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Subsequent Marriages and the Elective Share

Naomi Cahn, What’s Wrong About the Elective Share “Right”?, 53 U.C. Davis L. Rev. 2087 (2020).

I have long been perplexed by the inconsistency between the rights of divorcing spouses which are governed by family law rules and the rights of surviving spouses which are governed by trusts and estates law. While the rules governing the distribution of property at divorce and the elective share right both claim to reflect a partnership theory of marriage, Naomi Cahn’s article, What’s Wrong About the Elective Share “Right”?, demonstrates that the elective share does not further a partnership theory, at least not in cases involving subsequent marriages, and further fails to recognize and adequately balance the interests of multiple families.

Cahn analyzed all of the elective share cases from January 2014 though January 2019 available on Westlaw and Lexis. Although the number of cases was relatively small (71 cases), the results are illuminating. First, they suggest that the overwhelming majority of surviving spouses who seek an elective share are women. Seventy-eight percent (56/71) of the claimants in Cahn’s study were women. This is not surprising because, as Cahn explains, women tend to live longer than men and to marry men who are older than they, especially in subsequent marriages (marriages other than first marriages). I was, however, intrigued by Cahn’s findings that the typical elective share case pits a stepmother against her stepchildren, or, more precisely, against her former stepchildren. Eighty percent of the cases in Cahn’s study involve subsequent spouses who challenged a will that left most of the property to the decedent’s children from a prior relationship.

In addition to its empirical findings, the article reveals the problems with including non-marital property—which is not available for distribution at divorce in the majority of states—is the augmented estate used to calculate to the elective share. Cahn demonstrates that by including non-marital property in the augmented estate, trusts and estates law strays from the conception of marriage as a partnership. After all, if decedent acquired particular property before the marriage and the surviving spouse never had the opportunity to make any contributions to its acquisition or maintenance, then the property is not the result of marital efforts—it is not the result of a partnership. Thus, the rationale for the elective share would appear to depend on its original purpose—to provide support for needy wives—rather than the partnership rationale.

Cahn’s conclusions are nuanced. She acknowledges that in first marriages, especially those of long duration, the elective share likely reflects and furthers the notion of marriage as a partnership. She explains that in those marriages, especially if the couple raised children together, each spouse might have assumed a different role in the marriage which impacted their earnings during the marriage as well as their earning capacity. The surviving spouse in those cases, who is typically a woman and has fewer assets for retirement, is the traditional claimant that many, if not most, would agree should benefit from the elective share.

In contrast, Cahn demonstrates, these justifications for the elective share are less likely to be present in subsequent marriages, especially in later-in-life marriages where there are no young children that need caretaking, and where the spouses bring with them economic and human capital that they may have built in an earlier marriage with another partner. Although Cahn does not put it quite so bluntly, I quickly came to the conclusion that the subsequent spouse who is seeking an elective share may stand to benefit from the investments and sacrifices made by the decedent’s prior spouse(s) to the detriment of decedent’s children from a prior family. Thus, the elective share may result in a windfall to the subsequent spouse.

Cahn further reminds us that the way a marriage ends—either through death or divorce—affects the way property is distributed even though there is no justification for this distinction. She points out that in some states, a spouse who stays in the marriage until death may receive more property than one who divorced, but in other states she may receive less depending on the state’s approach to division of property at divorce and what property is included in the augmented estate. Despite these inconsistent approaches, all claim to honor a partnership theory of marriage.

In Cahn’s view, we need an elective share that “explicitly accounts for multifamily partners and changes the focus from the surviving spouse alone to the family more generally.” (P. 2119.). Family law scholars and practitioners would agree and note that family law takes into account the complexity of families and obligations to multiple members. For example, child support guidelines in some states expressly consider a parent’s financial obligations—alimony and child support obligations to a prior family—when calculating a child support award for a subsequent child. In addition, at divorce, most states consider the contributions that each spouse made to the acquisition and maintenance of property, thereby recognizing a partnership theory of marriage and limiting the likelihood that a subsequent spouse will unfairly benefit from the contributions of a prior spouse.

Cahn proposes several reforms to account for the interests of both first and subsequent families. I will focus on two. First, similar to the approach followed by the majority of states at divorce, she proposes excluding non-marital property and including only property acquired during the marriage in the augmented estate. She explains that this approach is in line with a partnership theory of marriage and will allow spouses in longer marriages to receive more property than spouses in shorter marriages. Cahn acknowledges the administrative costs and disputes that will likely result when property must be classified as marital and non-marital. I was persuaded, however, by her argument that these challenges are outweighed by the benefits of having the elective share reflect the partnership theory and mirror the approach that most jurisdictions follow when dividing property at divorce. Moreover, given the small number of cases involving a claim for an elective share, as shown by Cahn’s study, these costs and disputes would arise in a relatively low number of cases.

Second, Cahn grapples with the challenges raised when the decedent has more than one family such as a subsequent spouse and children from a prior relationship. In these cases, the will may have left most of the property to the children from the prior relationship but if the subsequent spouse seeks an elective share, the children receive less than the decedent intended. Cahn suggests that one way to protect the children’s interest is to exclude from the elective share pot any property that the decedent left to the children. While this is the approach followed by the Uniform Probate when calculating a share for an omitted spouse, I fear that in cases in which the decedent leaves most of the property to the children from a prior relationship, this approach would completely disinherit a subsequent spouse, including one in a long marriage that resulted in the accumulation of substantial marital property, thereby depriving the spouse of the fruits of the marital partnership. Cahn acknowledges this inequitable result, noting that is the result in cases involving an omitted spouse. She does not provide a solution, however.

This tension between the interests of multiple families brings me back to the reasons this short piece is so valuable. Cahn does not pretend to have all the answers; rather, she is challenging us to consider the inconsistencies, inequities, and justifications for rules that do not reflect the realities and complexities of families in the 21st century. I hope some of us will take on these intractable questions.

Cite as: Solangel Maldonado, Subsequent Marriages and the Elective Share, JOTWELL (May 14, 2021) (reviewing Naomi Cahn, What’s Wrong About the Elective Share “Right”?, 53 U.C. Davis L. Rev. 2087 (2020)), https://trustest.jotwell.com/subsequent-marriages-and-the-elective-share/.

Trust Law Secrets, Revealed

Mark J. Bennett & Adam S. Hofri-Winogradow, The Use of Trusts to Subvert the Law: An Analysis and CritiqueOxford J. of Legal Stud. (2021), available for free on SSRN as Against Subversion, a Contribution to the Normative Theory of Trust Law.

