Jun 24, 2025 Reid Weisbord
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, 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.
Jun 10, 2025 Sarah Waldeck
In The Curious Case of the James Brown Estate, Lee-ford Tritt explores how certain provisions of the Copyright Act of 1976 can upend an artist’s estate plan. Professor Tritt makes a persuasive case for legal reform and documents a messy disconnect between the fields of copyright law and estates law. This disconnect is particularly unfortunate because the havoc-wreaking provisions of the Copyright Act were enacted to help ensure that artists are fairly compensated for their creations. Congress could not have intended a loss of testamentary freedom—and in some cases, prolonged and expensive estate litigation—to be the price artists pay for this protection.
Professor Tritt writes that many copyright experts are unaware of relevant estate planning techniques, and that many estates experts are unaware of the termination rights provided in the Copyright Act. (P. 778.) Prior to reading Professor Tritt’s article, I fell into the second category. The same may be true of some of the readers of this review, so let’s start with the Copyright Act of 1976.
Artists can transfer the physical manifestation of their creations as tangible property and their intangible copyright interest as intellectual property. With respect to the copyright interest, the Copyright Act gives the artist a termination right that attaches to all assignments except for those that the artist makes by will. (P. 779.) For a transfer of a copyright interest executed after January 1, 1978, artists have a non-waivable five-year termination period that begins 35 years after the transfer. During this period, the artist has the right to terminate the transfer of their copyright and reclaim the intellectual property as their own. (P. 778) These termination rights are inalienable, so an artist’s attempt to transfer the rights will be ineffective. (P. 782.) Termination rights work a bit differently for transfers executed before 1978, but those are not the focus of Professor Tritt’s article.
Professor Tritt explains that by providing termination rights, Congress sought to give artists a second opportunity to benefit from their works. Congress recognized that the entrepreneurs and art patrons interested in acquiring copyrights usually have a bargaining position superior to the artist. Because artists have no way of knowing how successful their work will become, they often license their copyright interest for minimal compensation. Recognizing that this power imbalance would regularly cause artists to negotiate contracts that would prove to be unfavorable to them, “Congress conceptualized a recapture system that permits the author, originally in a poor bargaining position, to renegotiate the terms of the grant once the value of the work has been tested.” (P. 776.)
Now for the messy intersection of copyright law and estates law. If an artist dies before the termination period begins, or once the period has opened but before the artist has exercised termination, the termination rights descend to heirs identified in the Copyright Act. Those heirs include spouses, children, and grandchildren, who generally take in the order and proportion dictated by traditional rules of descent. The artist may not give or bequeath termination rights to anyone outside the statutorily defined class of heirs and cannot divest the heirs of the termination rights that descend under the Act.
Because the artist cannot prevent termination rights from descending to heirs, and because termination rights attach to all transfers of copyright except those made in the artist’s will, federal copyright law creates what Professor Tritt dubs “estate-bumping” (P. 787). If an artist doesn’t survive long enough to exercise their termination rights, any lifetime assignment of the copyright can be “bumped” by the statutorily defined class of heirs. As Professor Tritt explains, “[T]ermination rights curtail donative freedom and have the potential to undermine otherwise well-crafted estate plans…. Although estate-bumping does not apply to transfers by Wills per se, estate-bumping could nevertheless undermine other contemporary estate planning techniques. Moreover, for charitably inclined copyright creators…termination rights undermine lifetime gifts of their copyrights to charities.” (P. 787.)
And what about the Godfather of Soul? At the beginning of the article, Professor Tritt hooks readers with the story of James Brown’s estate plan. Brown devised $2 million for the education of his grandchildren, but he wanted to use most of his estate to provide opportunities for poor children—the kind of opportunities that Brown’s own childhood lacked. To this end, Brown left his adult children only personal property and directed that the bulk of his estate would fund a charitable trust for underprivileged children in South Carolina and Georgia. (P. 765.) Despite what Professor Tritt describes as a “fastidious” estate plan, chaos ensued after Brown’s death. There was the possibility of a pretermitted child; the question of whether an on-again, off-again love interest was Brown’s surviving spouse; allegations that Browns’ personal funds had been misappropriated; and settlements that were overturned by the South Carolina Supreme Court as a “dismemberment” of James Brown’s estate plan. I’m skipping over much of the drama—if you want to learn more, you’ll need to read Professor Tritt’s article—but after “fourteen and a half years and tens of millions in legal fees,” all litigation was finally settled. (P. 769.)
