Law Commons^™

How To Sue An Asue? Closing The Racial Wealth Gap Through The Transplantation Of A Cultural Institution, Cyril A.L. Heron

Michigan Journal of Race and Law

Asues, academically known as Rotating Savings and Credit Associations (or ROSCAs for short), are informal cultural institutions that are prominent in developing countries across the globe. Their utilization in those countries provide rural and ostracized communities with a means to save money and invest in the community simultaneously. Adoption of the asue into the United States could serve as the foundation by which to close the racial wealth gap. Notwithstanding the benefits, wholesale adoption of any asue model runs the risk of cultural rejection because the institution is foreign to the African American community.

Drawing upon principles of cultural and …

Strengthening The Passivity Default, Ian Ayres, Edward Fox

Articles

In The Prudence of Passivity, Bryon Harmon and Laura Fisher (hereafter HF) argue that "passive management become the default approach for the investment of trust funds, to be abandoned only when circumstances specifically dictate the use of active management."' In this comment we argue that their thesis could be strengthened (i) by more clearly distinguishing between default law and default investment practices, (ii) by more clearly articulating their favored altering rules.

Alpha Duties: The Search For Excess Returns And Appropriate Fiduciary Duties, Ian Ayres, Edward Fox

Articles

Modern finance theory and investment practice have shifted toward “passive investing.” The current consensus is that most savers should invest in mutual funds or ETFs that are (i) well-diversified, (ii) low-cost, and (iii) expose their portfolios to age-appropriate stock market risk. The law governing trustees, investment advisers, broker–dealers, 401(k) plan managers, and other investment fiduciaries has evolved to push them gently toward this consensus. But these laws still provide broad scope for fiduciaries to recommend that clients invest instead in specific assets that they believe will produce “alpha” by outperforming the market. Seeking alpha comes at a cost, however, in …

How The Ali's Restatement Third Of Property Is Influencing The Law Of Trusts And Estates, Lawrence W. Waggoner

Articles

Restatements, once limited to restating existing law, are now substantially devoted to law reform. The ALI's website states its law-reform policy thus: "The American Law Institute is the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law." In 2014, the Brooklyn Law Review published a symposium issue on Restatements of the Law. A paper in that symposium argued against the ALI's law-reform policy. The authors specifically speculated that the reformist rather than restatist character of the recently completed Restatement (Third) of Property: Wills and Other Donative Transfers (Property Restatement) has "very …

The Creeping Federalization Of Wealth-Transfer Law, Lawrence W. Waggoner

Articles

This article appears in a symposium issue published by the Vanderbilt Law Review on The Role of Federal Law in Private Wealth Transfer. Federal authorities have little experience in making law that governs wealth transfers, because that function is traditionally within the province of state law. Although state wealth-transfer law has undergone significant modernization over the last few decades, all three branches of the federal government—legislative, judicial, and executive—have increasingly gone their own way. Lack of experience and, in many cases, lack of knowledge on the part of federal authorities have not dissuaded them from undermining well-considered state law. The …

Protecting Freedom Of Testation: A Proposal For Law Reform, Eike G. Hosemann

University of Michigan Journal of Law Reform

This Article addresses a problem ever more pressing in wealthy and aging societies like the United States: interference with freedom of testation by the use of wrongful means such as undue influence or will forgery to acquire benefits through inheritance. A detailed analysis of the remedies against interference with freedom of testation under inheritance law, tort law, and equity reveals that there is currently a significant under-deterrence of this undesirable behavior. Hence, this Article proposes a new remedy in order to protect freedom of testation more effectively: a disinheritance statute barring wrongdoers that have infringed upon someone’s freedom of testation …

Who Is Afraid Of Perpetual Trusts?, Bridget J. Crawford

Michigan Law Review First Impressions

Throw a stone into a room full of law professors, and it is virtually impossible to hit someone who will defend perpetual trusts. Yet since 1995, eighteen states have repealed their rules against perpetuities, and there are now twenty-one states that permit trusts to last forever. Many academics have responded with a virtual pile-on, calling the repeals a "race to the bottom" at best and "loony" at worst. Lawrence Waggoner, Professor Emeritus at the University of Michigan School of Law and Reporter for the Restatement (Third) of Property: Wills and Other Donative Transfers, has made another contribution to the scrum. …

Effectively Curbing The Gst Exemption For Perpetual Trusts, Lawrence W. Waggoner

Articles

In "Effectively Curbing the GST Exemption for Perpetual Trusts," I criticized the Treasury Department’s proposal for dealing with perpetual trusts. My objection is that Treasury’s approach would leave many trusts and much wealth GST-exempt for much longer than Congress originally intended. For perpetual trusts created before enactment, Treasury’s approach would allow them to continue to be unburdened by a durational limit. For perpetual trusts created after the effective date of enactment, Treasury’s approach would still allow them to qualify for the GST exemption, but would have the exemption expire 90 years after the trust was created.

