Yearly Archives: 2017
Dec 7, 2017 Camille Davidson
In the law of Wills, the testator’s intent is of upmost importance. If there is clear and convincing evidence of a testator’s intent, then a document intended to be his or her will should be probated, right? Not so fast—according to Professor John Langbein, in a jurisdiction that has adopted the strict compliance approach to Wills Act formalities a document will not constitute a validly executed will if all of the statutory requirements are not met, even when evidence shows that the testator intended the document to be his or her will. Langbein penned substantial compliance and harmless error proposals as alternatives to strict compliance. In Wills Act Compliance and the Harmless Error Approach: Flawed Narrative Equals Flawed Analysis?, Professor Peter T. Wendel asserts that Professor Langbein has not framed the narrative correctly and therefore the analysis of the issue is flawed. He rephrases the narrative so that the debate can continue in a less simplistic manner.
Wendel asserts that Langbein incorrectly painted a picture of strict compliance as a rigid villain that invalidates wills when there is not 100 percent compliance with Wills Act formalities. In his articles, Langbein uses conclusory language and assumes that the reader already agrees with him. Then, in each article, Langbein’s proposal is pitched as the solution to the injustice of the strict compliance approach. Professor Langbein first proposed a substantial compliance doctrine, and a decade later proposed a more lenient harmless error doctrine outlining when courts should probate documents that do not meet the requirements of the Wills Act. Although Langbein’s harmless error proposal has been adopted as part of the Uniform Probate Code and Restatement (third) of Property, most states have not adopted such proposal.
Professor Wendel argues that when Professor Langbein framed the narrative as a choice only between strict compliance and the Langbein proposals it was flawed. In reality, courts are creating a body of substantial compliance laws that are more pragmatic than the Langbein proposals. Wendel labels these approaches as flexible strict compliance. He says the real question is whether Langbein’s substantial compliance/harmless error proposals are better than the flexible strict compliance approach.
This article reminds the reader of the importance of framing a narrative. “He who phrases the issue usually wins the debate.” Professor Langbein phrased the issue—strict compliance negates the testator’s intent even when there is clear and convincing evidence of the testator’s intent. If the rigid formalities of the Wills Act are not absolutely adhered to there is no valid will to probate. His kinder and gentler approaches to strict compliance have been lauded and well received in the academy, However, states have been slow to enact statutes adopting the proposals because of the increase in administrative costs and the increased potential for fraud or misconduct.
Wendel walks us through Langbein’s substantial compliance article, as well as his later harmless error article. According to Professor Wendel, Professor Langbein used conclusory language that was harsh and rigid to describe strict compliance; therefore, his alternatives are the saving grace. He states that Langbein’s argument is flawed because most states do not rigidly apply strict compliance. He rephrases the issue as whether any benefits associated with Langbein’s proposals are worth the costs, especially since most states do not rigidly apply strict compliance. He does admit that more wills would be probated under the Langbein proposals, but suggests that Langbein’s holistic approach may not be a great as the academy would have us believe.
Professor Wendel rephrases the narrative—flexible strict compliance vs. Langbien and leaves us with a new narrative to discuss. He says the answer to that question is far from obvious.
Nov 9, 2017 Kent D. Schenkel
Data show that the very rich hold an ever-increasing share of global wealth while that held by the rest diminishes proportionately. And the United States stands out among developed nations for its particularly wide wealth disparities between the rich and the poor. Compared with many nations the rich in the U.S. are generally richer while many of the rest struggle to get by. This severe wealth inequality harms productivity and the broader economy and even threatens democracy and social stability.
Solutions focused on donative transfers of wealth by concerned legal academics often prescribe a tax and transfer system in the form of a robust gift and estate tax regime. But political realities continue to intervene, weakening the federal transfer taxes. Given the way current political winds blow, outright repeal of these taxes seems more likely than their rejuvenation.