But, as Professor Tritt explains, the saga of the James Brown estate isn’t over yet. During his lifetime, Brown signed contracts that transferred ownership of his copyrights (more than 900!) to music companies in exchange for fees. Those fees are central to funding the charitable trust that was at the heart of James Brown’s estate plan. But because of federal copyright law, the termination rights in these copyrights have descended to his adult children, as well as to the love interest if she actually was his legal spouse. The heirs can eventually exercise those termination rights to strike deals that will benefit them instead of the underprivileged children that Brown intended to help.
To illustrate the extent to which inherited termination rights can interfere with donative intent, Professor Tritt discusses estate planning techniques that include revocable trusts, lifetime transfers designed to minimize tax exposure, family holding companies, and charitable giving. Through carefully crafted examples, Professor Tritt illustrates how estate-bumping can effectively undo each of these common estate planning strategies.
Professor Tritt’s article makes a compelling case that Congress should amend federal copyright law so that inherited termination rights do not interfere with donative intent and testamentary freedom. His article also illustrates the wealth of knowledge necessary to be a good estate planner. If James Brown is the client—or Paul McCartney, or Ray Charles, or any of the other big-name artists Professor Tritt mentions—the value of the copyright interests should be apparent to any lawyer. But Congress gave artists termination rights because it is impossible to know how successful a work will become. This means that lawyers who draft estate plans for all the artists whose work has not yet gained an audience—and maybe never will—also need to think about copyright law and termination rights. Hopefully Professor Tritt has sparked a conversation that will culminate in legal reform that protects artists without compromising their donative freedom.
May 26, 2025 Allison Anna Tait
Masayuki Tamaruya,
Trust Law and Colonialism,
in The Oxford Handbook of Comparative Trust Laws (Adam S. Hofri-Winogradow et al. eds, forthcoming), available at
SSRN (Sept. 1, 2024).
Tethered to and inextricably linked with the absence or decline of democratic governance, there has always been empire. Empires rise and fall, as they say, but the imperial impulse is perennial and new iterations of old empires emerge with dismal regularity, showing us that imperial formations are hard to erase.
The relationship between empire and trust law is one that is gaining increased attention, particularly in the context of offshore financial centers and the inescapable historical force of British colonialism. Popular books like Butler to the World and, more recently, The Hidden Globe have brought the topic of colonialism into a wider conversation about wealth inequality and legal imperialism. Both historians and sociologists have dug into the subject, with excellent results like those of Vanessa Ogle and Brooke Harrington. And legal scholars are also joining the conversation, talking about colonial aftermaths and the ghosts of colonialism that persist in our systems of wealth transfer.
A new contribution to the literature—and our understanding—of trust law and colonialism is Masayuki Tamaruya’s chapter in the forthcoming Oxford Handbook of Comparative Trust Laws, aptly entitled Trust Law and Colonialism. Tamaruya takes the reader on a historical adventure through diverse empires and their spheres of influence. Tamaruya focuses in particular on the British empire, the Americas, and Asia explaining that “distinct patterns of colonialism naturally engender different dynamisms in using trust and trust laws.”
The Sun Never Sets on the British Empire
The development and fate of trust law varied across the British empire and was often tied to the fate of chancery courts that historically held jurisdiction over trusts. In Canada, for example, the “Chancery jurisdiction exercised by the colonial governor and later-established authorities was viewed with suspicion.” In what is presently Ontario, the Court of Chancery was not established until 1837, before which time trusts were enforced in a haphazard fashion, sometimes by the common law court and sometimes “with the intervention of the legislature.” New Zealand, on the other hand, had courts and a Supreme Court that was more willing to “adjust their equity jurisprudence” and—particularly after the Testator’s Family Maintenance Act of 1900—exercise judicial discretion to enforce both wills and trusts.
In India, a country with a longstanding legal tradition that included “trust-like devices” such as the Hindu benami and the Islamic waqf, trust law under the British empire built on these legal understandings, producing the Indian Trust Act of 1882. This Act, drawing from various sources, also relied on the New York Civil Code of 1865 and English treatises. Tamaruya remarks that even after the enactment of the Trust Act, however, “Indian judges routinely made recourse to English case law” up to and even after Indian independence
Traveling east and south-east, Singapore and Hong Kong were both jurisdictions that absorbed English common law and equity, as well as British statutes “largely intact,” and both developed trust legislation that was modelled after the U.K. Trustee Act of 1925, rendering their trust law “largely consistent with developments in the U.K.” More recently, both locales have “solidified their positions as Asian financial and wealth management centres” by offering boutique trust services and innovative wealth preservation services. In this sense, Singapore and Hong Kong resemble some of the offshore financial centers, which are either former or present British colonies such as the Cayman Islands and British Virgin Islands. Since colonization, English lawyers working with trust companies have drafted the trust codes of these jurisdictions just as they have trained the practitioners and judges in an attempt to attract global capital.
