Perpetual Trusts
Joshua Tate, the Samuel I. Golieb Fellow at the New York University School of Law, has recently published his article, Perpetual Trusts and the Settlor’s Intent, 53 U. Kan. L. Rev. 595 (2005). In this work, Fellow Tate critiques Jesse Dukeminier & James E. Krier, The Rise of the Perpetual Trust, 50 UCLA L. Rev. 1303, 1304 (2003):
In a recent article, James E. Krier and the late Jesse Dukeminier have offered a tonic purporting to remedy alleged negative consequences of perpetual dynasty trusts. Concluding that few settlors genuinely wish to bind the hands of their descendants forever, Dukeminier and Krier propose that those states that have abolished the Rule also enact legislation enabling perpetual dynasty trusts to be easily undone after the beneficiaries known to the settlor have died. Dukeminier and Krier suggest that states that abolish the Rule also enact statutes that: (1) give the beneficiaries the power, when all the beneficiaries who were known to the settlor have died, to terminate or modify the trust without court approval (provided that they do not exercise the power in favor of themselves, their creditors, or their estates); (2) give the beneficiaries a power, limited by a statutory standard, to withdraw principal for their own benefit; (3) allow the trustee to terminate the trust at will; and (4) give the beneficiaries an unlimited power to replace a trustee without court approval. In the view of Dukeminier and Krier, these statutes could alleviate the “difficulties of duration” that perpetual dynasty trusts may engender. Although Dukeminier and Krier discuss these proposed statutes in their article under the heading “Default Rules,” the rules would in fact be mandatory and applicable to all trusts.
After an extensive analysis, the author concludes:
Dukeminier and Krier suggest that their statutory proposals are a response to problems likely to arise from the creation of perpetual dynasty trusts. In fact, however, the proposals of Dukeminier and Krier go far beyond that, and would have an impact on all trusts, not just perpetuities. While some of the proposals made by Dukeminier and Krier would apply only when the beneficiaries known to the settlor have died, two are not limited in this way: the proposal that the trustee have a statutory power to terminate the trust and the proposal that the beneficiaries have the power to replace the trustee at will. Taken together, these two rules would allow the beneficiaries to shop for a trustee who is willing to terminate the trust, rendering moot any conditions on access to trust funds specified by the settlor.
It is appropriate for legal scholars to suggest ways in which the law can be improved. It is also important, however, for state legislatures to understand the nature of the proposals that academics are suggesting. When a proposal would move the law into uncharted waters, states should be made aware of that fact. American courts may not always implement the settlor’s intent, but ignoring the settlor’s wishes is the exception rather than the rule. Dukeminier and Krier would effectively transfer the settlor’s freedom to the beneficiaries. That would be a bold change indeed, and one that state legislatures are probably unwilling to make. In any event, whether it is proper to respect the settlor’s intent is a policy question with far-reaching implications. It would be unwise to answer the question in haste simply because several states now allow for the creation of perpetuities, and it is far from clear that substituting the beneficiaries’ wishes for the settlor’s intent would be the best solution. The abolition of the Rule should not be used as a pretext for conducting a wholesale revision of the American law of trusts.