Against this backdrop, Felix B. Chang, in his careful and measured article Asymmetries in the Generation and Transmission of Wealth suggests another path. According to Chang, trusts and estates law needs a comprehensive theory on inequality. In this, he writes, T&E lags behind business law and it is time to catch up; to “unify” asymmetries in the generation and transmission of wealth.
Chang asks us to conceptualize wealth as a (mostly closed) double-sphered system. One sphere generates wealth while the other transmits it. Legal rules affect each of these spheres. Roughly speaking, wealth is not created or destroyed but is instead “shifted in response to laws.” Imperfect rules in the wealth-generation sphere will thus aggravate imperfections in the system as a whole unless corrections are made elsewhere. So when laws in the wealth-generation sphere contribute to wealth disparities, and laws in the distribution sphere fail to mitigate those disparities, concentration of wealth continues. In Wang’s example, “a singular devotion to shareholder primacy [in business law] spurs income inequality, which in turn compounds wealth inequality when the estate tax” fails to redistribute this wealth. (P. 4.) Thus laws affecting the two spheres must be integrated to achieve our goals.
And what are those goals? Chang chooses a welfare economics approach based on an individual welfare analysis, “with priority given to wealth equality.” (P. 20.) Simply stated, laws that transfer wealth from the rich to the poor are favored, because “the poor (who begin with little wealth) value slight increases in wealth more than the wealthy (who begin with vast wealth).” (P. 21.) Further, using the Kaldor-Hicks efficiency model, a system that distributes wealth more equally is better than one that does not.
Chang poses and answers three “central questions” for trusts and estates law. First, what role does it play in “sustaining inequality?” Measured against his standard (transfer of wealth from rich to poor) he concludes that these laws are weak. The transfer taxes are anemic and laws enabling concentration of wealth (here he cites dynasty trusts) are strong. Second, who benefits? The rich, their financial institutions and advisers (including lawyers), as opposed to everyone else. Finally, what can be done inside the trusts and estates law context? Here we must confront the field’s overarching policy of freedom of disposition and “reorient the field around an equally pressing imperative: redistribution.” (P. 20.)
He divides the trusts and estates rules he analyzes into two categories. These are private rules that interact with the tax and transfer system (here he cites only the Rule Against Perpetuities (“RAP”)), and purely private rules. Purely private rules include those enabling spendthrift and asset protection trusts, fiduciary rules, and rules primarily affecting beneficiaries, such as abatement and ademption. He points out that the RAP, coupled with the generation-skipping transfer tax (“GST”), ensures that transfers to a grandchild’s generation are taxed. He concedes that the GST has been weakened by increased exclusion amounts, but insists that the RAP “should occupy a central role” in redistribution, despite admitting that many RAP-focused proposals may be “politically infeasible.”
Spendthrift and asset protection trusts pit settlors and beneficiaries against creditors. Tinkering with their rules might help transfer assets from the former to the latter, and would result in more equal wealth distribution if creditors are the less well-off. Chang looks at the creditor exceptions and suggests that they might be expanded, depending on whether empirical research would indicate that this would result in more equal distribution of wealth. He is similarly cautious in his suggestions for other rules, including fiduciary duties, abatement, ademption, cy pres, and execution formalities.
But what I found refreshing about Chang’s ideas were not so much his specific proposals for rule changes but rather his willingness to confront the normative principle of testamentary freedom by offering a limiting welfare alternative. Testamentary freedom is a fairness principle which Chang concedes should not be disregarded but rather should be balanced against welfare, or “aggregate well-being.” The “perils of inequality,” according to Chang, are proper justification.
Oct 20, 2017 Alexander Boni-Saenz
Evan J. Criddle,
Liberty in Loyalty: A Republican Theory of Fiduciary Law, 95
Tex. L. Rev. 993 (2017), available at
SSRN.