Traveling Through the Americas
Moving on to a discussion of the Americas, focused primarily on North America and in particular the United States, Tamaruya observes that “unlike the general alignment” seen in the British colonies, (both former and current), the history and state of trust law in the Americas is “marked by a departure from the English tradition.” In the United States, this departure from English law post-revolution was grounded in both a suspicion of chancery as it had been used in the English context as well as a conceptual rejection of aristocratic forms of property. Nevertheless, despite this desire to separate from English trust law, the industrialists of the late-nineteenth century still sought mechanisms to preserve and protect the extreme wealth that they created and in the United States the spendthrift trust prospered, as did the commercial trust.
Tamaruya remarks that, through the use of the commercial trust and related variants like the mortgage trust, “the US departure [from English trust law] has been influential worldwide.” In Latin American countries, the civil law tradition was strong and therefore trusts were not a core part of the legal history. But Latin American governments in the early twentieth century were interacting in international financial markets and “using corporate debentures and mortgage trusts” adopted from North American practice. The 1920s saw the adoption of trust law legislation in Panama (1925), Chile (1925), and Mexico (1926). Two decades later, jurisdictions in Central America, including Columbia, Honduras, and Costa Rica, adopted trust law legislation as did Venezuela and Brazil followed by South American jurisdictions, including Bolivia, Ecuador, Peru, Argentina, and Paraguay in the 1950s. In these jurisdictions, commercial trusts were predominant, while private family trusts were less commonly utilized.
Asian Empires and the Slow Growth of Trust Law
Asia represents, in Tamaruya’s organization, “the third sphere of colonialism” subject to both Western powers as well as Japanese colonial power. Surveying this third geography, Tamaruya first discusses Thailand and Japan, finding that trusts became available in Thailand in the mid-nineteenth century on “the basis of English practice” but that they were subsequently prohibited when the Civil and Commercial Code was introduced in 1935. It was not until 2008 that trusts were once again authorized, and only then for investment purposes.
In Japan, the adoption of trusts did not happen until the early 1900s, starting with mortgage trusts. A Trust Act in 1922 enabled more modern business purposes, drawing on both the Indian Trust Act and legislation from the United States. Taiwan and Korea, both subject to Japanese colonialism, followed Japanese law. Trusts companies opened their doors in these jurisdictions during the 1910s and 1920s and Japanese trust regulations applied in both colonies, facilitating primarily commercial trusts.
Finally, in China, the Civil Code in 1929-1931 “laid groundwork” for certain uses of trust law, in the Japanese tradition, but these laws were eliminated by the Communist Party when it came to power. After the Second World War, commercial trusts re-emerged and state-owned trust investment companies were put into place in order to generate funds for provincial governments. More recently, elite Chinese families with substantial business and personal wealth have started “onshoring” their family trusts rather than settling them in Hong Kong or Singapore but, as Tamaruya states, Chinese law provides little clear guidance for managing family inheritances through trust.
*****
In this enticing taste of colonial history and trust law, Tamaruya demonstrates that patterns of colonial conquest have shaped trust law and its adoption and usage across the globe and that “different conceptions and rules of trust have been devised in response to local and colonial conditions and shifting uses and circumstances.” Perhaps even more unexpectedly, Tamaruya also shows that that, “[c]ollectively, settlers, lawyers, judges, policymakers, bankers, and merchants on the colonial periphery may have been just as innovative as the judges of the English Court of Chancery.” Bringing these ebbs and flows of colonial power to light, this chapter is an important contribution to our understanding of trust law, its migrations, and its mobility.
Cite as: Allison Anna Tait,
Trust Law and the Tides of Colonialism, JOTWELL
(May 26, 2025) (reviewing Masayuki Tamaruya,
Trust Law and Colonialism,
in The Oxford Handbook of Comparative Trust Laws (Adam S. Hofri-Winogradow et al. eds, forthcoming), available at SSRN (Sept. 1, 2024)),
https://trustest.jotwell.com/trust-law-and-the-tides-of-colonialism/.