Toward Economic Analysis Of The Uniform Probate Code, Daniel B. Kelly

University of Michigan Journal of Law Reform

Insights from economics and the economic analysis of law may be useful in analyzing succession law, including intestacy and wills as well as nonprobate transfers such as trusts. After surveying prior works that have examined succession from a functional perspective, I explore the possibility of utilizing tools like (i) transaction costs, (ii) the ex ante/ex post distinction, and (iii) rules versus standards, to illuminate the design of the Uniform Probate Code. Specifically, I investigate how these tools, which legal scholars have employed widely in other contexts, may be relevant in understanding events like the nonprobate revolution and issues like "dead …

Deliberative Accountability Rules In Inheritance Law: Promoting Accountable Estate Planning, Shelly Kreiczer-Levy

University of Michigan Journal of Law Reform

In the last few decades, the emerging trend in trust and estate law has been a steady loosening of the limitations on testamentary freedom. The 1990 Uniform Probate Code pioneered some of these developments. Construction rules are no exception. It is widely accepted that testamentary construction rules should track the owner's presumed intent. In this Article, I argue that there is also room, alongside these intent-furthering rules, for intent-defeating rules in inheritance law. A property owner lacks incentives to internalize the relational, familial, or economic effects of her allocation. Such rules, termed deliberative accountability rules, are therefore designed to foster …

Fiduciary Duties And Exculpatory Clauses: Clash Of The Titans Or Cozy Bedfellows, Louise Lark Hill

University of Michigan Journal of Law Reform

Centuries ago, when land represented the majority of wealth, the trust was used primarily for holding and transferring real property. As the dominant form of wealth moved away from family land, the trust evolved into a device for managing financial assets. With this transformation came the use of exculpatory clauses by both amateur and professional trustees, providing an avenue for these fiduciaries to escape liability for designated acts. With the use of exculpatory provisions, discussion abounded about whether fiduciary duties were mandatory or subject to modification. The latter view eventually prevailed, with the majority of jurisdictions viewing fiduciary duties as …

The Delaware Series Llc: Sophisticated And Flexible Business Planning, Ann E. Conaway, Peter I. Tsoflias

Michigan Business & Entrepreneurial Law Review

The authors conclude that the Delaware series supplies a beneficial, efficient use of a combined contractual Delaware entity form when pooled with sensible, informed planning by sophisticated business attorneys. Such benefits are particularly noticeable in investment vehicles where managers embark to minimize risk by diversifying the fund’s assets or receive funding with specific covenants attached that limit the acceptable uses of the funds. The series is not, however, for general practitioners who have the occasional client wishing for the latest benefit Delaware has to offer its investors. To provide context, Parts II-IV of this article provide a brief overview of …

Us Perpetual Trusts, Lawrence W. Waggoner

Articles

In 2009, the UK reconfirmed tis long-standing public policy against perpetual trusts. America has been moving in the opposite direction. Recent years have seen a movement in the states to pass legislation allowing settlors to create family trusts that can last forever or for several centuries. Sadly, and embarrassingly, the American perpetual-trust movement has not been based on the merits of removing the traditional curb on excessive dead-hand control. The policy issues associated with allowing perpetual trusts have not been seriously discussed in the state legislatures. The driving force has been interstate competition for trust business.

It Is Logic Rather Than Whom You Trust: A Rejoinder To Prof. Cohen, Douglas A. Kahn

Articles

This article is the continuation of an exchange that has taken place between Prof. Stephen B. Cohen and me concerning the validity of criticisms leveled by Chief Justice John Roberts on an opinion by then-Judge Sonia Sotomayor writing for the Second Circuit in the case of William L. Rudkin Testamentary Trust v. Commissioner. While affirming the Second Circuit’s decision, Chief Justice Roberts, writing for a unanimous Supreme Court, criticized and rejected Justice Sotomayor’s construction of the relevant statutory provision. In an article in the August 3, 2009, issue of Tax Notes, Cohen defended Justice Sotomayor’s construction of the statute and …

Message To Congress: Halt The Tax Exemption For Perpetual Trusts, Lawrence W. Waggoner