For those who pay attention to trust law developments, it’s clear that a vast transformation in trust law is taking place. American states like Wyoming, Alaska, Nevada, Delaware, and South Dakota are rewriting their laws to permit trusts that promise perpetual duration, maximum asset protection, and continued settlor control in order to compete with offshore jurisdictions for billions of dollars in trust business. Even for those who don’t usually take notice of trusts, trust law and the uses of the trust as a mechanism to create and perpetuate wealth inequality is becoming better understood. Katarina Pistor, for example, has aptly explained how trusts are “one of [the] most ingenious modules for coding capital” in Anglo-American law.  Moreover, economists like as Emmanuel Saez and Gabriel Zucman, have increasingly started to look at the roles of trusts in building a landscape of wealth inequality.

Into this conversation step Mark Bennett and Adam Hofri-Winogradow with their new article entitled, The Use of Trusts to Subvert the Law: An Analysis and Critique. Their aim is to widen the scope of the debate and inquire into what constitutes a proper normative theory of the trust. This type of inquiry has been fraught, the authors remark, in part because the normative nature of the trust is law-subverting – a poorly kept secret but one that nobody wants to discuss in polite company.

The trust – to clarify, the authors are discussing private, family trusts that use discretionary distribution terms to preserve family wealth – has, as the authors point out, been law-subverting since medieval “uses” enabled English feudal lords to avoid “liabilities consequent on holding land” (otherwise known as taxes). Nevertheless, the authors comment, the trust’s law-subverting powers have routinely been either ignored or minimized. Consequently, as they state, it is “high time to focus scholarly attention on the more problematic uses of the trust rather than on those which are obviously benign.” Any complete theory of the trust, they suggest, should grapple with the fact that the trust has – both historically and presently – allowed individuals to avoid certain legal obligations, like debts to creditors (including the tax authorities).

Scholars have in the past theorized the trust in a number of ways without mentioning its law-subverting capacities. Some scholars have pointed to the protective nature and function of the trust. As Avihay Dorfman says, trusts are a way of “providing for people who cannot themselves directly hold private ownership rights to assets, whether because they are legally unable to manage such rights, as in the cases of infants or mentally disabled adults, or because owning property would subject them to some prohibitive cost that far exceeds the ordinary costs of private ownership, as where the pursuit of some vocations requires not owning property that would lead to conflicts of interest.”  Alternately, scholars have proposed economic explanations for trust law and have promulgated the facilitative nature of trusts.

Scholars have, in these normative discussions, justified the law-subverting uses of the trust in two main ways. The first justification is the “property autonomy” argument, which states that “people should have as much autonomy in using and enjoying their property as possible.” The second justification is that using a trust to subvert other (primarily tax) rules is a valid response to a confiscatory and overreaching government. That is to say, subversion is “a bulwark against unjust state demands.” The authors contend that “such justifications are not valid in liberal democratic jurisdictions and cannot justify the characteristic use of the trust for subversion of the law.” The outcome of this analysis – which should give trust scholars (as well as state legislatures) much food for thought and fodder for future work – is that “a legitimate law of trusts will require anti-subversion measures to be constantly improved to deal with the potential for subversion resulting from the flexibility of the trust device.” And, if anti-subversion measures don’t work, the authors warn that a last resort might be “a closed list of permitted trust types.”

The authors, in this timely intervention, do an excellent job of revealing the secrets of trust law that have been hiding in plain sight for quite some time. In this respect, they build on the original insights of Roger Cotterrell, who pointed out some thirty years ago that “[t]he trust provides a way of freeing the property owner from constraints which the ideology of property otherwise imposes on her or him through its logic.”

What the authors do not focus on, but what lies just below the surface, is the role or place of equality in law. The authors point out that a primary justification for trust law’s subversive capacities is autonomy; what they leave unsaid is that this focus on autonomy all but erases equality concerns and values. In the theoretical domain, the erasure of equality values has created a normative vision of trust law that prioritizes individual freedom and benefit over collective good; and, in practice, this erasure of equality values is directly linked to staggering wealth gaps – all inflected with questions about race, gender, and class.

Ultimately, the erasure – or at least the suppression – of equality values in trust law begs two questions. We might first ask whether law has the capacity to incorporate and instantiate robust equality values. It may be argued that penetrating the inherent conservatism of trust law as a regime designed to uphold elite capitalism and historical privilege is an uphill battle. That is to say, the system is working this way by design and  high-wealth parties will fight vigorously to maintain their interests. Nevertheless, if we embrace the idea of making change to the landscape of wealth inequality through the reform of trust law, the question becomes what can and must be done in order to recalibrate legal tolerance for law-subverting rules like trust law’s support for asset protection trusts.

The authors of this excellent article give us a launching point for discussing all of these questions. They bring to light the open secret that trust law is law-subverting and, in so doing, gesture to the idea that trust law both suppresses equality values and promotes the economic welfare of elites. And, to be clear, the secret is a scandalous one that none of us should let pass unnoticed.

Cite as: Allison Anna Tait, Trust Law Secrets, Revealed, JOTWELL (April 15, 2021) (reviewing Mark J. Bennett & Adam S. Hofri-Winogradow, The Use of Trusts to Subvert the Law: An Analysis and CritiqueOxford J. of Legal Stud. (2021), available for free on SSRN as Against Subversion, a Contribution to the Normative Theory of Trust Law), https://trustest.jotwell.com/trust-law-secrets-revealed/.

A Proposal to Protect Transgender Beneficiaries

Carla Spivack, The Dilemma of the Transgender Heir, 33 Quinn. Prob. L.J. 147 (2020), available at HeinOnline.

A goal of professors is, or should be, to think about legal issues that have not yet arisen but that are likely to arise in the future. By thinking of the issues before they arise, we can work to change the law before courts are forced to deal with the issue with little guidance on a case-by-case basis.

In her thought-provoking article, Professor Carla Spivack identifies the issue of a transgender heir and a bequest that did not contemplate a gender change. Specifically, she identifies a situation in which an elderly relative leaves property to “my daughter” or to “my grandsons,” but the intended recipient no longer identifies as a female, in the case of the daughter, or a male, in the case of a grandson, at the time of the elderly testator’s death. The concern is that other beneficiaries may then seek to invalidate the gift by arguing that the testator did not have a daughter or a particular grandson at the time of death.

Part I of the article focuses on the “expressive function” of law, or the law’s power to make value statements to encourage change or to deter behavior. In the context of transgender individuals, Professor Spivack argues that the law should play an expressive role by expressly including transgender heirs for inheritance purposes into the notion of what constitutes a “family.”

Professor Spivack notes that the issue of ambiguous gifts to transgendered heirs is likely to arise with a growing level of frequency in the future. The issue is particularly important because transgender people have higher unemployment and poverty rates than the population as a whole. The intergenerational transfer of wealth protects people from living precariously, and it determines what society will look like, who has access to social goods, and who wields political power. While it is possible to draft around issues with transgender heirs by using gender neutral terms such as “my child” or “my grandchildren,” gendered descriptions often appear in form documents and in the idiosyncratic wills of wealthy individuals. In short, we need to assume that people will not always draft around it, and the law should provide a solution for when they fail to do so.