Apr 25, 2025 Michael Yu
Jonathan G. Blattmachr writes, “This Article primarily will deal with how the wealth transfer tax system might be used to provide reparations for descendants of people enslaved in the United States as part of the system of chattel slavery. It will not discuss other potential reparations such as for Native Americans among others.” (P. 297, dagger note.) The term “wealth transfer tax system” refers to the estate, gift, and generation-skipping transfer taxes imposed by Subtitle B of Title 26 of the United States Code. (P. 297, note 1.) Blattmachr’s specific proposal is that “a refundable estate tax credit (perhaps, up to a certain limit of wealth or using a scaled credit) could be allowed for the estates of descendants of enslaved persons.” (P. 309.) Blattmachr contributes to the literature of wealth transfer taxes, wealth inequality, racial wealth disparity, and reparations with his thoughtful proposal.
The core of Blattmachr’s proposal is the “refundable estate tax credit.” For any decedent dying in 2024, the estate tax credit currently stands at $5,389,800. (This jot focuses on the estate tax credit of $5,389,800 because Blattmachr’s article focuses on the estate tax credit—often, discussion centers on the estate tax exemption amount ($13,610,000 for a decedent dying in 2024), which is, generally, the amount that can be transferred estate tax-free to persons other than one’s spouse and other than to charities.) That relatively high estate tax credit is slated to sunset at the end of 2025 and revert to a lower estate tax credit unless Congress enacts new legislation. Before we discuss the mechanics and merits of a refundable estate tax credit, we should note that Blattmachr does not propose unequivocally that $5,389,800 be refunded to each estate of descendants of enslaved persons. Instead, Blattmachr explains that the amount of the refundable credit could be limited or scaled. (P. 309.)
Summarizing the wealth transfer tax regime is beyond the scope of this jot, but a brief overview may be useful for readers unfamiliar with this system. Three related taxes apply to the voluntary, gratuitous transfer of property/wealth: the estate, gift, and generation-skipping transfer taxes. The basic idea is that a tax is imposed upon voluntary, gratuitous transfers of property other than to a spouse or charity (“taxable transfers”)—whether the transfer occurs when the transferor is alive or upon the transferor’s death. This integrated approach to taxing lifetime gifts and deathtime transfers from a decedent’s estate led to terms such as the unified gift and estate taxes and the unified credit against the gift and estate taxes.
For example, let’s assume that a decedent died in 2024 having made lifetime and deathtime taxable transfers of $13,610,000. Such an estate would yield an initial gross estate tax computation of $5,389,800. However, after applying the estate tax credit of $5,389,800, there would be no estate tax owed on the decedent’s lifetime and deathtime taxable transfers of $13,610,000. Estate taxes would become due only if a 2024 decedent had made lifetime and deathtime taxable transfers greater than $13,610,000. As Blattmachr writes, “only the wealthiest of Americans and their estates pay estate or related taxes.” (P. 300.)
Blattmachr’s thought-provoking proposal is a refundable estate tax credit. Let’s assume that the United States has enacted his proposal but has limited and scaled the refundable estate tax credit to $2,000,000 for descendants of people enslaved in the United States. Let’s also assume that a decedent has an initial estate tax calculated to be $500,000. Applying the refundable estate tax credit of $2,000,000 means that the decedent’s estate would receive $1,500,000 (which is the refundable estate tax credit of $2,000,000 minus the initial estate tax calculation of $500,000). Of course, if a different decedent’s initial estate tax is calculated to be $2,800,000, applying the refundable estate tax credit of $2,000,000 means that this other decedent’s estate must still pay an estate tax of $800,000.
How would the federal government pay for such a refundable estate tax credit? Blattmachr writes, “Arguably, the wealth transfer taxes are the appropriate source for funding reparations because those taxes are to be paid by those who have most greatly benefitted from America’s economy which benefitted, in part, from labor of enslaved people.” (P. 306.) Along the way, Blattmachr discusses some pros and cons of other ways to raise revenue for reparations, including increasing taxes on the transfer of wealth, earmarking wealth transfer taxes to pay for reparations, a special tax for reparations, and reducing wealth transfer taxes on descendants of enslaved people. (Pp. 306-309.)
