of dollars, have raised concerns that using ESG factors violates the fiduciary duty of loyalty. Under the “sole interest rule” of trust fiduciary law, a trustee or other investment fiduciary must consider only the interests of the beneficiary. Accordingly, a fiduciary’s use of ESG factors, if motivated by the fiduciary’s own sense of ethics or to obtain collateral benefits for third parties, violates the duty of loyalty. On the other hand, some academics and investment professionals have argued that ESG investing can provide superior risk-adjusted returns. On this basis, some have even argued that ESG investing is required by the fiduciary duty of care. Against this backdrop of uncertainty, this paper examines the law and economics of ESG investing by a fiduciary. We differentiate “collateral benefits” ESG from “risk-return” ESG, and we provide a balanced assessment of the theory and evidence from financial economics about the possibility of persistent, enhanced returns from risk-return ESG. We show that ESG investing is permissible under trust fiduciary law only if two conditions are satisfied: (1) the fiduciary believes in good faith that ESG investing will benefit the beneficiary directly by improving risk-adjusted return, and (2) the fiduciary’s exclusive motive for ESG investing is to obtain this direct benefit. We reject the claim that the law imposes any specific investment strategy on fiduciary investors, ESG or otherwise. We also consider how the law should assess ESG investing by a fiduciary if authorized by the terms of a trust or a beneficiary or if it would be consistent with a charity’s purpose, clarifying such cases by asking whether a distribution would have been permissible under similar circumstances.

The organizing principle of the American law of succession is freedom of disposition. This book chapter surveys freedom of disposition in American succession law--intestacy, wills, trusts, and nonprobate transfers. The chapter also considers the main limits on freedom of disposition, focusing on forced shares for spouses, the Rule Against Perpetuities, and the federal wealth transfer taxes. For the most part, however, the American law of succession facilitates rather than regulates implementation of the decedent’s intent. Most of the American law of succession is concerned with enabling posthumous enforcement of the actual intent of the decedent or, failing this, giving effect to the decedent’s probable intent. Note: The chapter is based on the author’s remarks at the Conference on Freedom of Testation and its Limits at the University of Lleida, Spain, on 20 April 2018.

This chapter summarizes the four areas of practical innovation of the Uniform Directed Trust Act (UDTA). The first is a careful allocation of fiduciary duties. The UDTA’s basic approach is to take the law of trusteeship and attach it to whichever person holds the powers of trusteeship, even if that person is not formally a trustee. Thus, under the UDTA the fiduciary responsibility for a power of direction attaches primarily to the trust director (or trust protector or trust adviser) who holds the power, with only a diminished duty to avoid “willful misconduct” applying to a directed trustee (or administrative trustee). The second innovation is a comprehensive treatment of non-fiduciary issues, such as appointment, vacancy, and limitations. Here again, the UDTA largely absorbs the law of trusteeship for a trust director. The UDTA also deals with new and distinctive subsidiary problems that do not arise in ordinary trusts, such as the sharing of information between a trustee and a trust director. The third innovation is a reconciliation of directed trusts with the traditional law of co-trusteeship. The UDTA permits a settlor to allocate fiduciary duties between co-trustees in a manner similar to the allocation between a trust director and directed trustee in a directed trust. The fourth innovation is a careful system of exclusions that preserves existing law and settlor autonomy with respect to tax planning, revocable trusts, powers of appointment, and other issues. Prepared for the 2018 Heckerling Institute on Estate Planning at the University of Miami, this chapter is an abridgment of John D. Morley & Robert H. Sitkoff, Making Directed Trusts Work: The Uniform Directed Trust Act, 44 ACTEC L.J. 1 (2018, Forthcoming).

In a trust decanting, a trustee who under the terms of a trust (the first trust) has a discretionary power over distribution uses that power to distribute the trust property to a new trust (the second trust) with updated provisions, leaving behind the sediment of the first trust’s stale provisions. This article canvasses the rise of trust decanting in American trust practice, taking notice of its common law origins, its contrast with traditional American doctrine on trust modification and termination, the proliferation of state trust decanting statutes, and several areas of doctrinal divergence across the states.

The prudent investor rule, enacted in every state over the last 30 years, is the centerpiece of trust investment law. Repudiating the prior law's emphasis on avoiding risk, the rule reorients trust investment toward risk management in accordance with modern portfolio theory. The rule directs a trustee to implement an overall investment strategy having risk and return objectives reasonably suited to the trust. Using data from reports of bank trust holdings and fiduciary income tax returns, we examine asset allocation and management of market risk before and after the reform. First, we find that the reform increased stockholdings, but not among banks with average trust account sizes below the 25th percentile. This result is consistent with sensitivity in asset allocation to trust risk tolerance. Second, we present evidence consistent with increased portfolio rebalancing after the reform. We conclude that the move toward additional stockholdings was correlated with trust risk tolerance, and that the increased market risk exposure from additional stockholdings was more actively managed.

Wills, Trusts, and Estates

The article reports on the rule imposed by the U.S. Department of Labor (DOL) which imposes the trust law duty of care or the prudent investor rule under the Employee Retirement Income Security Act (ERISA) on investment advisors of individual retirement account (IRA) owners or to retirement plan beneficiaries. Topics discussed include duties of trustees under the trust law duty of loyalty, and the role of an investment policy statement in sound fiduciary investment practice.