In Part II of her article, Professor Spivack attempts to fit the transgender heir into existing will interpretation doctrines. She ultimately concludes that all attempts to do so fail. The problem is that current doctrines would bog courts down with considering complex philosophical questions related to the meaning of gender and identity. Instead, Professor Spivack argues, the focus should be on creating a succession law presumption that focuses on the decedent’s intent.

First, Professor Spivack analyzes the current doctrine of ambiguity. She notes that courts traditionally have allowed for the consideration of extrinsic evidence about intent with a latent (not apparent from the text alone) ambiguity. Now, most courts allow extrinsic evidence to be considered for both latent and patent (obvious from the text) ambiguities. Arguably, a person who has changed gender creates an ambiguity. The issue is that somebody could argue that no ambiguity exists because the person identified in the bequest no longer exists. For example, a person who was once a son named Alex is not the same person as a daughter named Alexa. The son named Alex no longer exists, and the bequest then lapses. While this argument may ultimately fail, it mires courts in the question of whether a change in gender is so fundamental that the former person can be said to no longer exist.

Second, Professor Spivack analyzes the doctrine of reformation of mistakes. The problem is that the mistake to be reformed must concern some fact or law at the time the will was executed. The “mistake of fact” here would be an incorrect belief about the beneficiary’s gender identity at the time the will was executed. This gets into questions about the nature of gender and leads us to the same question, as with ambiguities, about the question of identity. Once again, the person contesting the will will argue that the transgender child is not the same person identified in the document, leading to a lapsed gift.

Third, Professor Spivack analyzes the pretermitted heir doctrine, which protects children from disinheritance if they were born or adopted after the will’s execution. In general, the doctrine creates a presumption that the testator simply forgot to update the will and would not have intended to disinherit the child. With transgender individuals, this doctrine is far more challenging because there often isn’t a discrete point in time, such as with childbirth, when gender changes.

Fourth, Professor Spivack considers the doctrine of “fact of independent significance.” Again, she concludes that this doctrine is insufficient to resolve the issue. The basic doctrine deals with devises that are otherwise outdated because of life events following the document’s execution. For example, a bequest to “my children” should include subsequently born children because the birth of a child is an objective event that would take place regardless of the disposition in the will. The problem with a transgender individual is that a contestant would simply argue that the person identified in the will no longer exists, again leading us to a lapse.

Finally, Professor Spivack looks at two more simple concepts, name changes and provisions in the will, to argue that the transgendered heirs should inherit. Courts commonly allow people who have changed their names to inherit because there is no question that they are the same people as the person identified in the will. That does not resolve the question of whether a person who has changed gender is, in fact, the same person. Could the changing of gender so fundamentally alter who a person is that he or she is no longer the same person? Similarly, wills often contain boilerplate provisions that state that words should not be construed to exclude a different gender. Such provisions also do not resolve the deeper issue of what it means to change gender and whether the person identified is the same person if his or her gender has changed.

In Part III of her article, Professor Spivack focus on the meaning of gender and the cultural basis for the “gender binary.” Here, she gets into the core issue that complicates using current doctrines to resolve these issues. Specifically, what is the meaning of gender? Culturally, at least in the United States in recent memory, men and women are often viewed as opposites. Historically and in other cultures, that has not necessarily been the case. Some cultures have historically had traditions of fluidity between genders, including a third gender. Now, several states, as well as Washington, D.C., now recognize a third gender, and one court in Oregon has recognized a nonbinary gender identity.

In part IV, Professor Spivack focuses on the law’s role in constructing gender. She notes that current legal discourse in the U.S. generally naturalizes the gender binary. This has helped to establish rigid genders as constructed parts of our society. Professor Spivack does not deny the reality that individual identities are often lived at one of two gender poles. She merely tries to recognize their constructed and contingent nature so that we can then focus on the broad policies of focusing on the testator’s intent and family protection.

In Part V, Professor Spivack argues for an addition to the Uniform Probate Code (UPC). Specifically, she proposes that the UPC establish a presumption that the parent or grandparent of a transgender child would want that person to inherit even after the person has changed gender. This presumption could be rebutted if there is clear and convincing evidence that the testator no longer wanted the person with the changed gender to inherit.

Professor Spivack has written a thought-provoking article. While I do not necessarily agree with her view that a rigid, binary view of gender is a relatively new concept, she raises these issues in a thought-provoking way. Her ultimate proposal is a sound one because it helps us to reform our laws in light of modern realities.

Cite as: Sergio Pareja, A Proposal to Protect Transgender Beneficiaries, JOTWELL (March 16, 2021) (reviewing Carla Spivack, The Dilemma of the Transgender Heir, 33 Quinn. Prob. L.J. 147 (2020), available at HeinOnline), https://trustest.jotwell.com/a-proposal-to-protect-transgender-beneficiaries/.

Performers and Portrayers

In 1956, sociologist Erving Goffman wrote his now-classic text, The Presentation of Self in Everyday Life. Consciously or not, Goffman posited, people are invariably actors, their lives spent staging and arranging a string of performances across time and space. Were A and B to meet for a walk, their social interaction would comprise complex impression management techniques with each simultaneously actor, and audience, to the other.

Goffman’s contributions were neither startling then nor dated now. “All the world [was already] a stage” to a 17th century playwright, and as Rush admonished in the late 20th century – Limelight; Moving Pictures (1981) – “we are merely players, performers and portrayers.” Rush continued, casting the limelight as “the universal dream for those who wish to seem,” by contrast to its incompatibility to a life of authenticity, where seeming – and being – are merged. Goffman might have questioned whether such a life were even possible. But it is likely that none of them – not Shakespeare, nor Goffman, nor even Geddy Lee or Neil Peart – could have known the prescience of their observations as applied to the social media platforms on which so many live today. Shelly Kreiczer-Levy and Ronit Donyets-Kedar do, and through Better Left Forgotten: An Argument Against Treating Some Social Media and Digital Assets as Inheritance in an Era of Platform Power, they invite us to think longer and harder (or at least, differently) about what it means to propertize online presentations of self through inheritance.