Blattmachr suggests the following advantages and arguments supporting a refundable estate tax credit. First, because the estate tax credit applies only when an individual dies, “the ‘payment’ of these reparations” is postponed until eligible individuals die, thereby possibly reducing the present value cost of the reparations. (P. 309.) Second, the estate tax credit “might avoid publicly identifying the individual[s] who benefit from the refundable credit.” (P. 309.) Third, although the delayed payment of reparations would postpone their impact, “it is at least arguable that paying the reparations over time would increase the probability of their closing the wealth gap between Black Americans and others.” (P. 310.) Fourth, Blattmachr writes, “A rational case can be made that providing reparations . . . would help close the racial gap between those descendants and other Americans.” (P. 311.) Fifth, payment of reparations “seems likely to boost the United States economy for all.” (P. 311.) Finally, sixth, a refundable estate tax credit, because it is paid over time as opposed to all at one specific date, “might increase the political likelihood of reparations being paid.” (P. 311.)
Blattmachr’s proposed refundable estate tax credit is interesting. It might accomplish (or help to accomplish) many goals, including addressing past wrongs, reducing current racial wealth gaps, and boosting the economy. I learned much from Blattmachr’s article and will continue to reflect on his proposal.
Mar 28, 2025 Katheleen Guzman
James Toomey,
Executor Discretion, 110
Iowa L. Rev. __ (forthcoming, 2025), available at
SSRN.
I hereby grant my executor the power to alter my will to reflect my most likely recent intent.
Notwithstanding the mysteries that can attend multiple aspects of estate planning, some things—such as the precepts that deeds are not wills, revocation is permitted, and takers must survive—seem plain. The near-absolute supremacy of Testator Intent fits within this rough set of axioms. Cases instruct that, elusive though it may be, it is that intent alone that matters, and not that of any judge, jury, or creditor; disappointed spouse or disinherited heir. Indeed, the principle has become the rhetorical stuff of earth and sky both, with the Testator’s intent cast as the cornerstone, the lodestar, the keystone, the polestar, the crown jewel, the very light that guides. Less often questioned is just how far and brightly that North Star actually shines, and at what temporal and comparative remove.
Professor James Toomey seeks consistency and tests fidelity to Testator Intent in Executor Discretion, admonishing that lawmakers should be every bit as aggrieved by the effectuation of will terms that reflect expired intent as reformers have been, for decades, about the rejection of intended wills on formalistic technicalities. “Whenever a will is probated [that . . .] no longer represents what the testator would have wanted, wills law fails on its own terms.” (P. 1.) If and where so, the autonomy, identity, and freedom that testamentary intent captures also fail, and stars fall to earth.
Preliminary confessions. Article titles can be as deceptive as book covers. Here, I first (and wrongly) assumed that Executor Discretion would catalogue existing but rarely flagged de jure or facto administrative space where it already operated—e.g. deciding between distribution in cash or in kind, through power of sale—then urge extension, retrenchment, or justification. That seemed intriguing, especially could such hidden discretion prove powerful enough to undermine or uphold wholistic views of the estate plan’s intent, including work at gray margins to remediate the ill-effects of planning neglect. But Executor Discretion is much more direct. It attacks the stale will by affording executors rights to react to expired intent by adding to, subtracting from, or altering the will itself, post-death, where the will itself so authorized. When I realized this far greater project, I instinctually blanched. This version of “executor discretion” seemed oxymoronic, a sense aided, perhaps, by the traditional role reinforcement found in the very language of wills. On its face, a “Last Will and Testament” already reflects the recency, primacy, and intent of its author—the testator—relegating executors to supporting roles as discretion-less functionaries merely “executing” the hope/wish/intent—the will—of another. Further reading forced deeper thought.
Prof. Toomey carefully grounds expired intent failures within theory and practice, including what he sees as their inexorable exacerbation given such sociocultural changes as heightened volatility in property values and the cognitive debilities (thus reduced capacity to amend) posed by increased life expectancies. This discussion is insightful, as are his observations about the inadequacy of alternate planning techniques or presumptions about revisions of intent stemming from discrete changes of circumstance. His work reminds readers that even fixes that work “most of the time” and with efficiency should pale against those that may appear startling but permit a sharper view of intent (assuming acceptable costs, but more on that later). Highlighting the near-sacrosanct nature of the intent core while taking seriously the difficulties of an approach directed by what this testator (not most of them) would have wanted could she have expressed it validates the piece. But Executor Discretion works even harder by encouraging a different and deeper question than how much discretion executors should hold. By replacing a call for potentially time-consuming, difficult, and costly objective reform—e.g. legislative safe harbors or an enhanced set of presumptions—with an explicitly subjective grant of discretion within the subject will itself, Prof. Toomey also forces readers to confront how much intent-driven freedom the law is actually willing to afford to those who write them.
