Lesser-Known Trusts, Part 2

I recently mentioned an article about lesser-known trusts.  The author, Wendy S. Goffe (attorney, Seattle WA), has now published the second part of this article entitled Part II: An Introduction to Lesser Known but Useful Trusts, Wealth Strategies Journal. This is the second in a six-part series that will be published weekly, now through September, and it discusses commercial trusts. An excerpt from the introduction is below:

The common law commercial trust, also referred to as a business trust, has existed since the Seventeenth Century. Generally, a common law business trust is an unincorporated business organization created by an instrument that defines how property is to be held and managed by trustees for the benefit and profit of its beneficial owners. Common law business trusts have historically been viewed as an evasion of corporate law.

The traditional trust involves a gratuitous transfer that implies that the grantor is not compensated for that transfer, and often retains no further interest in the trust corpus. A trustee’s common law fiduciary duties of care and impartiality limit the use of traditional trust assets in many circumstances, particularly with respect to adherence to the prudent investor rules. On the other hand, the business trust is typically funded in a bargained-for exchange with a goal of managing the assets for profit, the grantor typically retains an interest in the assets as a beneficiary, and the beneficiary and the trustee share the risk of loss and the possibility of profit. The business trust arrangement, where the trustee is permitted to make risky investments for entrepreneurial gain and share that risk with the beneficial owners, stands in total contradiction of the traditional understanding of the trustee/beneficiary/grantor fiduciary relationship.

The common law business trust has a number of limitations, including the fact that it is not clear that it consistently confers limited liability to its investors. Because of the many limitations of the common law business trust and the common law limitations on fiduciaries, at least 30 states have enacted business trust statutes. In addition, the National Uniform Conference of Commissioners of Uniform State Laws (“NCCUSL”), which began its work in 2002, approved a Uniform Statutory Trust Entity Act on July 15, 2009, originally based on the Delaware Statutory Trust, with a number of innovations.