An Argument Against begins by situating social network sites and the profiles or accounts that accompany them within larger arenas of platform power, digital technologies and assets “proper” as well as the online life – with all of its sociocultural subtext – they engender. That orientation is critical for a luddite such as myself, for whom “technology” is a huge word holding fungible widgets and bits within it. Noting that not all digital assets bear the same characteristics, Kreiczer-Levy and Donyets-Kedar carefully frame the uniquely constitutive force that social network profiles and accounts hold for individual development, actualization and expression, through sweeping yet directed accounts of agency and autonomy, value and vulnerability, and relationship with and to others and self. In a way, their relational focus, including between individuals interacting with (and presenting self to) technology, power platforms, and other individuals or groups, replicates a different sort of interchange that arises whenever questions of ownership are posed. If property is the legal relationship between and among persons and a “thing,” then any question involving property can generally distill to “who has what rights to the ‘thing’ relative to whom, and when”? These authors ask: are social network profiles “property” (crudely, “things”) to which such traditional property concepts as “rights to transfer at death” apply?

Here is what I find to be the most elegant and provocative aspect to the paper. Rather than answer that precise question – although the analysis surveys trends and answers on point, including the Uniform Law Commission’s Uniform Fiduciary Access to Digital Assets Act and some fine scholarship by Professors Naomi Cahn (Virginia) and Natalie Banta (Drake) – the piece largely sidesteps that inquiry as yet another example of “constantly asking the wrong questions.” It is as though the authors are turning the reader by the chin to say “not there, look over here – stop being so distracted, and focus on the hard part.” Either/or binaries with sorting powers are comfortable and alluring for complex law in a complex world. It is tempting to arrange complex sets as rough yes/no questions, either to drive results or rationalize predicate decisions. For example, the authors observe how the very term “digital asset” suggests that a property determination has already been made, shifting the hard theoretical work of characterizing legal interests toward a routine analysis of rights to use, exclude, enjoy, consume, destroy (and most relevant here, “transfer”) it. Once classified as property, social media profiles or access rights thereto, the story would go, are subject to (1) relatively few restraints on alienation or acceptance but (2) relatively free donative and testamentary choice.

To Kreiczer-Levy and Donyets-Kedar, however, making that classification first is a bit like putting a cart before a horse, and even one of a different color. Although never quite coming out and saying so, their work periodically intimates that perhaps social constructions of self are more closely tied to personhood or personal rights, thus not properly inheritable, or at least not unquestionably so. And yet: although these lines are rarely uttered, some things that aren’t property can nevertheless be “bequeathed,” and some things that are property, can’t. If all property rights are relative and capable of yielding to countervailing force, perhaps “law writ large” is captured by the same gilded cage of managed impressions of self. Just maybe, whether an Instagram account is deemed “property” v. person, expression, privacy right, communication, or the rest is peripheral to (or non-determinative for) whether it can transfer at death; just maybe, a heavily covertly influenced expression of self ought die along with its maker. Who would decide, and how? For what it is worth, and no matter what we call it, I favor designated postmortem access to digital assets (including personal social media) if clearly so chosen, pre-death, by a user with capacity. Even if at some level an online persona is a manipulated, hyper-documented, socially flattened simulacrum of self, it is still a created and presented one, whether A’s manipulation of B’s reaction to her was itself manipulated by some corporate actor, C.

Kreiczer-Levy and Donyets-Kedar essentially close by giving to or seeking answers from no one, instead preferring further questions about people, property, privacy, and in a sense, even digital, disembodied and “surviving” consciousness, AI, and what personhood even means mid-stage of an online world. If we are all actors in our own and others’ games, it may be that we all know the score, and that Kreiczer-Levy and Donyets-Kedar themselves also have firm answers to different questions than it might seem that their scholarship asks.

Cite as: Katheleen Guzman, Performers and Portrayers, JOTWELL (February 16, 2021) (reviewing Shelly Kreiczer-Levy & Ronit Donyets-Kedar, Better Left Forgotten: An Argument Against Treating Some Social Media and Digital Assets as Inheritance in an Era of Platform Power, 84 Brook. L. Rev. 703 (2019)), https://trustest.jotwell.com/performers-and-portrayers/.

The Disruptive Potential of Blockchain in the Law of Wills

Bridget J. Crawford, Blockchain Wills, 95 Ind. L.J. 735 (2020), available at SSRN.

Disruptive technologies, like the Internet, often drive new social and organizational arrangements: we now enjoy global interconnectedness and an ease of communication that was previously the stuff of speculative fiction. Blockchain technology has the potential to be similarly transformative, with the Wall Street Journal characterizing blockchain as a foundational technology along the lines of the electricity or the world wide web. Bitcoin was created in 2009 as a decentralized, immutable, open source method of peer-to-peer payment that uses a distributed ledger to track all transactions—and this process of recording transactions is what is known as “the blockchain.” Although blockchain technology has been bought into common parlance through its association with popular cryptocurrencies such as Bitcoin, the potential application and broad appeal of blockchain technology eclipses the purpose for which it was originally developed. Blockchain Wills by Bridget J. Crawford tackles the subject of blockchain technology as applied to will execution in an article that is unquestionably my favorite article of 2020.

The best analogy to describe blockchain is that of the tree in the forest. Every ring in the trunk of the tree is like a groove in a record and each groove memorializes important information: the age of the tree; water levels; disasters such as forest fires; rate of growth. Each ring evidences a new block of information related to a specific moment in time, and the information recorded on each ring is accessible and transparent because nobody owns the tree. Like the rings of a tree, a block on the blockchain is immutable. An earlier block is only changed through a later block. The information in each block is simultaneously public and private—the details of a transaction are recorded on the blockchain but the identity of each user is protected with a private key. The blockchain is transparent while also offering security and privacy. One may arguably have complete trust in a system that has removed human error from its process, with each transaction verified through a distributed network and the need for no intermediaries.

Blockchain Wills explores the potential of this technology to disrupt an area of law that is relatively slow to change. The article is divided into four parts: a discussion of the way in which traditionally rigid rules are gradually but inconsistently yielding to the digital age; an introduction to the E-Wills Act and the states that currently recognize electronic wills; the way in which blockchain technology’s anti-fraud features may be used to authenticate electronic wills; and finally, the argument that blockchain wills are a safer and more cost-effective approach that will broaden access to estate planning. Perhaps it is this aspect of the article that is most important in its contribution—Professor Crawford presents a vision of the future in which an important property right (the ability to dispose of one’s property at death) is no longer abrogated by an inability to afford legal services. This article brushes the dust off a doctrinal area of the law that generally embraces tradition and enthrones formality to present an approach by which a disruptive technology may be transformative in broadening access:

In the not-too-distant future, executing a blockchain will likely may be no more difficult than registering online for a class at the local gym. When that day comes, if enough people have appropriate Internet access, then making a will becomes a far less expensive and difficult task then it currently is . . . as the technology advances, it is possible to imagine that executing a blockchain will could be as simple as opening an app on a smartphone or tablet device. Because the use of complex smartphones is more widespread among young people than the elderly, it may be that those who most wish or need to engage in estate planning would not be quick to adopt blockchain wills.

