Significant Trends in the Trust Law of the United States
Halbach, Edward C., Jr., Vanderbilt Journal of Transnational Law
In examining significant trends in American trust law, several observations are worth mentioning at the outset. First, trust law in the United States is primarily a matter of state law; thus, the trends discussed below may appear in some states but not in others.(1) Second, procedural merger of law and equity in this country has been substantially accomplished in nearly all states, but this should not be understood as eliminating the importance of equitable doctrine and remedies. Third, without abandoning the basic definition of a trust as a fiduciary relationship,(2) there appear to be subtle but practically significant departures from the traditional concept that a trust is not an "entity."(3) Certainly, the tax law has long treated the typical trust as an entity separate from the trustee.(4) In addition, an increasing number of states draw a distinction for various purposes between the trustee personally and the trustee's fiduciary or "representative" capacity.(5)
Property owners in the United States and elsewhere are generally living longer, often into longer periods of diminished physical or mental health. In addition, it is generally accepted that today broader segments of society than in the past are using trusts, and with a greater diversity of objectives,(6) but increasingly without the aid of legal counsel who are highly skilled in estate planning and trust practice.(7) Perhaps these factors are playing some role in the "user friendly" responses below, making the trust law more sympathetic to the results of error or oversight and more sensitive to the broad variety of trusts, trusteeships, settlor objectives, and beneficiary circumstances.
Part II of this Article will describe substantive trust law in the United States, in particular the creation, interpretation, and reformation of trusts, as well as trust termination and modification. Revocable inter vivos trusts, spendthrift trusts, and related topics will also be addressed. Part III will discuss fiduciary standards, focusing on the duties of the trustee and the rights of beneficiaries.
II. SUBSTANTIVE TRUST LAW
A. Creation of Trusts
The new and developing Restatements(8) of Property and Trusts (Property Third and Trusts Third), the Uniform Probate Code (UPC), and early but distinct trends in other statutory and common law authorities are moving American law in the direction of upholding property owners' attempts to establish trusts in situations in which traditional law would have found a transfer defective or an expression of trust intent deficient on some technical or formal ground. This tendency exists whether the transfer is made during life or at death, as long as there is evidentiary and circumstantial security that the trust represents the settlor's properly considered, final intention. Moreover, this trend is evident in various other areas: in legislative or judicial acceptance of some form of "harmless error," "substantial compliance," or "dispensing power" doctrine;(9) in increased tolerance of certain failures to satisfy the Statute of Frauds(10) or the requirements for a completed inter vivos transfer;(11) and in increasingly sympathetic views of attempts to create "semi-secret" testamentary trusts.(12)
American law is finally beginning to clarify and refine rules concerning capacity to create, amend, and revoke inter vivos trusts, recognizing that the degree of capacity to create a revocable trust should be no higher than that to execute a will.(13) The creation of an irrevocable inter vivos trust should depend on whether the trust is purely donative, in which case a gift standard is appropriate,(14) or whether it is part of a negotiated or adversary transaction, for which the higher contract standard would be appropriate.(15)
Similarly, state law throughout the country is beginning to come to grips with issues concerning the creation, amendment, and revocation of trusts on behalf of incapacitated persons by their personal fiduciaries. …