Article on American Trust Law’s New Direction
There is a central tension in the law of trusts between the rights of the donor and the rights of the beneficiaries. On the one hand, the position of the donor seems paramount. The donor—known in trust law as the“settlor”—establishes the terms of the trust and, therefore, has the power to determine the extent of the beneficiaries’ equitable interests and the power to control the actions of the trustee in the trust’s administration. Indeed, the organizing principle of the law of donative transfers, as stated in the Restatement (Third) of Property: Wills and Other Donative Transfers, is that the“donor’s intention is given effect to the maximum extent allowed by law.” On the other hand, the position of the beneficiaries also has a claim to supremacy. Only the beneficiaries hold the ownership interests in the trust, not the settlor. Of course, it sometimes happens that the settlor is also a beneficiary, but here we are speaking of the settlor as such. The beneficiaries, not the settlor, have the equitable ownership of the trust assets, and this would seem to limit the power of the settlor to control the trust. And indeed the Restatement (Third) of Trusts emphasizes that “a private trust, its terms, and its administration must be for the benefit of its beneficiaries.”
In navigating between the extremes of settlor control and beneficiary control, the law of trusts has at times taken a position more favorable to the settlor, and at other times a position more favorable to the beneficiaries.
In this Article, I shall offer both a descriptive and a normative analysis of where we currently stand and where we are going. I shall argue that American trust law, after decades of favoring the settlor, is moving in a new direction, with a reassertion of the interests and rights of the beneficiaries. I shall also argue that this new direction is appropriate and welcome.