Professor Crawford explains to the reader the way in which “a distributed ledger’s security as a function of design” works to the advantage of the decedent. The person who wishes to create a will (the testator) would notify the network of an intention to make a will and nominate a personal representative (the key custodian). After the key custodian formally accepts their role with the network, a coded will can be uploaded to the blockchain. A notary public and/or witnesses could confirm with the network (via a cryptokey provided by the testator) that the testator intended this document to operate as a will and they were acting as attesting witnesses. This entire transaction would be recorded as a time-stamped “block” that is available to all users through the distributed ledger. It is unlikely that a bad actor would be able to manipulate or compromise the block, which serves as an immutable record of testamentary wishes that can be amended through a later block but not itself changed. The responsibility would fall upon the key custodian to notify the network upon testator’s death. Crawford argues that although there are administrative issues to untangle, a blockchain will is at least as reliable as a holographic testamentary instrument or a defectively executed instrument saved by a curative doctrine.

Professor Crawford’s article is simultaneously pragmatic and novel. This type of scholarship serves as a departure point for further conversation about risks and benefits to society, so as to facilitate change as the product of thoughtful design. It is this implicit contribution that is noteworthy: blockchain technology promises to disrupt existing legal practices and also allow new paths to form, and with innovation comes the need to frame the way in which legal policy within the law of wills and trusts should react and adapt.


Editor’s Note: Reviewers choose for themselves what to review. Trust and Estates Section Editor Bridget Crawford had no part in the editing of this review.

Cite as: Victoria J. Haneman, The Disruptive Potential of Blockchain in the Law of Wills, JOTWELL (December 3, 2020) (reviewing Bridget J. Crawford, Blockchain Wills, 95 Ind. L.J. 735 (2020), available at SSRN), https://trustest.jotwell.com/the-disruptive-potential-of-blockchain-in-the-law-of-wills/.

Teaching Our Students to Counsel Against Funeral Poverty

Victoria J. Haneman, Funeral Poverty, __ Univ. of Richmond L. Rev. __ (forthcoming 2021), available at SSRN.

Twenty years into teaching Estates, Victoria J. Haneman’s Funeral Poverty has made me reconsider my syllabus. Neither I, nor the textbook I use, discuss the death care industry, which includes funeral homes, pre-need sales, crematories, cemeteries, and third-party vendors of goods. Funeral Poverty convinced me that in a course where almost all content is death-related, we need to cover death services.

Professor Haneman writes that in 2019, the median cost of laying a loved one to rest was $9,000—a number that is “particularly stark” when 4 out of 10 Americans report they would have difficulty meeting an unexpected $400 expense. (P. 1.) For the average consumer, death services will be the third largest category of expenses over the course of a lifetime, behind only houses and automobiles. Moreover, “death care in the United States is an area of conspicuous consumption on which lower income families spend far more than high income families. . . . In 2014, the top 1 percent spent significantly less in absolute dollars than everyone else, the middle class fell in line with national averages, and the poor spent a 26% greater share of total expenditures than the national average.” (P. 32.)

Funeral Poverty describes how many families find themselves “begging or borrowing” to cover death service expenses. Crowdfunding has become common among families dealing with unexpected funeral expenses, with GoFundMe staff members coaching funeral organizers on how to optimize the chances of their fundraising campaigns going viral. (Pp. 16-17.) Other families borrow to pay expenses, by either tendering a credit card or receiving a line of credit from the funeral home itself. A market in subprime loans even exists, with one site advertising interest rates as high as 35.99 percent. (P. 18.)

Professor Haneman thoroughly explores why death services “perpetuate inequality and contribute to intergenerational cycles of poverty.” (P. 3.) She discusses a marketplace characterized by vulnerable consumers, inelasticity, information asymmetry, and an absence of price advertising; Federal Trade Commission rules that favor funeral homes over consumers; and a dearth of government programs that help families manage death expenses. Funeral Poverty also explains how well-intentioned laws—like “abuse of corpse” statutes—sometimes have the perverse effect of interfering with efforts to make disposing of the dead less expensive and more environmentally friendly.

Central to Professor Haneman’s analysis of why Americans spend so much on death services is her assertion that we are “extraordinarily distanced from death and have moved the process from home to institution.” (P. 4.) In light of the widespread availability and utilization of hospice, I don’t necessarily agree that Americans are distanced from the process of dying. But most of us are distanced from dead bodies. We have moved from a society where modest home funerals used to be the norm to a society where the dead are taken to funeral homes and costly professional-organized events are customary. This shift has left us with an intrinsic uncomfortableness that leads us to not plan for how to pay for funerary expenses while still alive, and to shy away from conversations in which we might express preferences for inexpensive, environmentally friendly ways of disposing of our bodies.

Which brings me back to why I liked Funeral Poverty. Every day in Estates I discuss death-related material —such as wills, trusts, health care directives, and powers of attorney­— and emphasize the importance of clients paying attention to these issues while they are still alive and have the capacity to do so. Funeral Poverty convinced me that I also need to teach my students about death services, any uncomfortableness with dead bodies notwithstanding.

Cite as: Sarah Waldeck, Teaching Our Students to Counsel Against Funeral Poverty, JOTWELL (November 2, 2020) (reviewing Victoria J. Haneman, Funeral Poverty, __ Univ. of Richmond L. Rev. __ (forthcoming 2021), available at SSRN), https://trustest.jotwell.com/teaching-our-students-to-counsel-against-funeral-poverty/.

Personalized Intestacy?

Shelly Kreiczer-Levy, Big Data and the Modern Family, 2019 Wisc. L. Rev. 349 (2019), available at SSRN.

In Big Data and the Modern Family, Shelly Kreiczer-Levy kicks the tires on a provocative idea: using big data to “personalize” the rules of intestate succession. Recently, scholars have suggested that the same miraculous technology that permits big retailers to predict their customers’ purchasing needs to customize the law. For example, in the first extended treatment of the topic, Ariel Porat and Lior Strahilevitz suggest that the government can exploit big data to abandon the conventional one-size-fits-all approach to default rules and instead tailor background principles to individual preferences. Porat and Strahilevitz’s marquee example is intestacy. They note that empirical studies reveal that married fathers are more likely than married mothers to leave their entire estate to their spouse. Thus, they argue that an intestate system that varied with the decedent’s gender would be more likely to carry out his or her intent. But why stop there? Porat and Strahilevitz claim that intestacy statutes could also vary based on the decedent’s job, wealth, health, length of marriage, and age of children. In fact, using an algorithm, a probate court could “determine how an intestate’s estate should be allocated based on an analysis of his consumer behavior during his lifetime.”