Fiduciary law crosses many domains, but it is of particular import to the field of trusts and estates, where it lays down rules of conduct for key actors within that legal system. In Liberty in Loyalty, Professor Criddle presents an appealing and detailed case for why republicanism is the theoretical basis for fiduciary law. This feat is impressive because he is very much swimming against the tide; scholars and judges alike have often seen classical liberal theory as fiduciary law’s guiding light. But the Article’s contribution is not merely theoretical. Important questions of doctrine turn on fiduciary law’s theoretical foundation, as Criddle skillfully shows. This article’s discussion is essential reading for scholars in numerous areas, most notably agency law, corporate law, and trust law, but it is also a valuable read for anyone interested in how the law manages relationships between those with unequal power.
Criddle starts by giving primers on the two main contestants for the soul of fiduciary law: republicanism and classical liberalism. Criddle acknowledges that republican theory is a big tent, but boils it down to two propositions. First, the state derives its authority from the people for the express purpose of promoting individual liberty. Second, the state accomplishes this task by protecting individuals from domination. Domination, in turn, is understood as being in a state of subjection—to either arbitrary power or alien control. Even if this power is not exercised, an individual will still be dominated if there is a chance that it will be exercised. While this understanding was developed with respect to public law, Criddle believes it applies equally well to private law, where the risk of domination is still present. Thus, the governing value of republicanism is liberty, which manifests as a non-domination principle. Classical liberals also value liberty but conceptualize it a bit differently. For them, actual interference or the likelihood of actual interference in an individual’s choices is the evil to be prevented. Thus, classical liberalism prizes a non-interference principle instead.
These non-domination and non-interference principles lead to distinctive methodologies for evaluating relationships. Republicans are concerned with the capacity for interference while classical liberals are focused on the risk of interference. As a result, republicans have the relatively easier task of identifying whether there is a prospect of interference in a given relationship. In fiduciary relationships, where one party entrusts another with power, this prospect is always present. Classical liberals, in contrast, must engage with empirical questions about the level of risk of interference and corresponding normative questions about whether risk levels are too high.
With this philosophical background, Criddle advances his two interrelated descriptive claims, which occupy the bulk of the Article. First, classical liberal theory is a poor match for fiduciary law. Second, republican theory is a good fit. His primary focus is the duty of loyalty, which also happens to be a major doctrinal battleground. Traditionally, this fiduciary duty has prohibited all conflicts of interest. For example, a trustee cannot benefit from trust transactions, even if those transactions might otherwise be benign. This comports with the non-domination principle of republican theory, which aims to prohibit even the possibility that a fiduciary might be acting improperly.
Many classical liberal scholars have challenged this view, noting that such a harsh rule removes from consideration a range of transactions that might be beneficial to the beneficiaries of a trust, even if they might also benefit the trustee. They have engaged in law reform efforts, with some success, to modify the traditional rule, allowing certain types of conflicted transactions so long as they are in the best interests of the beneficiaries. Criddle admits that this is the trend in American law with respect to the duty of loyalty, but he comes armed with plenty of other examples. Through a careful examination of the history and internal logic of fiduciary law, he reveals several areas, such as classifications of fiduciary relationships and remedies for breach of fiduciary duties, in which republican theory likewise better fits this area of law.
Criddle also advances the normative claim that republican theory should underlie fiduciary law. His primary argument for this seems to flow from his descriptive claims: republican theory should underlie fiduciary law because it is a better fit for fiduciary law. This argument certainly throws down the gauntlet to classical liberal scholars, challenging them to demonstrate how their vision of fiduciary law is both internally consistent and faithful to fiduciary law’s historical origins. It remains to be seen how classical liberal scholars might reply; their responses could range from defending classical liberalism at the level of theory to reimagining the entirety of fiduciary law to minimizing the importance of consistency and fit. However they respond, the ensuing exchange will be an interesting one. Thus, Criddle has succeeded admirably on two fronts: elaborating a robust and vibrant alternative to classical liberal conceptions of fiduciary law as well as meaningfully advancing the scholarly conversation.
