The stripping of the trust: A study in legal evolution

Abstract

The law of trusts has spent the last twenty years rapidly shedding many traditional requirements, forms, and restrictions which imposed liability on negligent trustees, protected vulnerable beneficiaries, and prevented the use of trusts to avoid the claims of settlors’ and beneficiaries’ creditors, including their spouses, their children, and their governments. This article studies seven aspects of this ‘stripping of the trust,’ examines its consequences from both a distributive justice and a corrective justice point of view, and inquires whether the resulting stripped-down model coheres with the traditional functionality of donative private trusts. I found that most of the current reforms have welfare-reducing distributive consequences, in some cases inflicting externalities on all except the parties to a given trust, in others transferring value from settlors and beneficiaries to the trust service providers serving them. Most of the reforms discussed also create potential for infringements of corrective justice which either did not exist, or was less significant, pre-reform. I conclude that all but one of the seven reforms I examine should be reversed.

The Prudent Investor Rule and Market Risk: An Empirical Analysis

“…After the financial crisis of 2008, some scholars and practitioners claimed that in application the rule has been a failure. Relying in part on our prior finding of increased stockholdings after the reform, some commentators have argued that in the years leading up to the financial crisis, trustees took on too much market risk by amassing imprudently excessive stockholdings (see, e.g., Sterk ; Hofri‐Winogradow ; Dagan & Hannes 2014). On this assumption of failed risk management, a question that we did not examine in our prior study, critics in the United States and the British Commonwealth have urged repeal of the reform, replacing it with safe harbors or lists of approved investments (Sterk ; Getzler ).…”

“…These results correct a misunderstanding in an ongoing policy debate about trust investment law. Some have suggested that in the years leading up to the financial crisis of 2008, the prudent investor rule encouraged trustees to amass imprudently excessive stockholdings (see, e.g., Sterk ; Hofri‐Winogradow ; see also Fishman ). On this assumption of failed risk management, critics in both the United States and the British Commonwealth have urged that trust investment law be reoriented toward safe harbors or lists of approved investments (see, e.g., Sterk ; Getzler ).…”

The Moroccan Waqf and the Common-Law Trust: A Comparative Study

“…Similarly, Hofri-Winogradow (2015) has argued that the traditional approach adopted by the old common law legal system considered the common law trust as, An equitable obligation imposed on the owner of an asset to hold it in a fiduciary capacity, using it for the benefit of another or a permitted purpose, the asset being immune from the owner's personal creditors and the beneficiary enjoying both rights in the asset and personal rights against the trustee (p.3).…”