Enter Kreiczer-Levy. Her thoughtful article begins by arguing that the rules of intestate succession are outdated. Indeed, as she explains, these principles “are notorious for privileging the nuclear family, to the exclusion of modern forms of associations and relationships.” In turn, Kreiczer-Levy observes that this makes personalized intestacy intriguing. In sharp contrast to the bright lines and rigid barriers of current law, a bespoke regime could effectuate an intestate decedent’s wish to leave assets to a lover, a best friend, or a young person who was treated like a full-blooded child but never adopted.

Nevertheless, Kreiczer-Levy doesn’t give personalized intestacy her full-throated endorsement. One of the article’s great strengths is its lucid exploration of the proposal’s dark side. She begins by collecting objections that others have already levied against personalized law. These concerns include the invasion of privacy required to feed the algorithm and the uncertainty engendered by making legal rules more opaque.

In addition, Kreiczer-Levy offers two more granular reasons for skepticism about personalized intestacy. First, she questions whether policymakers could discern enough relevant information by focusing entirely on the decedent. Unlike, say, a dynamic speed limit, which might hinge on the weather, type of car, and the driver’s record, “inheritance decisions often reflect an evaluation of relationships.” It isn’t clear that any computer is capable of taking the decedent’s demographics, social media foibles, and spending patterns and extrapolating whether he or she favors one child or wants to leave a prized vase to a neighbor. (On the other hand, if policymakers do go down this route, Kreiczer-Levy offers some sensible guidelines for factors that they should consider, such as whether a decedent lived with a prospective heir, supported him or her financially, or entrusted him or her with caregiving).

Second, Kreiczer-Levy contends that personalized intestacy neglects the social dimensions of inheritance. Suppose that a Target-style program disinherits the daughters of left-handed Caucasian men in their 30s. Even if this faithfully reflects what most members of this cohort want, we might not want to enshrine it in a statute. Indeed, because the law shapes public perceptions, such a rubric could normalize gender discrimination. Moreover, being cut out of an estate plan can be emotionally devastating. There’s something troubling about depersonalizing the choice to send such a powerful “message of exclusion.”

In sum, Kreiczer-Levy’s piece is essential reading for anyone interested in either the personalized law phenomenon or the future of trusts and estates.

Cite as: David Horton, Personalized Intestacy?, JOTWELL (October 2, 2020) (reviewing Shelly Kreiczer-Levy, Big Data and the Modern Family, 2019 Wisc. L. Rev. 349 (2019), available at SSRN), https://trustest.jotwell.com/personalized-intestacy/.

Towards the Consistent and Equitable Treatment of Phantom Income in Determining Domestic Support Obligations

Timothy M. Todd, Phantom Income and Domestic Support Obligations, 67 Buff. L. Rev. 365 (2019), available at SSRN.

Professor Todd’s article addresses an issue at the intersection of divorce/family law, federal income tax law, and, even, trusts and estates law. For me, the article highlights that the ideal situation for spouses in a divorce (if, among other things, money were no object) is for each of them to have their own divorce/family law attorney, tax attorney, and estate planning attorney. That, or have Professor Todd on call.

The issue addressed in the article is how “phantom income” should be treated by courts in determining a domestic support obligation (whether child support or spousal support or a modification to either one, hereinafter “DSO”). “Phantom income” is “amounts that are includible as [gross] income under the federal tax code but that have not resulted in any actual current cash receipt.” (P. 386.) Individuals obligated to make DSO payments “have argued that phantom income should not be included when calculating such obligations because the individual’s ability to pay has not materially changed.” (P. 386.) Because those individuals never received any current cash receipt, they contend that the court should not increase a DSO based on any phantom income.

Professor Todd briefly discusses three types of phantom income: business pass-through income, cancellation of debt (COD) income, and imputed income from below-market loans and original-issue discounts. (Pp. 376-80.) He then reviews eight cases in which state courts addressed how phantom income should be treated in determining DSOs. A Kentucky court concluded that COD income was not “gross income” for child-support purposes. Kelley v. Kelley, No. 2012-CA-002213-MR, 2014 WL 5359745 (Ky. Ct. App. Oct. 3, 2014). (Pp. 380-82.) A Virginia court, however, concluded that COD income is includible in gross income for child-support purposes. Reigler v. Riegler, 90 Va. Cir. 29 (2015). (Pp. 382-83.) The courts in two California cases concluded that COD income is gross income for child-support purposes. In re Marriage of Kirk, 266 Cal. Rptr. 76 (Ct. App. 1990) and Riddle v. Riddle, 23 Cal. Rptr. 3d 273 (Ct. App. 2005). (Pp. 384-86.) In Ohio, COD income is gross income for spousal-support purposes, Poitinger v. Poitinger, 2005-Ohio-2680, and for child-support purposes, Cyr v. Cyr, 2005-Ohio-504; and business pass-through income is gross income for spousal-support and child-support purposes, Marron v. Marron, 2014-Ohio-2121. (Pp. 386-90.) Finally, a Colorado case addressing a tax withholding-type payment was found to be gross income for child-support purposes (though Professor Todd aptly notes that this payment is not phantom income because another payee did receive the cash). In re Marriage of Stress, 939 P.2d 500 (Colo. App. 1997). (Pp. 388-90.)

Professor Todd proposes two solutions regarding the treatment of phantom income in determining DSOs. The first proposal is “to keep the status quo rule that implicitly (and sometimes explicitly) incorporates the tax definition of [gross] income and includes phantom income in support calculations,” and, the second, “ to implement a charging-order-type remedy to balance the concerns of payors and payees vis-à-vis phantom income.” (P. 401.) Professor Todd’s first proposal, which is “the simplest and easiest option,” reflects “the apparently majority rule” as seen from his survey of eight cases (which Professor Todd notes “does not purport to be an exhaustive survey of all related cases”). (P. 401.)

The first proposal, Professor Todd concedes, does not solve two timing asymmetries that he identifies. Category I asymmetries are “situations in which cash was received in the past, but the ‘income’ occurs now; for example, cancellation of debt income,” and Category 2 asymmetries are “situations in which the income occurs now, but cash may (or may not) be received in the future, such as pass-through business income.” (P. 401.) Additionally, this first proposal “does not provide clear answers to issues such as tax exclusions, administrative exclusions, and other issues that are specific to tax policy and administration but have no analog in domestic support contexts.” (P. 402.)