Articles

The federal estate tax is in abeyance this year. The popular press has picked up on the possibility that the estates of billionaires such as the late George Steinbrenner, who owned the New York Yankees, will escape the tax. The House Ways and Means Committee, chaired by Representative Sander Levin of Michigan, and the Senate Finance Committee, chaired by Senator Max Baucus of Montana, are now considering two questions: what the maximum rate and exemption will be when the estate tax returns and whether the tax will be reinstated for this year. Lurking behind the headlines but equally important is …

Rudkin Testamentary Trust -- A Response To Prof. Cohen, Douglas A. Kahn

Articles

In the August 3 issue of Tax Notes, Prof. Stephen Cohen wrote an article about Justice Sonia Sotomayor’s opinions in three tax cases. Of those three cases, only the opinion she wrote in William L. Rudkin Testamentary Trust v. Commissioner, 467 F.3d 149 (2d Cir. 2006), Doc 2006- 21522, 2006 TNT 203-4, is worthy of comment. Although the Second Circuit’s decision in that case was affirmed by the Supreme Court under the name Knight v. Commissioner, the construction of the critical statutory language that Justice Sotomayor adopted was rejected and criticized by Chief Justice Roberts, writing for a unanimous court. …

Class Gifts Under The Restatement (Third) Of Property, Lawrence W. Waggoner

Articles

The new Restatement (Third) of Property (officially the Restatement (Third) of Property: Wills and Other Donative Transfers), in tandem with the Restatement (Third) of Trusts, is systematically proceeding through the whole field of wills, will substitutes, trusts, and estates. Both of the new Restatements should prove to be handy resources for trust and estate lawyers, not only in preparing to argue cases at both trial and appellate levels, but also in the everyday work of drafting and construing dispositive provisions in wills, trusts, and other types of donative documents. Each Restatement section is followed by a set of Comments explaining …

A Prudential Exercise: Abstention And The Probate Exception To Federal Diversity Jurisdiction, Christian J. Grostic

Michigan Law Review

Ann-Marie Brege's parents established an irrevocable trust in 1985, with Ann-Marie as sole beneficiary. When Merrill Lynch Trust Co. took over as trustee years later, however, the trust's principal dropped sharply, losing over half its value in just a few years. Ann-Marie sued in Michigan probate court, alleging that Merrill Lynch had violated its legal duties in administering the trust. Since Ann-Marie was from New York and Merrill Lynch had its headquarters in New Jersey, Merrill Lynch had an apparently easy argument for diversity jurisdiction. In an unremarkable turn of events, Merrill Lynch filed a notice of removal to federal …

The 2003 Revised Uniform Estate Tax Apportionment Act, Douglas A. Kahn

Articles

Editors' Synopsis: This Article describes the significant sections of the 2003 Uniform Estate Tax Apportionment Act (the "2003 Uniform Act'). The Article explains the purpose and operation of the 2003 Uniform Act's various sections and notes some of the differences between the 2003 Uniform Act and its prior version.

The Rise Of The Perpetual Trust, Jesse Dukeminier, James E. Krier

Articles

For more than two centuries, the Rule against Perpetuities has served as the chief means of limiting a transferor's power to tie up property by way of successive contingent interests. But recently, at least seventeen jurisdictions in the United States have enacted statutes abolishing the Rule in the case of perpetual (or near-perpetual) trusts. The prime mover behind this important development has been the federal Generation-Skipping Transfer Tax. This Article traces the gradual decline of the common law Rule against Perpetuities, considers the dynamics behind the recent wave of state legislation, examines the problems that might result from the rise …

The Uniform Probate Code Extends Antilapse-Type Protection To Poorly Drafted Trusts, Lawrence W. Waggoner

Articles

The Uniform Law Commission' promulgated a revised version of Article II of the Uniform Probate Code (UPC or Code) in 1990, and approved a set of technical amendments in 1993. As Director of Research and Chief Reporter for the Joint Editorial Board for the Uniform Probate Code (Board)2 and reporter for the UPC Article II drafting committee, I was privileged to serve as the principal drafter of these provisions. UPC Article II deals with the substantive rules governing donative transfers - intestacy; spouse's elective share; execution, revocation, and revival of wills; rules of construction for wills and other donative transfers; …

International Investment And The Prudent Investor Rule: The Trustee's Duty To Consider International Investment Vehicles, Stephen M. Penner

Michigan Journal of International Law

Part I of this note will begin with a background of trust and trustees, focusing on the historical development of the trust and the present role of the trustee. Part II presents the Prudent Investor Rule. The problems in trust management which lead to the necessity of the Rule will be explored, as will the evolution of the Rule up to the recent adoption by the American Law Institute of the Third Restatement of Trusts, which is devoted solely to the Prudent Investor Rule. In Part III, the various investment opportunities available to the modern investor will be presented, first …

