When legal scholars identify and analyze a social problem, they usually conclude with law reform recommendations for potential adoption by courts or legislatures. In The Dark Side of Codifying U.S. Trust Law,1 Professor Thomas Gallanis reboots that familiar template by reversing the inquiry: This superb article evaluates how a reformer’s choice of institutional forum—court versus legislature—can impact the effectiveness of legal intervention. Gallanis presents an intriguing case study that documents the plight of several well-intended trust law reforms which Gallanis contends inadvertently created fertile ground for legislative capture by special interests. Gallanis describes how the political influence of special interests ultimately persuaded state legislatures to alter model legislation in ways that undermined the reformers’ original policy goals.
The article begins by surveying the modern trend of American trust law toward “codification,” which refers to the replacement of traditional judicial doctrines with statutory reforms. Model legislation drafted by the Uniform Law Commission has proven especially impactful. Notable examples of codification include the Uniform Trust Code (2000) (adopted in 35 states), the Uniform Powers of Appointment Act (2013), the Uniform Trust Decanting Act (2015), the Uniform Directed Trust Act (2017), and the updated Uniform Fiduciary Income and Principal Act (2018). As Gallanis explains, “U.S. trust law now is heavily statutory.” (P. 287.)
The trend that Gallanis characterizes as the “dark side” of trust law codification happens between the promulgation of model legislation and a subsequent enactment by state legislatures. When special interest groups, such as bar associations, corporate fiduciaries, and bankers, object to provisions of a uniform act, they lobby state legislatures for changes that protect their respective constituencies. Gallanis thus contends that the Uniform Law Commission’s decision to propose model legislation for any given rule can open the door to political tinkering of time-tested judicial doctrine that might have otherwise been left alone.
Gallanis explains that courts lack the institutional capacity to enact sweeping legal reforms under the influence of political lobbying. Unlike legislatures, courts must confine their decisions to the case at hand, they cannot accept policy input from non-party lobbyists, and they must respect binding precedent. Thus, because restatements of the law are intended for consideration by courts rather than legislatures, the American Law Institute’s restatement of any particular judicial rule or doctrine poses a lower risk of uninvited tinkering than model legislation. As Gallanis explains, “the process by which a draft statute, such as a uniform act, becomes enacted is more open to capture by a state bar association or other state-based interest group than the process by which a Restatement rule becomes part of a state’s decisional law.” (P. 305.) Gallanis illustrates his thesis by presenting detailed examples from the trenches of trust law reform.
In the first of three examples, Gallanis describes the evolution of general powers of appointment from their common law origins to their recent codification by state legislatures influenced by special interests. A power of appointment is a donative transfer in which a donor grants the donee (the powerholder) power to decide who ultimately receives the appointive property and when. If the donee can exercise the power for the donee’s own benefit, then the power is “general.” If the power does not permit the donee to exercise it for the donee’s own benefit, then the power is “nongeneral” (or “special”). Thus, as Gallanis explains, a “general power of appointment is akin to ownership.” (P. 291.)
When the donee of a general power dies, the appointive property is generally includible in the donee powerholder’s estate (thus potentially subjecting the property to estate taxation) but the property’s basis as a capital asset resets to fair market value when inherited by the object of the power (thus reducing the tax on the object’s capital gain when the inherited property is later sold). Thus, the powerholder’s unrealized capital gain escapes taxation but may be subject to the estate tax. But the possibility of estate taxation is remote because, with the historically high exemption from federal estate and generation skipping transfer (GST) taxes ($13.99 million in 2025), only a miniscule number of estates are now large enough to generate federal estate or GST tax liability. So, for the vast majority of estates that are unlikely to generate any federal transfer taxation, general powers of appointment have become a popular way of reducing capital gains tax liability without the potential downside of estate tax liability. Gallanis notes: “As one estate planner confessed to me privately, general powers are now ‘sprinkled like candy.’” (P. 295.)
Crucially, however, powers of appointment were never intended to provide the powerholder with asset protection against creditors’ claims. As Gallanis notes, at common law and under the Restatement (Third) of Property, “property subject to a general power of appointment is subject to the claims of the powerholder’s creditors.” (P. 291.) Likewise, the Uniform Powers of Appointment Act § 502(a) provides that property subject to a general power of appointment is subject to creditors’ claims against the powerholder if the power is presently exercisable or the powerholder’s estate is insufficient to satisfy all liabilities. (P. 292.) That rule, however, was met with a frosty reception in many state legislatures, as Gallanis explains: “To avoid the consequences of ownership—such as creditor access—bar and other associations successfully have lobbied to change the statutory rule on creditors’ rights in nine of the twelve state enactments of the Uniform Powers of Appointment Act.” (P. 295.) In four states, appointive property is reachable only to the extent the power is exercised. But Gallanis reports that, in another four states, “[p]roperty subject to a general power is exempt from claims of the powerholder’s creditors even if the power is exercised.” (P. 295.) (Italics in original). Gallanis opines that “[t]his latter result would have been hard to imagine as a matter of decisional law. The door to this outcome was opened by the process of codifying the law of powers of appointment in the Uniform Powers of Appointment Act.” (P. 296.)
Drawing upon his deep experience as reporter for multiple law reform projects sponsored by the American Law Institute and the Uniform Law Commission, Gallanis concludes by urging the Uniform Law Commission to recognize “the possibility that the codification itself of the common law can open the door to outcomes inimical to what the Commission seeks to achieve.” (P. 315-16.) (Italics in original). In this beautifully written article, which effortlessly explains even the most technical nuances of trust law in clearly understandable prose, Gallanis presents a compelling case for a minimalist approach to codifying the common law. Sometimes, indeed, less is more.
- This article expands on a shorter commentary published on the twentieth anniversary of the Uniform Trust Code. See Thomas P. Gallanis, The Dark Side of Codification, 45 ACTEC L.J. 31 (2019).
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