While the administrative exclusions and non-analogous issues are beyond the scope of this jot, I wish to discuss one tax exclusion. Professor Todd notes that gifts are excluded from federal gross income “but represent a true asset (or cash) increase” and represent “additional assets a family could use for consumption but that are outside the definition of [federal] gross income.” (Pp. 402-03.) The first proposal of a “strict incorporation of tax concepts does not solve all the phantom-income issues and related issues”, and, “[f]ortunately, there are cases that recognize that [gross] income for tax purposes and [gross] income for DSO purposes (especially for child support) are not coterminous.” (P. 403.) I think that Professor Todd, to add to his argument, could have noted that Kentucky’s and Virginia’s statutes (as seen in his survey of cases) are broader than the federal tax code because they each define gross income for child-support purposes as including “gifts” and “prizes.” I also wonder whether a discussion of inheritances, which are excluded from federal gross income, would be apt.

Professor Todd’s second proposal, a charging-order-type remedy specific for DSOs, can be tailored to a particular divorcing couple. Pursuant to a charging order, “when cash distributions are made from the entity, the distributions for the debtor-member are paid to the holder of the charging order (the creditor).” (P. 403.) This remedy is “ideal in Category 2 situations–those in which there is the potential for a cash flow in the future” so that the charging order can be applied (in an ideal situation, specifically) “against the source of that potential future cash flow.” (P. 404.) I believe that Professor Todd’s proposed charging-order-type remedy, perhaps, invokes yet another issue—whether DSOs (under governing state law or as contracted between the parties) survive the death of the payor or the payee.

I learned a lot reading Professor Todd’s article. The treatment of phantom income in determining DSOs involves the intersection of divorce/family law, federal income tax law, and trusts and estates law. Drafters would be wise to tailor DSOs not only to governing law but also to the divorcing couple’s specific financial situation, including, among other things, their specific assets, income streams, and possible future receipts of property.

Cite as: Michael Yu, Towards the Consistent and Equitable Treatment of Phantom Income in Determining Domestic Support Obligations, JOTWELL (September 2, 2020) (reviewing Timothy M. Todd, Phantom Income and Domestic Support Obligations, 67 Buff. L. Rev. 365 (2019), available at SSRN), https://trustest.jotwell.com/towards-the-consistent-and-equitable-treatment-of-phantom-income-in-determining-domestic-support-obligations/.

Legacy Control

Andrew Gilden, The Social Afterlife, 33 Harv. J. L. & Tech. 229 (2020), available at SSRN.

The COVID-19 crisis has compelled many of us to move our lives (further) online, creating new social interactions and communities, as well as a larger digital footprint. The pandemic has also forced us to confront the risks and realities of mortality for ourselves and our loved ones.  This highlights an important question: What will happen to our digital legacy after death? Legacy has both economic and noneconomic aspects, and inheritance law has primarily focused on the former. The latter, however, has risen to prominence with the growth of intellectual property rights and social media, both of which often have a stronger cultural or emotional legacy component.  The law as it stands is thus ill-suited to deal with the noneconomic aspects of legacy. In The Social Afterlife, Professor Andrew Gilden tackles this problem with skill and nuance, and his sensible solution is to embrace contextual testation, in which control of each asset is allocated based on the unique socioeconomic context in which it arose. In the process, he provides the reader with an indispensable theoretical roadmap for understanding who might control our legacies.

The Article starts by describing four potential models of legacy stewardship. The first is the traditional model of freedom of disposition, in which the decedent controls who gets what. The decedent possesses the best information about their own social life, but such deference also risks too much dead hand control. The second model is family inheritance, in which control flows to the decedent’s family members. These individuals may also have special knowledge about the decedent, but are also tempted to exclude other relevant stakeholders in the decedent’s legacy, as many celebrity estates have. Empowering family members also hazards their exposure to harmful aspects of a decedent’s life hiding in cyberspace. Does a grieving widow want to know about her husband’s AshleyMadison.com account, on which he may have been pursuing affairs with younger women?

Third, the public domain model subjects a decedent’s property to common ownership. This model recognizes that people outside the immediate family may also have a vested interest in the legacy of the decedent, especially in the case of public figures. Yet the public domain, as the name implies, may fail to provide strong privacy protections and risks that the decedent’s assets will simply flow to the most powerful market actor. Finally, there is the consumer contract model, in which various third-party intermediaries, such as Apple, set the ground rules—through their terms of service—for how the assets they host are handled after death. These third parties may be best able to cater to the needs of their users and reduce the transaction costs of legacy stewardship, but some might be suspicious of entrusting them with such important decision-making power, given their incentives to maximize profit.

All of these models exist in some form in the law now, and the Article performs a synthesis of these different approaches through the concept of a Decentered Decedent. This is a contextual model of legacy stewardship, in which postmortem decision-making power is allocated based on the specifics of the socioeconomic context in which the relevant asset exists. Central to this model is the idea that it is important to avoid “context collapse,” or the situation in which the various aspects of an individual’s life collide in ways that destroy carefully constructed social separations created by that individual. For example, someone may wish to keep socializing with family members or coworkers to Facebook while separately participating in kinky sex communities solely on websites devoted to that purpose. The policy aim, then, is to maintain these separations at death as well as in life.

The Decentered Decedent framework provides a robust theoretical defense of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). This Uniform Act, which has been adopted by a majority of states but which has been subject to some criticism, sets up a multi-tiered system of decision-making authority over digital assets. The highest priority goes to any online tools that contain a user’s expressed wishes for posthumous control. An example is the Facebook Legacy Contact tool, in which an individual can designate a person to take over aspects of their Facebook account in the event of their death. A decedent’s express wishes in a will or trust get second priority. Third priority goes to an intermediary’s terms of service, and this is the most controversial provision. The reason why is that it hands control over to the intermediary instead of family members who might otherwise control assets under intestacy statutes. As it better preserves the decedent’s heterogeneous social lives, however, Professor Gilden finds the RUFADAA to be a promising approach. He goes on to suggest several potential legal tweaks as well, such as legislating the substance of online tools, imposing fiduciary duties on intermediaries, or decoupling the economic and noneconomic aspects of an asset when possible.

In many ways, the Decentered Decedent model is a commonsense extension of the nonprobate revolution to digital assets. Just as life insurance companies manage the insurance payout after death outside of probate, perhaps so too should a social media site independently manage the control of a user’s account after death. But what if context collapse is actually a good to be pursued rather than an evil to be avoided? While we are indeed multifaceted beings, it might be beneficial to acknowledge that fact through a full accounting of a person’s life—or multiple lives—after death, especially if that person had a prominent position in society or culture. Even if a person did not, knowing the unfiltered truth about loved ones may help foster a deeper understanding of lifetime behavior or decisions that may have been perplexing or hurtful at the time due to incomplete information. In short, the revelation of secrets at death may have more ambiguous effects, at least for the living. If this is the case, then maybe context collapse is not so injurious after all.

However one might come out on that question, what is not in doubt is that Professor Gilden has deepened our theoretical understanding of legacy and the governance mechanisms we might employ to manage it. That makes The Social Afterlife necessary reading for those interested in how inheritance law, intellectual property law, and Internet law all shape legacy control.