The Multiple-Marriage Society And Spousal Rights Under The Revised Uniform Probate Code, Lawrence W. Waggoner

Articles

Nearly everyone knows about the transformation of the American family that has taken place over the last couple of decades. The changes, from the latter half of the 1970s into the present, comprise one of the great events of our age. Articles on one aspect or another of the phenomenon frequent the popular press, and a special edition of Newsweek was recently devoted to the topic.' The traditional "Leave It To Beaver" family no longer prevails in American society. To be sure, families consisting of a wage-earning husband, a homemaking and child-rearing wife, and their two joint children still exist. …

The Funding Of Children's Educational Costs, Douglas A. Kahn

Articles

A plan for reduction of educational costs should take federal transfer taxes into account. The method chosen for reducing income tax liability usually will involve making gifts. To the extent that it is convenient to do so, the transfer tax consequences of making such gifts should be minimized. This article will examine the estate and gift tax consequences of the income tax reduction arrangements described herein and will consider means of structuring the transactions so as to minimize those consequences.

Disparate Tax Treatment Of Different Types Of Business Organizations: Where Should We Go From Here?, Douglas A. Kahn

Articles

If several persons wish to join together in a common enterprise in order to pool their capital or labor or some of each, they may choose among a variety of available organizational structures that will serve that purpose. The most common entity forms are partnerships (including joint ventures), corporations, and trusts. While, in its typical structure, each of those entity forms has its own distinct characteristics, the structure of such organizations often is modified by agreement so as to adopt attributes of another type of entity. Because of this, the substantive distinction between entity types is blurred.

Prudence In Trust Investment, Thomas D. Johnston

University of Michigan Journal of Law Reform

Part I of this article presents a brief history of the prudent man standard and explores the meaning of "prudence." Part II discusses the shift in legal theory to include equities as prudent investments. Part III articulates the weaknesses in the method currently used by courts to assess investment prudence in view of the exigencies confronting today's trustee-investor. Finally, part IV shows that the same factors which justified the creation of the Prudent Man Rule and its expansion to include equities will support its modification to encompass modern investment theories and techniques.

Trusts And The Doctrine Of Estates, Olin L. Browder Jr.

Michigan Law Review

The "doctrine of estates" is the common law system for the classification of divided ownership. Its primary purpose is to differentiate the legal consequences of the variety of concurrent, present, and future estates, but it also serves to differentiate the dispositive language required to create or transfer such estates. The doctrine of estates, therefore, embraces a sizable part of the law of conveyancing, including the large body of doctrine known as rules of construction.

In modern practice the classification and construction of present and future interests usually occurs with respect to beneficial interests in trust. It has not been sufficiently …

Delegation Of Investment Powers By Charitable Trustees, Richard B. Urda Jr.

University of Michigan Journal of Law Reform

Over the past few years the activities of philanthropic organizations have been undergoing considerable critical scrutiny. Congressional committees, private commissions, and individuals have extensively analyzed institutionalized charity. An area of particular concern involves problems created by the investment policies of charitable organizations. One investment problem that has not received much attention, however, is the plight of the natural person trustee of a charitable trust who, in general, is legally prohibited from delegating his responsibility for investment of trust funds. Almost one-third of all charitable foundations take the legal form of trusts. Of the foundations organized as charitable trusts, over 60 …

The Real Estate Investment Trust: State Tax, Tort, And Contract Liabilities Of The Trust, Trustee, And Shareholder, Michigan Law Review

Michigan Law Review

This Comment will attempt to alert potential investors in and trustees of REITs to the full extent of the liabilities that they could suffer for contract debts incurred in the name of the trust and torts committed by trust personnel. Since state tax considerations also play a significant role in investment decisions, the manner in which each state taxes the REIT and its shareholders on income derived from property and business in that state will also be investigated. Finally, a rational path out of the morass created by current state law will be articulated in order to prompt renewed discussion …

Private Trusts For Indefinite Beneficiaries, George E. Palmer

Michigan Law Review

Recently, in McPhail v. Doulton (In re Baden's Deed Trusts), the House of Lords reached a decision that marks an important change in the English law of trusts which could be important also for American law. It held that there is a single test of validity for private trusts and for powers of appointment where the issue is whether the beneficiaries of the trust or the objects of the power are sufficiently definite, and that this single test is that applicable to powers of appointment. For nearly 170 years, since the decision in Morice v. Bishop of Durham, …