Unconscionability in the Law of Trusts
Horton, David, Notre Dame Law Review
This Article claims that trust law should recognize the unconscionability defense. It begins by noting the symmetry between trust and contract defenses and the growing consensus among courts and scholars that trusts are contracts. It sketches the leading rationales for why courts enforce promises between private actors: the theories that free exchange allows parties to maximize welfare and exercise free will. It then argues that neither concept justifies upholding a contractual term if informational defects prevent one party from observing that it sharply deviates from her ex ante desires. It asserts that the unconscionability doctrine strikes down contractual terms that suffer from precisely that defect.
The Article then explains how the unconscionability doctrine could serve the same purpose in trust law. It discusses why the policies underlying freedom of testation depart from those behind freedom of contract and provide less support for a laissez faire regime. It then challenges the unarticulated but intuitive notion that controls in the trust-creation process are sufficient to align an instrument's text with a settlor's intent. It reveals that corporate fiduciaries, trust mills, and a revitalized do-it-yourself movement have spawned "procedurally suspect" trusts: those created without attorney involvement and laden with complex terms. It then examines three common but controversial "substantively suspect" terms--exculpatory, no contest, and arbitration clauses--and shows how a trust-specific unconscionability doctrine would improve outcomes in cases.
INTRODUCTION I. UNCONSCIONABILITY IN CONTRACT LAW A. Rationales for Freedom of Contract B. Standard Form Contracts C. The Unconscionability Doctrine II. UNCONSCIONABILITY IN TRUST LAW A. Rationales for Freedom of Testation B. Unconscionability in Trust Law 1. Procedural Unconscionability 2. Substantive Unconscionability C. Counterarguments III. APPLYING THE DOCTRINE A. Exculpatory Clauses and Other Pro-trustee Provisions B. No-Contest Clauses C. Arbitration Clauses CONCLUSION
Even with the recent economic downturn, Americans will bequeath hundreds of billions of dollars a year for the next half-century--the largest wealth transfer in history. (1) As critics continue to condemn probate as slow, (2) expensive, (3) and "quite public," (4) trusts are now a staple of most estate plans. Yet after years of relative stasis, the law of trusts is suddenly in flux. In 2006, the United States Supreme Court opened federal courts to a broad spectrum of trust litigation. (5) The recently published Restatement (Third) of Trusts and Uniform Trust Code--ambitious projects that have reshaped doctrine more than merely summarized it (6)--have ushered in "a moment in time when our ideas about what a trust is, what it is for, and how to operate it are under consideration and, indeed, are changing meaningfully." (7)
One defining characteristic of this reassessment has been trust law's absorption of principles from contract law. In the last decade, scholars and courts have begun conceptualizing the trust as a "deal": a private agreement between the settlor and the trustee to manage the corpus. (8) To be sure, trust law and contract law do not overlap completely. For example, remedies for breach of trust differ from those for breach of contract. (9) Nevertheless, the analogy between trust and contract yields three important points. First, like contract law, trust law consists primarily of default rules (10)--rough estimates of how most parties would choose to resolve a given contingency. (11) Because default rules are guesses about the parties' wishes, the parties can freely modify them. (12) Second, as in contract law, not all trust law is default. A select cluster of trust rules--for example, the requisites of trust formation, or the necessity that trustees owe enforceable duties--cannot be overridden. …