Sep 19, 2017 Michael Yu
Professor Bradley E.S. Fogel persuasively argues that “courts and legislatures should abandon trust termination by consent of the beneficiaries.” (P. 378.) He proposes that they should instead apply the doctrine of equitable deviation, in which irrevocable trusts (hereinafter “trusts”) are modified or terminated only in the case of “relevant circumstances not anticipated by the settlor” and when the court determines that “such modification furthers the settlor’s intent.” (P. 378.) Professor Fogel notes that several commentators “have encouraged facilitating trust termination by the beneficiaries to assure that the trust meets the beneficiaries’ needs and to allow for more efficient use of trust assets.” (P. 342.) However, courts and legislatures, he argues, “need to respect the primacy of the settlor’s intent”; conversely, giving preference to “the living beneficiaries before the court . . . fails to properly respect freedom of disposition and the settlor’s right, under American law, to place whatever conditions she likes on the gift she made.” (P. 343.)
Professor Fogel first summarizes the common law of trust termination by consent of the beneficiaries. He notes that many early U.S. cases followed the English law that “a vested beneficiary could terminate a trust and receive the assets outright regardless of the settlor’s intent or the terms of the trust.” (P. 344.) Over time, courts rejected easy trust termination, and the case Claflin v. Claflin, 20 N.E. 454 (Mass. 1889), “evolved into the common law rule that a trust cannot be terminated by the consent of the beneficiaries if ‘continuance of the trust is necessary to carry out a material purpose of the trust.’” (P. 347.) The most common “material purposes” found for trusts were spendthrift provisions, discretionary distribution provisions, and provisions delaying a beneficiary’s enjoyment of the property (such as to a certain age). (Pp. 347-48.)
Courts, in determining whether a trust has an unfulfilled material purpose, have sometimes faced situations in which the settlor has joined the beneficiaries in seeking trust termination. (P. 348.) Professor Fogel asks, because the goal of the material purpose doctrine is “to assure that the settlor’s intent in creating the trust is carried out,” then, if the settlor is seeking to terminate a trust that the settlor created, “what should be the role of the material purpose inquiry?” (P. 348.) Professor Fogel notes that, on the one hand, the settlor (unless also a trustee or a beneficiary) has no interest in the trust the settlor created, and it is the settlor’s intent when the trust was created that governs trust administration. (Pp. 348-49.) Accordingly, the fact that a settlor “changes her mind and wishes to revoke the trust should be irrelevant.” (P. 349.) On the other hand, “if the settlor and all of the beneficiaries want the trust to be terminated, it is unclear why the court should prevent such termination.” (P. 349.)
Per Professor Fogel, there are, therefore, “dueling policies regarding trust termination by consent of the beneficiaries: freedom of disposition versus the professed interests of the beneficiaries. If the settlor is one of the parties urging trust termination, both of these policies arguably militate toward termination.” (P. 349.) Professor Fogel notes that “this reasoning has carried the day” such that, if the settlor consents to the termination of the trust created by the settlor, “then all of the beneficiaries acting together may terminate the trust regardless of any unfulfilled material purpose.” (Citing the Restatement (Second) of Trusts, P. 349.)
I return to Professor Fogel’s question that, if the settlor is seeking to terminate a trust that the settlor created, “what should be the role of the material purpose inquiry?” (P. 348.) Although Professor Fogel writes later in his article that application of the equitable deviation doctrine makes the “frequently haphazard search for the trust’s ‘material purpose’ unnecessary,” (P. 379) I wonder if there is an implicit application of the equitable deviation doctrine in a “material purpose” inquiry that militates towards termination, as follows. If there is no material purpose of the trust left unfulfilled, then the “early” fulfillment of all material purposes of the trust was a circumstance unanticipated by the settlor when the settlor created the trust. Alternatively, if there is a material purpose of the trust left to be fulfilled, then there are, currently, other circumstances unanticipated by the settlor when the settlor created the trust. In sum, to me, the trust termination allowed to beneficiaries when they are joined by the settlor who created the trust (regardless of any unfulfilled material purpose) is an implied recognition and application of the equitable deviation doctrine.