From its origins as a conveyancing device used to avoid feudal incidents, the donative trust has evolved into a device for fiduciary management of wealth down the generations (a management trust), for avoiding probate (a will substitute trust), and for avoiding conservatorship (a common secondary use of a will substitute trust). These contemporary uses of donative trusts have been facilitated by a variety of law reforms that, taken together, have effected a functional branching of American donative trust law. The law governing irrevocable and revocable trusts respectively has evolved to accommodate their different predominant uses as management trusts and will substitute trusts. At the same time, however, the law governing revocable trusts has come to deny their additional conservatorship substitute function. We argue that this development was a doctrinal wrong turn. The central descriptive aim of this Article is to draw attention to the common use of a funded revocable trust not only as a will substitute but also as a conservatorship substitute. The central normative claim follows from the descriptive claim. To implement the actual or probable intent of the typical settlor, a funded revocable trust should be treated presumptively as both a will substitute and a conservatorship substitute. The most significant doctrinal implication is that the beneficiaries of a funded revocable trust should have presumptive standing to enforce the trust in the event of the settlor’s incapacity.

Americans now hold trillions of dollars in individual retirement savings accounts. Concerned about conflicts of interest among financial advisers who provide advice to retirement savers, the Department of Labor has proposed imposing fiduciary status and a "best interest" standard on such advisers. To ameliorate the resulting compliance costs, the DOL has also raised the possibility of a safe harbor for certain "high-quality low-fee investments." However, the notion of a "high-quality" investment is in irreconcilable tension with the highly individualized assessment of risk and return that is required by modern portfolio theory, the well-accepted concept from financial economics that has been codified in the "prudent investor rule" as the standard of care for fiduciary investment. This policy incoherence is worrisome because of the potential for the safe harbor to swallow the best interest standard.

Perpetual trusts are an established feature of today’s estate planning firmament. Yet little-noticed provisions in the constitutions of nine states, including in five states that purport to allow perpetual trusts by statute, proscribe “perpetuities.” This Article examines those provisions in light of the meaning of “perpetuity” as a legal term of art across history. We consider the constitutionality of perpetual trust statutes in states that have a constitutional ban on perpetuities and whether courts in states with such a ban may give effect to a perpetual trust settled in another state. Because text, purpose, and history all suggest that the constitutional perpetuities bans were meant to proscribe entails, whether in form or in function, and because a perpetual trust is in purpose and in function an entail, we conclude that recognition of perpetual trusts is prohibited in states with a constitutional perpetuities ban.

Indeed, this book not only offers a much-needed theoretical assessment of fiduciary topics, it defines the field going forward, setting an agenda for future philosophical study of fiduciary law.

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.)

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. (Winner of the 2014 Richard J. Davis Legal/Regulatory/Ethics Award from the Investment Management Consultants Association)

This Article examines the nature, origin, and policy soundness of the tort of interference with inheritance. We argue that the tort should be repudiated because it is conceptually and practically unsound. Endorsed by the Second Restatement of Torts and recognized by the U.S. Supreme Court in a recent decision, the tort has been adopted by courts in nearly half the states. But it is deeply problematic from the perspectives of both inheritance law and tort law. It undermines the core principle of freedom of disposition that undergirds American inheritance law. It invites circumvention of principled policies encoded in the specialized rules of procedure applicable in inheritance disputes. In many cases, it has displaced venerable and better-fitting causes of action for equitable relief. It has a derivative structure that violates the settled principle that torts identify and vindicate rights personal to the plaintiff. We conclude that the emergence of the interference-with-inheritance tort is symptomatic of two related and unhealthy tendencies in modern legal thought: the forgetting of restitution and equitable remedies, and the treatment of tort as an unstructured delegation of power to courts to impose liability whenever doing so promises to deter antisocial conduct or compensate victims of such conduct.

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.

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.

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.

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.

The trust has long competed with the corporation as a form of business organization. Although today the corporate form dominates the trust for the organization of operating enterprises, the trust dominates the corporation in a handful of specialized niches. The market value of these niches measures in the trillions of dollars. Yet the modern business trust has only recently begun to be subjected to scholarly inquiry. Accordingly, this essay outlines a research agenda for the study of the trust -- in particular, the modern statutory business trust -- as a form of business organization.

By abolishing the Rule Against Perpetuities, twenty-one states have validated perpetual trusts. The prevailing view among scholars is that enactment of the generation skipping transfer (GST) tax in 1986 prompted the movement to abolish the Rule by conferring a salient tax advantage on long-term trusts. However, an alternate view holds that demand for perpetual trusts stems from donors preference for control independent of tax considerations. Proponents of both views have adduced supporting anecdotal evidence. Using state-level panel data on trust assets prior to the adoption of the GST tax, we examine whether a state's abolition of the Rule gave the state an advantage in the jurisdictional competition for trust funds. We find that, prior to the GST tax, a state s abolition of the Rule did not increase the state s trust business. By contrast, in a prior study we found that, between the enactment of the GST tax and 2003, states that abolished the Rule experienced a substantial increase in trust business. Accordingly, we conclude that theenactment of the GST tax prompted the rise of the perpetual trust. These findings bear on the debate over proposals to liberalize the law of trust termination and modification and to amend the GST tax. Our findings also contribute to the literature on the bequest motive.

For 200 years the rule against accumulations of income, which limits the time during which a settlor may direct the trustee to accumulate and retain income in trust, has lurked in the shadow of its older and more distinguished cousin, the Rule Against Perpetuities. With the erosion of the Rule Against Perpetuities, however, the rule against accumulations may have newfound relevance. Perpetual trusts are more likely than ordinary trusts to involve accumulations of income, and such trusts are designed to endure beyond the permissible common law accumulations period. This essay examines the relevance of the rule against accumulations for the rise of the perpetual trust. The essay also assesses the contemporary policy soundness of the accumulations rule.

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.