Professor Reid Kress Weisbord’s article provides an interesting academic discussion regarding trust term extension and whether courts should reject perpetual trust conversions. The author’s position is that they should. He asserts that modification shouldn’t be granted for the benefit of the fiduciary at the beneficiary’s expense, and the modern trend favors the rights of living beneficiaries over dead hand control. The author states that there are divergent trends between state law’s abrogation of the rule against perpetuities (RAP) to expand dead hand control and that of broader trust law reform to favor living beneficiaries and vested beneficial interests.
The article discusses the analytical context of term extension-dead hand control and RAP; the practical considerations that a party, such as a trustee, considers in deciding whether to pursue modification extending an existing trust’s duration; the doctrine of equitable deviation and its potential application to modify an irrevocable trust’s duration; and trust term extension within the broad context of legal reform governing dead hand control of property and recommendations for law reform.
The article’s strength is its cogent discussion comparing and contrasting well-established law and modern trends, as well as specifically addressing the differences and similarities between the Uniform Trust Code (UTC) and the Restatement (Third) of Trusts. The comparisons provide an interesting perspective as to the evolving state of the law.
The article considers whether a trust created to comply with the RAP could, after the rule’s repeal, be extended in perpetuity, to provide for future generations of the settlor’s descendants. The article discusses the settlor’s intent; repeal of the RAP; transfer tax implications (more specifically, generation-skipping transfer (GST) tax and that extending the term of a pre-1986 GST tax-exempt trust is a “material change” disqualifying its exempt status); bankruptcy and fraudulent transfer laws; and a trustee’s potential conflict of interest, which presumably precludes most trustees from proceeding with an extension without court approval.
There’s a good discussion about the doctrine of equitable deviation and whether modification achieves or thwarts the settlor’s intent. Also, the author aptly notes that there was a proliferation of perpetual trusts after the 1986 enactment of the GST tax. State legislatures, in consultation with their trusts and estates state bars, accurately identified an opportunity to attract trust business to their states. Financial institutions then saw an opportunity to expand services into specific jurisdictions to provide situs for reasons, including perpetuity for newly created trusts (but not necessarily extending trust terms for existing trusts).
The article’s secondary general issues are trust modification and termination. I’ve found that a reader’s personal experience may predispose him to a particular view on these issues. Many practitioners, based on their experiences and the specific circumstances of a trust, would support decanting to modify inflexible or outdated administrative provisions, but may be less so inclined to support decanting to modify dispositive provisions because of potential overreaching on the part of the person seeking the modification. The author also addresses the distinctions between administrative and dispositive provisions. The author’s analysis and discussion of implementing modification under the appropriate circumstances is beneficial.
Prof. Weisbord asserts and presumes that corporate fiduciaries don’t exercise their duty of loyalty and impartiality diligently and are motivated to inappropriately seek extended trust terms for their own monetary benefit at the beneficiary’s expense. In my opinion and experience, the presumption is misplaced and detracts from the thoughtful academic discussion as to whether trust terms should be extended. Typically, requested dispositive modifications are initiated by settlors, beneficiaries, family members or their legal advisors to address a change in economic, tax or personal circumstances. For instance, a beneficiary may have special needs or a substance abuse problem, and a knowledgeable family member believes that it’s in the beneficiary’s best interest to extend the term. The author cited a case in which the court held that the corporate fiduciary breached its fiduciary duty in seeking to inappropriately extend the trust term. Exceptions can be cited, but one shouldn’t presume that it’s typical for a fiduciary to seek an unwarranted extension. In the interest of disclosure, I practiced law as a trusts and estates attorney for 16 years and have worked in financial institutions for the past 18 years.
As stated earlier, the author is against trust term extension. The article can help the reader decide or confirm his view depending on the specific circumstances, and importantly, whether state law even allows for such an extension. The readers will take what they want from the article—a strong cogent discussion of the law, a philosophical discussion as to the need for law reform or a combination of both.
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