Article on Dead Hand Control of Trust Investments
Jeffrey A. Cooper (Professor of Law, Quinnipiac UniversitySchool of Law) has recently published an article entitled, Dead Hand Investing:The Enforceability of Trust Investment Directives, 37 ACTEC L.J. 365 (Winter2011). Providedbelow is the introduction to his article:
Modern trust law must perform a delicate balancing act. On oneside of the scales is the trust settlor, whose voluntary acts created andfunded the trust and who American law accords great deference, even in death.On the other side are the trust beneficiaries, for whose benefit the trust wascreated and whose interests, financial and otherwise, are at stake in itsadministration. Trust law thus operates amid a timeless battle between the deadand the living, those who have made the rules and those who must live by them.
Thisongoing conflict becomes particularly evident when the settlor attempts toimpose a binding investment directive, such as a mandate that a trustee retaina particular investment or pursue a particular investment philosophy. Thesettlor may attempt to impose such restrictions for a litany of reasons.Perhaps the settlor truly believes that his chosen investment course willmaximize beneficiaries’ wealth and protect the trust funds from falling prey tounproven investment strategies or unqualified portfolio managers. Perhaps thesettlor has imposed the restriction as a means of perpetuating her own moral orreligious beliefs. Or perhaps the settlor’s motivation isn’t nearly so noble.Indeed, the settlor may have imposed the restriction out of unadulteratedegomania–the settlor’s last effort to impose his will upon succeedinggenerations, cheating his own mortality by continuing to rule his descendantsfrom the grave. Regardless of the settlor’s motives, the trust beneficiariesmay quickly come to view any settlor-imposed investment restrictions asinefficient and burdensome–economic shackles which unduly limit the trustees’ability to pursue the investment course that best serves the livingbeneficiaries and that is best suited to maximize those beneficiaries’ wealth.
Trust beneficiaries seeking to set aside such settlor-imposedinvestment restrictions may have a new statutory tool to assist in theseefforts. Section 105(b)(3) of the Uniform Trust Code(hereinafter the “UTC”) nowcodifies an unwaivable requirement that a “trust and its terms must be for thebenefit of its beneficiaries” (hereinafter the “benefit-the-beneficiariesrule”). The Restatement (Third) of Trusts contains similar language.Beneficiaries seeking to free themselves of investment restrictions now canpoint to these sources of authority and argue that settlor-imposed investmentrestrictions serve solely the dead settlor’s interests and not the livingbeneficiaries’ ones. Accordingly, goes the argument, those restrictions shouldbe set aside.
Whetherthis is a correct interpretation of the benefit-the-beneficiaries rule is anopen question. Whether it’s a desirable interpretation is equally in dispute.The scholarly literature reflects a growing controversy surrounding these openquestions, including a number of recent law review articles setting outopposing viewpoints on the subject. I have authored two of these works whileProfessor John Langbein has provided a comprehensive counterpoint. In thisArticle, I revisit these prior works and restate my significant concerns aboutthe benefit-the-beneficiaries rule’s potential impact on trust investment law.As with my prior works, this Article is offered as guidance to judgesinterpreting the UTC and the Restatement and state legislators consideringadoption – or modification – of state trust law. More importantly, however,this Article is intended to set out for trust settlors, beneficiaries, andtheir counsel the potentially significant practical implications of thisongoing academic debate.
ThisArticle consists of three parts. In Part I, I recap the scholarly debate thusfar, summarizing both my concerns relating to the benefit-the-beneficiaries ruleand Professor Langbein’s countervailing views. In Part II, I revisit my primarythesis, namely that the emerging rule is overbroad in its impact and would havenumerous undesirable, likely unintended, effects. In Part III, I contend thatthe rule is counterproductive. I illustrate how trust settlors and theircounsel likely would seek to avoid this emerging rule through means that wouldserve only to exacerbate current concerns about dead hand control of trustinvestments.