“I hereby grant my executor the power to change my will to align with my most recent and likely intent; I love and trust my executor, and really, really mean it.” Readers might be torn over how to react, and that is exactly the point. Not all scholarship need yield incontrovertible answers to all questions or proffer unassailable cures. Reading that sort can feel like being shoved through a cow chute with no room for creative detour or wonder. There are many questions prompted (and many but not all answered) here, which is part of why the piece keeps singing in the ear.
But while it is always critical to foreground Testator Intent, it is also worth considering what it is set against and at what cost. Assuming the travesty or at least peril of expired intent: who is and should be its least cost avoider, and how; might directed trusts, careful decanting, or outright gifts coupled with hopes to the loved and trusted work as well or better; could this “cheap, fast and easy” intent-based proxy create more problems than it solves, more litigation than it avoids, more costs than it saves, a lengthier process for probate, just another technique for the undue who overstep. What effect could this hold for Parol Evidence, the Statute of Wills, the Statute of Frauds, the secret trust; would requiring periodic re-ups for or imposing a shelf life upon wills feasibly avoid or ameliorate matters, or at least, improve estate planning; could this sort of blanket clause absolve lawyers and clients from the hard work of doing better? Whether or not one agrees with its conclusion, that Executor Discretion evokes as well as answers, and inspires ongoing thought, is part of its power and its joy.
Discretion simultaneously suggests future action and traces back to intent, itself never unabridged. No matter how clearly expressed, testators cannot demand crimes or flout public policy. The spouses they exclude still may elect; the guardians they name are only suggestions; the personal representatives they select will fail if disqualifying facts emerge; the abuse of discretion they excuse is a nullity and the murder they excuse is, too. But one wonders what the law should allow testators to both want and accomplish in extension of self, and how far their power to extend discretion, post-death, should extend. This particular grasp—a grant of testamentary authority to the executor—may well exceed its reach. But agree with Prof. Toomey or not, the care with which he considers outcomes and constructs his case is undeniable. This suggests that outright rejection even to consider his proposal may rest more with basic distrust of human nature than with that which he has built. How much testamentary freedom is free? The conversation is worth having.
Cite as: Katheleen Guzman,
Discretioners, JOTWELL
(March 28, 2025) (reviewing James Toomey,
Executor Discretion, 110
Iowa L. Rev. __ (forthcoming, 2025), available at SSRN),
https://trustest.jotwell.com/discretioners/.
Feb 24, 2025 Victoria J. Haneman
Would you rather have government decisions made by artificial intelligence or by a presidential administration that you loath? The concept of the villainous AI overlord became part of the zeitgeist with the Terminator movie franchise, but the reality is that the greatest threat to the future of humanity may be itself. AI decision-making has demonstrated remarkable reliability and efficiency, often outperforming human decision-making in various domains. The ability of AI to quickly process immense amounts of data, identify patterns, and make decisions based on objective analysis minimizes the impact of biases and emotions that can cloud human judgement. As AI technology continues to progress, there is a growing possibility that AI may eventually displace humans in governing and decision-making positions. It is estimated that AI may soon replace 300 million jobs, or 9.1% of jobs worldwide. Jobs with a higher level of exposure to AI tend to be in higher paying fields, where education and critical reasoning skills are required. Prof. Lee-ford Tritt’s article, The Use of AI-Based Technologies in Arbitrating Trust Disputes, considers whether it is appropriate or feasible to supplant or support human decision-making with AI technology in the context of trust litigation.
This is less science fiction and more science fact, as China has already started to use AI-based courts to resolve legal disputes. The central question undergirding Prof. Tritt’s examination is the degree to which the experience of being human should control or guide dispute resolution. AI has several possible applications to arbitration, generally. It may assist arbitrators in the performance of their job, with tasks such as case management and fact gathering. AI may also assist with decision-making. One study demonstrated that artificial intelligence is able to predict the vote of individual Supreme Court justices with more than 70% accuracy, which far exceeds the reliability of human predictions. AI is less accurate with predictions involving factually similar cases, which may mean either that AI is less likely to identify legal nuances or that human factfinders are inconsistent in the application of the law. If the latter, we may find that AI decision-making is more equitable because of the precision with which the technology applies the law. We may also find that running our decisions through AI to ensure the fairness of the decision is a useful and supportive tool.