Cite as: Alexander Boni-Saenz, Legacy Control, JOTWELL (July 14, 2020) (reviewing Andrew Gilden, The Social Afterlife, 33 Harv. J. L. & Tech. 229 (2020), available at SSRN), https://trustest.jotwell.com/legacy-control/.

The Rich (Families) Are Different

Allison Anna Tait, The Law of High-Wealth Exceptionalism, 71 Ala. L. Rev. __ (2019), available at SSRN.

In April of 2019 lawyers representing the “Kimberley Rice Kaestner 1992 Family Trust” argued a case against the North Carolina Department of Revenue before the Supreme Court of the United States. A few months later the Court unanimously ruled in favor of the trust in that case. The Court’s decision was a major victory for wealthy families; not so much for ordinary folks who pay state income taxes. You may not have heard of the Kaestner case. No news about it appeared in the New York Times. Ever. But you can and should read Allison Anna Tait’s insightful article, The Law of High-Wealth Exceptionalism. It’s about the Kaestner case. Well, it’s not really about the Kaestner case; actually Tait doesn’t even mention it. But her article is, at least in part, about the category of cases that the Kaestner case belongs to and it is about the state of affairs that brought about the case, and many others like it, and so much more.

In her article, Tait gives us a panoramic perspective—a bird’s eye view—of what she calls “the law of high-wealth exceptionalism.” The law of high-wealth exceptionalism is not any particular law, but rather a collection of favorable laws that, functionally, apply only to high-wealth families. Because, in theory, while anyone could take advantage of a scheme like that which the Kaestner family’s lawyers concocted to externalize the cost of governmental goods and services provided to Kimberley Kaestner by the State of North Carolina, in practice you really need to have a lot of wealth to do so. And as Tait points out, wealthy families “benefit not only from their material resources but also from the fact that most of the population is not familiar with the vast network of laws that govern family wealth and may even be disinterested in [legal] events that are of core concern to the family oligarchs.”

Tait’s larger point is that rich families avail themselves of what she calls “high wealth-exceptionalism,” a phenomenon that she maintains inflicts harm on those of ordinary wealth and is antithetical to democratic governing. More specifically, she shows how wealthy families organize themselves under wealth-management “tools” like family constitutions, private trust companies and private foundations, and take advantage of favorable laws governing trusts and taxation to shift financial risk and tax burdens to those without great wealth. She makes her larger point by breaking down her analysis into three categories: governance, power and privilege.

In the area of governance, high-wealth exceptionalism depends primarily on a concept called the “family constitution.” Tait explains how and why wealthy families cohere under this “widely marketed wealth-preservation tool,” as a way to protect against what is perhaps the family’s biggest fear: generational erosion of family wealth. The family constitution is designed to be the bulwark that gives the lie to the age-old aphorism “from shirtsleeves to shirtsleeves in three generations.” Tait describes how professional wealth managers help families inscribe family constitutions, and the ways in which they unify the family to the common cause of safeguarding family wealth.

Tait further identifies three “critical building blocks” to securing family wealth: private trust companies, family offices and private foundations. Private trust companies are entities that are legally sanctioned to manage family trusts but, unlike ordinary trust companies, they are “exempt from most state regulation.” In return for this light treatment by the state, these companies serve only the wealthy family, “broadly defined.” Private trust companies ensure privacy by evading state reporting requirements thereby keeping most “sensitive financial information” from being revealed to persons outside the family unit. They are also free to invest trust property in investments that might be outside the range of regulated trust companies, such as illiquid assets or stock in a private family business. While taking advantage of trust laws increasingly favorable to the wealthy, these entities also reinforce the sense that the family is a separate sovereign entity, “populated, animated and superintended by the family” itself.

The bulk of family financial management (and sometimes more personal services) is undertaken by the “family office.” The family office is the locus of general family business. Tait points out that family offices enjoy a special exemption from regulatory requirements otherwise imposed on investment advisors. Exemption from SEC registration means that investments can be made in privacy. Family offices are also exempt from compliance with rules for commercial financial institutions, which gives the family substantially more control over investment decisions. Given these and other advantages of family offices, it is no surprise that family offices are “how the super-rich invest.”

The family foundation is the third “critical building block for high-wealth families.” These entities preserve family wealth by substantially reducing the family’s exposure to the federal transfer taxes while “allowing the foundation to fund administrative activities performed by family members.” Properly managed, the private foundation can hold family wealth for generations, sheltering it from taxation while the family maintains control of that wealth. Private foundations are required to distribute only 5% of their income from investments to charity annually, and those distributions are often made to “family –controlled” donor-advised funds. Importantly, family members receive compensation for services to the foundation and can be reimbursed for expenses incurred for foundation business.

After showing us the tools high-wealth families use to preserve and increase their wealth, Tait moves on, in the section of the paper she calls “the measurement of family power, to their negative consequences to the population at-large. Here Tait explains some of the potential consequences of the preferential legal treatment received by high-wealth families. She maintains, for example, that these include increased systemic risk and exposure of the broader population to financial harms. Further, the privileges of conducting private operations free from regulations also makes the discovery of tax avoidance and evasion more difficult, increasing the tax burdens of others. Here she also looks at “the role that family constitutions and the coterie of family-wealth rules unquestioningly play in entrenching” wealth inequality. In this section she also addresses “costs to the democratic state.” The law of high-wealth exceptionalism, she concludes, “is deeply and essentially patrimonialist,” and thereby at odds with democratic functioning.

Having outlined the problems with high-wealth exceptionalism in such detail, Tait concludes by offering some prescriptive ideas to address the phenomenon and “the plutarchic society it cultivates.” These include retracting high-wealth legal privileges, reforming the transfer taxes, and reframing the rights of citizenship. Tait’s suggestions are good and deserve your attention. But the most refreshing aspect of Tait’s work in this piece consists of the light she shines on laws that far too few, even among those interested in the problems wrought by wealth inequality, give their consideration. Unfortunately, most of the rest of us “remain unaware of the many behind-the-scenes efforts to change family-wealth law, what effects those changes might have on their lives, and what the changes might mean on the larger scale, looking forward.” Tait’s article is a step towards fixing that. The Kaestner case, for example, mentioned at the outset of this review, was not just a boring trust tax case that concerned only the wealthy few. Instead, it was a prime example of high-wealth exceptionalism that affects us all and deserves the nation’s attention.

Cite as: Kent D. Schenkel, The Rich (Families) Are Different, JOTWELL (June 23, 2020) (reviewing Allison Anna Tait, The Law of High-Wealth Exceptionalism, 71 Ala. L. Rev. __ (2019), available at SSRN), https://trustest.jotwell.com/the-rich-families-are-different/.