Law Commons^™

Strengthening The Passivity Default, Ian Ayres, Edward Fox

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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

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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 …

All I Really Need To Know About Antitrust I Learned In 1912, Daniel A. Crane

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Herbert Hovenkamp has indisputably earned the deanship of contemporary antitrust scholarship. One could point to many different attributes by which he has earned his laurels: fantastic scholarly productivity; clarity and precision in the craft of writing; analytical depth in both law and economics; moderation in a field apt to polarization; and custodianship of the influential Areeda treatise. In this Essay, I hope to honor another quality that has contributed significantly to Herb’s tremendous success as an antitrust scholar—his engagement with history. Much contemporary antitrust scholarship bursts with excitement at the discovery of new phenomena or theories that in all actuality …

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

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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

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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 …

A Critical Research Agenda For Wills, Trusts And Estates, Bridget J. Crawford, Anthony C. Infanti

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The law of wills, trusts, and estates could benefit from consideration of its development and impact on people of color; women of all colors; lesbian, gay, bisexual, and transgendered individuals; low-income and poor individuals; the disabled; and nontraditional families. One can measure the law’s commitment to justice and equality by understanding the impact on these historically disempowered groups of the laws of intestacy, spousal rights, child protection, will formalities, will contests, and will construction; the creation, operation and construction of trusts; fiduciary administration; creditors’ rights; asset protection; nonprobate transfers; planning for incapacity and death; and wealth transfer taxation. This essay …

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

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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.

Too Many Tiaras: Conflicting Fiduciary Duties In The Family-Owned Business Context, Karen E. Boxx

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Family-owned businesses have been called the "backbone of the U.S. economy," but passing control of a family business to the next generation is so complex that the majority of family businesses do not survive the transition. A common scenario that leads to problems is where owners want to leave the business to their children but only one child is interested in and capable of managing the business.

A popular solution is to leave the interested child an equal share of the business, together with management control, and leave the other children's interests in the business in trust, with the manager …

Us Perpetual Trusts, Lawrence W. Waggoner

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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

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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

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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 …

The Multiple Common Law Roots Of Charitable Immunity: An Essay In Honor Of Richard Epstein's Contributions To Tort Law, Jill R. Horwitz

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Professor Epstein has long promoted replacing tort-based malpractice law with a new regime based on contracts. In Mortal Peril, he grounded his normative arguments in favor of such a shift in the positive, doctrinal history of charitable immunity law. In this essay, in three parts, I critique Professor Epstein’s suggestion that a faulty set of interpretations in charitable immunity law led to our current reliance on tort for malpractice claims. First, I offer an alternative interpretation to Professor Epstein’s claim that one group of 19th and early 20th century cases demonstrates a misguided effort to protect donor wishes. Rather, I …

How Important Are Perpetual Tax Savings?, James R. Hines Jr.

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State and local expenditure and tax revenue respond less to the business cycle than do federal spending and revenue, thereby reducing the countercyclicality of total government expenditure and revenue. This paper considers forces responsible for the cyclical pattern of state expenditure and revenue. Annual fluctuations in state personal income are associated with small changes in state spending and significant changes in tax receipts; receipt of federal grants is associated with greater state spending. Tax collections, and to a lesser degree expenditure, of larger states are more closely associated with annual income fluctuations than are the tax collections and expenditure of …

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

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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

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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 …

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

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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

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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

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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; …

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

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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

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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

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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.

The Writing Required To Establish An Express Trust Of Land, Edgar N. Durfee

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It has frequently been said that the Seventh Section of the Statute of Frauds, concerning Trusts of land, requires a writing containing "all the terms of the trust." Forster v. Hale, 3 Ves. 707; Smith v. Matthews, 3 DeG., F. & J. 139; Loring v. Palmer, 118 U. S. 321; Gaylord v. Lafayette, 115 Ind. 423; McClellan v. McClellan, 65 Me. 500; Blodgett v. Hildreth, 103 Mass. 484; York v. Perrine, 71 Mich. 567; Newkirk v. Place, 47 N. J. Eq. 477; Steere v. Steere, 5 Johns. Ch. 1; Cook v. Barr, 44 N. Y. 156; Dillaye v. Greenough, 45 …

The Statute Of Uses And Active Trusts, Edgar N. Durfee

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To explain the survival of uses, alias trusts, after the Statute of Uses, one is probably justified in assuming a sympathetic attitude toward this Equitable institution on the part of the Common Law Judges. Maitland, Equity, 29. But, however predisposed the Judges might be, they would have to satisfy themselves, perhaps others as well, that they were interpreting rather than nullifying the Statute. Only such uses could be saved as could be "distinguished." The case of the use raised upon a chattel interest is clear enough, as it was without the letter, and fairly without the mischief, of the Statute. …

The Disposition To Be Made Of Property The Subject Of A Power If The Power Is Not Exercised, John R. Rood

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The object sought in this article is to collect and classify the cases in which the courts have passed on the question as to what shall be done with property over which a power of appointment has been given; when it finally turns out for some reason that the power has not been exercised. It is not the object to establish any particular thesis, but rather to ascertain how the adjudicated cases stand.

Corporations And Express Trusts As Business Organizations, Horace Lafayette Wilgus

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PRESIDENT BUTLER of Columbia University is reported to have said in an address before the New York Chamber of Commerce in 1911, that "the limited liability corporation is the greatest single discovery of modem times, whether you judge it by its social, by its ethical, by its industrial, or, in the long run--after we understand it and know how to use it,--by its political, effects." 1

Unenforceable Trusts And The Rule Against Perpetuities, George L. Clark

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Bequests upon trust to use the income thereof each year in keeping a monument or grave in repair, or in saying masses,8 or in having a brass band to play at the testator's grave each year on the anniversary of the testator's death9 have been held invalid, and the reason given is that the gift is a "perpetuity"1 or is in "violation of the rule against perpetuities."11 What do the courts mean by calling such a gift a "perpetuity?" And in what way, if at all, could the bequest be so changed as to avoid the "rule against perpetuities" and …

Preferences Arising From Trust Relations, Harry B. Hutchins

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Where property has once been impressed with a trust, the quality inheres therein and in the proceeds thereof so long as the trust relation continues, provided the rights of a bonafide purchaser for value and without notice do not intervene and identification remain possible. The trust impress, in the absence of a superior equity, at once places property in the preferred class. In equity, trust property belongs to the cesiui que trust, and his claim to it cannot be defeated by the insolvency or dishonesty of the trustee, if it constitutes, in an identifiable form, a part of the trustee's …