Professor Tritt’s article is the first to consider the role that AI may play in arbitration within a specific area of law. Trust disputes may be external (disputes between trustee and creditors) or internal (disputes between settlor, beneficiary, or trustee), with the latter arising far more frequently. Internal trust disputes involve either administration or management of the trust, or the validity of the trust itself. Trust administration issues may involve questions of fiduciary breach (care, loyalty, or impartiality) or actions to modify or reform the trust. The disputes often involve “pre-trial motions, a cascade of witnesses, and a mountain of documentary evidence,” as well as separately represented parties. As with any disputes involving family and money, emotions run high. Prof. Tritt notes that AI may not be ideally suited to resolving these types of claims.
The article stands out by focusing on the compatibility of AI-based arbitration in trust disputes, offering insights that could inform future developments in this area of law. By highlighting the potential challenges and opportunities of integrating AI into trust dispute resolution, the article makes a unique and valuable contribution to the broader discourse on AI in legal decision-making processes. But perhaps the most important contribution made by the article is to frame a nuanced discussion of supportive, substitutive, and disruptive use of AI. While the idea of AI governing society and assuming decision-making roles raises ethical concerns and challenges related to accountability and transparency, the potential benefits of leveraging AI merits careful consideration and exploration. Professor Tritt’s article is the start of an important conversation.
Jan 27, 2025 Solangel Maldonado
Fetal personhood statutes—laws that grant the same legal protections to embryos as to live children—have been the subject of significant discussion since the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization, which overturned the federal constitutional right to abortion. The impact of these laws was magnified by the Alabama Supreme Court’s recent decision in LePage v. Ctr. for Reprod. Med., P.C., holding that frozen embryos are children for purposes of Alabama’s Wrongful Death of a Minor Act and must be treated the same as children born alive regardless of “developmental stage, physical location, or any other ancillary characteristics.” While the impact of fetal personhood statutes on abortion, contraception, and assisted reproduction may be rather obvious, their effects on trusts and estates law or tax law are more speculative. Yet, this is the focus of Bridget Crawford’s and her students’ (Alexis C. Borders and Katherine Keating) article, Unintended Consequences of Fetal Personhood Statutes: Examples from Tax, Trusts, and Estates, which demonstrates how fetal personhood laws have the potential to destabilize the transmission of property at death, specifically the rules governing intestacy, trust administration, trust duration, and the generation-skipping wealth transfer tax.
The article demonstrates how fetal personhood statutes might disrupt settled understandings of who may inherit under intestacy laws. It points out that if an embryo is treated as a person under the rules of intestacy, then it has the same rights to inherit from a parent and through a parent (from a grandparent, aunt or uncle, for example) as a living child. The article illustrates how such a right could present challenges when distributing an intestate decedent’s estate since it might require determining whether any surviving family members had pregnant partners when the decedent died. It explains:
[A]ssume that Helen, a widow, dies intestate survived by her adult daughter Jane and her adult son Joe. At the time of Helen’s death, Joe’s partner is pregnant with their first child. Just a few days after Helen dies, Joe himself is killed in a tragic accident. Helen’s intestate heirs are Jane and the zygote-embryo-fetus in gestation. Unless the personal representative inquires whether Joe’s partner was pregnant, the personal representative might erroneously believe that Jane is Helen’s sole surviving heir and distribute the entire estate to Jane. (P. 1178.)
The article further illustrates the potential inconsistency created by fetal personhood statutes that confer greater rights to an embryo than to a living child who was posthumously conceived through assisted reproduction. Most states do not recognize a posthumously-conceived child as the child of the deceased parent for purposes of intestacy based solely on a genetic connection but may instead require evidence that the decedent affirmatively consented to posthumous conception and to financial support of the child. In contrast, states have yet to address whether similar rules and restrictions would apply to embryos.
The article further illustrates the challenges that fetal personhood statutes may create for trust administration. It explains that if a trust requires payments to the grantor’s descendants, and embryos have the same rights to distributions as descendants born alive, the trustee may need to discover the existence of all of the embryos (including frozen embryos that have not been implanted) before making payments. The trustee might also need to figure out how to make distributions to an embryo without the benefit of instruments available to transfer property to a child, such as the Uniform Transfers to Minors Act, which envision payments to a child born alive.
The article also uncovers how fetal personhood statutes could extend well-settled time limits on the duration of a trust if a frozen embryo (which may remain frozen in perpetuity) is treated as a “life in being” for purposes of determining how long the trust can continue. Thus, fetal personhood statutes may facilitate the creation and maintenance of perpetual trusts and allow wealthy families to avoid paying taxes due when the trust terminates. The article illustrates how fetal personhood laws could also facilitate avoidance of the generation-skipping transfer tax.