Professor Fogel next discusses the difficulty of obtaining the consent of all beneficiaries of a trust, including addressing situations in which the beneficiary is a minor or unborn and unascertained. (P. 351.) Summarizing Professor Fogel’s thorough analysis is beyond the scope of this jot, but it is worthwhile to note that Professor Fogel considers one of the advantages of applying the equitable deviation doctrine to be “the elimination of the outsized importance sometimes given to non-consenting beneficiaries with remote interests.” (P. 379.)
Professor Fogel argues that, “[p]artially in response to the difficulty of terminating trusts by consent of the beneficiaries under common law, states enacted statutes that facilitated trust termination by the beneficiaries.” (P. 360.) Although the statutes generally accomplish their goals of making trust termination by consent of the beneficiaries easier, Professor Fogel submits that “they do not properly respect the settlor’s intent.” (P. 360.) Professor Fogel thoroughly analyzes the statutes from several states and the Uniform Trust Code; I highlight the few UTC provisions relevant to this jot.
The UTC, following the common law, “requires the consent of all beneficiaries for trust termination, regardless of whether the settlor also consents”; the “beneficiaries” include “vested and contingent, as well as unborn and unascertained beneficiaries.” (P. 361.) The UTC, however, allows consent by a guardian ad litem for a beneficiary. (P. 361.) The UTC differs from the common law in allowing trust termination even if not all beneficiaries consent as long as the non-consenting beneficiary’s interests are “adequately protected” through payment of cash or an annuity. (Pp. 361-62.) Professor Fogel aptly notes that “the UTC allows beneficiaries of a trust to force an objecting beneficiary to surrender her interest in the trust,” which termination “conflicts with the settlor’s intent” because “the settlor gave that interest [in the trust] to the objecting beneficiary.” (P. 362.)
Professor Fogel’s focus on the settlor’s intent grounds his support for the equitable deviation doctrine replacing beneficiary-originated modification or termination of a trust. As he concisely notes, “The settlor’s intent—not the beneficiaries’ desires—is paramount.” (P. 369.) Trust termination occurring by consent of the beneficiaries allows the beneficiaries: (1) to deviate from the trust document, (2) to alter the settlor’s plan in the trust document, and (3) to escape conditions set by the settlor. (Pp. 369-70.) Trust modification or termination under the equitable deviation doctrine, on the other hand, “respects the settlor’s intent.” (P. 371.)
Per Professor Fogel, most states and the UTC allow under the equitable deviation doctrine “for modifications to dispositive provisions and even trust termination,” if it will “further the purposes of the trust.” (Pp. 370-71.) The court assesses “the settlor’s probable intention, if possible, in light of the unanticipated circumstances”; then, the court allows modification of the trust that the settlor would have done under the circumstances, thereby better effecting the settlor’s intent (Pp. 371-72)—which intent, but for the modification, is thwarted by circumstances unanticipated by the settlor when the settlor created the trust. Instead of focusing on the beneficiaries of the trust, the goal of the equitable deviation doctrine is “to effect, rather than thwart, the settlor’s intent.” (P. 372.)
This jot does not address the breadth of issues discussed in Professor Fogel’s article. He thoroughly analyzes the history and disadvantages of modification and termination of trusts by consent of the beneficiaries and forcefully argues in favor of the equitable deviation doctrine. He also applies the equitable deviation doctrine to cases, conceding that it is “possible that a beneficiary’s interest might be reduced or eliminated without his consent in an equitable deviation proceeding” because such reduction results from “the court’s attempt to effect the settlor’s intent.” (P. 376.) In sum, I enjoyed reading how the equitable deviation doctrine should replace modification and termination of trusts by consent of the beneficiaries because, as Professor Fogel elegantly summarizes, the “point of a trust is not to give the beneficiaries the interest they want”, but, rather, the “point of a trust is to give the beneficiaries what the settlor intended.” (P. 377.)
Aug 3, 2017 Paula Monopoli
Angela Vallario,
The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, 45
Capital U. L. Rev. (forthcoming, 2017), available at
SSRN.
Some of our inheritance laws still seem closer to those existing in 1217 instead of 2017. For example, the elective share statutes in a number of states still echo the old common law doctrine of dower. In her new article, The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust, Angela Vallario makes a persuasive case for statutory reform, especially in light of recent trust reform in many of those same states effectively putting creditors in a more favorable position than a surviving spouse.
Professor Vallario begins by describing the current state of the elective share in the United States. She notes that twenty-five of the nation’s separate property states have reformed their elective share statutes to more clearly reflect a joint partnership theory of marriage. However, sixteen states have failed to do so and retain what Vallario calls the “traditional” elective share. Vallario reminds readers that the traditional elective share was built on the remnants of dower. Surviving spouses who are disinherited can claim either a one-half or one-third share of the decedent’s estate. But the term “estate” under traditional statutes has included only probate assets, not non-probate assets like life insurance, joint tenancy property with third parties and trust property.
Over the years, courts developed equitable doctrines to recapture some of the assets that a decedent may have transferred to third parties through vehicles like joint tenancy or revocable or irrevocable trusts. These common law doctrines, often labeled as “fraud on the spouse,” were a cumbersome way to remedy the impact of a transfer intended to end-run the elective share statute. The drafters of the Uniform Probate Code (UPC) developed a model elective share statute that uses what the UPC calls an “augmented estate” framework. In other words, the disinherited spouse may take a share of a larger “augmented” estate that includes certain inter vivos transfers by the decedent and the surviving spouse’s own assets. Based a sliding scale tied to length of marriage, the surviving spouse may receive up to fifty-percent of the augmented estate. While a number of states eschewed this approach due to its perceived complexity (even some that adopted the UPC), a large number did reform their elective share statutes to embrace this more modern reflection of what a decedent’s wealth consisted of at death. With the advent of an increasing amount of wealth being transferred through non-probate devices, these reform states essentially increased the size of the “pot” against which the surviving spouse’s share would be applied.
However, as Vallario points out, sixteen “holdout” states have not brought their statutes into the modern age in this regard. Seven of the holdouts have enacted trust reform which has created the anomalous situation of creditors having more rights against a revocable trust than a surviving spouse. Vallario includes hypotheticals to illustrate what many would think is an odd and inequitable result as a policy matter.
After laying out a useful history of the structure and policy of traditional elective share statutes generally, Vallario delves into the common law exceptions that courts have developed over the years to avoid harsh results by application of the traditional elective share. Her analysis of the Maryland Court of Appeals case, Karsenty v. Schoukroun, 959 A.2d 1147 (Md. 2008), reveals some of the flaws in relying on judicial discretion rather than statutory reform to remedy these results. Such discretion minimizes predictability, yields inconsistent results and deters surviving spouses from exercising their right to elect against the will. These costs, Vallario argues, push toward statutory rather than judicial solutions. In fact, in the Karsenty case, the Maryland court noted that other states had adopted an augmented estate model but resisted creating such reform by what it called “judicial fiat.”
Vallario is on the same page as the Karsenty court. She notes that, “State legislatures who are able to hold hearings, gather information, and draft bills, are in the best position to protect the interest of the surviving spouse.” (P. 13.) She urges the sixteen “holdout” states to reform their statutes but acknowledges the variety of interests that converge to thwart such reform. In addition to Vallario’s insight about the anomaly of creditors being in a better position than surviving spouses vis a vis a revocable trust, this last section of Vallario’s article is a unique and pragmatic addition to the literature on the elective share. Her assessment of the various constituencies, including the various sections of the organized bar, probate judges and creditors, and whether and why they might oppose reform is spot-on. Vallario concludes that surviving spouses are an unlikely constituency to pool their resources to lobby for reform. The organized estate planning bar is in the best position to remedy the inequities inherent in the traditional elective share.
Vallario has written before about elective share reform in Spousal Election: Suggested Equitable Reform for the Division of Property at Death, 52 Cath. U. L. Rev. 519 (2003). That article, cited by the Maryland Court of Appeals in the Karsenty case, is also well worth reading. As more states consider reform, I look forward to future scholarship from Professor Vallario on this important statutory protection within marriage.