After outlining the potentially far-reaching and unintended effects of fetal personhood laws, the article considers several reforms to limit their reach. While it suggests that legislators should amend their state’s fetal personhood statute to prevent the destabilization of well-established rules governing the transmission of property at death, it acknowledges that given political constraints, such action is unlikely. Consequently, the article turns to the courts and proposes rules of construction that judges should adopt to limit the effect of fetal personhood statutes on inheritance laws and trust administration. Specifically, it proposes that, unless a contrary intent is expressed in a will or trust, judges should conclusively presume that the testator or settlor/grantor did not intend for an embryo to be a beneficiary. The article further proposes that a frozen embryo not be treated as a measuring life for purposes of determining the time limit on the duration of the trust. Finally, the article addresses embryo adoption which, in my view, may increase if more states adopt fetal personhood laws and prohibit destruction of embryos, thereby forcing individuals with more embryos than they plan to implant to either freeze them indefinitely or donate them to individuals seeking to adopt and implant them. The article proposes that judges treat an embryo who is adopted before it develops into a living child as the child of the adoptive parents for purposes of the generation-skipping transfer tax.
Fetal personhood laws threaten the lives of pregnant persons and deny individuals seeking to grow their families access to assisted reproduction. Given these dire effects, readers may wonder why Crawford, a well-established feminist scholar, would choose to focus on the trust and estates consequences of these laws rather devote all of her energies to advocating for eradication of fetal personhood laws. The answer—pragmatism— is one that more scholars should adopt if they want their work to have an impact regardless of the political environment. Dobbs is unlikely to be overturned in the foreseeable future and fetal personhood laws are unlikely to be abolished. Therefore, as the article explains, “drawing attention to the unintended, far-reaching, and disruptive consequences of fetal personhood statutes is a pragmatic and parallel (if incrementalist) line of advocacy and scholarship advancing gender justice.” (P. 1184.)
I will be teaching trusts and estates for the first time in almost a decade and have been thinking about how to engage my students—the majority of whom are in their last semester of law school and are mainly taking the course for the bar exam. Students do not expect to discuss fetal personhood laws in a trusts and estates course, but I plan to use this article to illustrate how the laws they are discussing in courses on reproductive justice, family law, constitutional law, health law, and gender and the law, for example, also affect estates and trusts. I am confident students will be quite engaged that day.
Dec 9, 2024 David Horton
Adam J. Hirsch,
Beyond Privity of Blood: Intestacy and Charity, 76
UC L.J. __ (forthcoming, 2025), available at
SSRN (March 16, 2024).
Adam Hirsch’s new article, Beyond Privity of Blood: Intestacy and Clarity, argues that intestacy statutes should sometimes give a share of the decedent’s property to charity. To be honest, when I read his abstract, I found the idea far-fetched. But Professor Hirsch is one of the most-cited scholars in the field for a reason. By the time I’d finished scrolling through his draft, I’d seen the appeal of his creative thesis.
Calls for intestacy reform are common. Some authors have suggested that intestacy laws, which typically favor spouses and children, no longer reflect what most decedents want. Others have explored the idea of “personalizing” distributions based on factors such as the decedent’s gender, age, or lifestyle choices. Both proposals urge lawmakers to use empirical evidence to update the rudimentary assumptions that underlie intestacy regimes.
Professor Hirsch takes this debate in a surprising new direction. He starts with a great hook: if intestacy laws are supposed to carry out decedents’ preferences, and testators often leave money to charity, why don’t intestacy statutes follow suit? He then argues that policymakers should consider allocating a portion of the estate to a charity when a decedent fits one or more of the following descriptions: they were (1) wealthy, (2) had no kids, (3) donated to charities during life, or (4) left no known relatives.
Professor Hirsch supports these claims with findings from surveys of dispositive preferences. For example, tax data reveals that, at least in some years, testators worth at least $20,000,000 gave a staggering average of 49% of their property to charity. Likewise, the Health and Retirement Study, which polls 20,000 Americans, reported that nearly half of all respondents aged 55 or over who owned $1,276,500 or more and had no children made charitable bequests. In the same vein, researchers discovered that 50% of childless individuals who’d recently donated $500 or more to charities also named charities as beneficiaries in their wills. And finally, a 2018 Qualtrics study determined that a healthy plurality of people making over $100,000 per year would rather that charities inherited their assets than friends or distant kin. This data supports the counterintuitive conclusion that, for intestate decedents in Professor Hirsch’s four cohorts, allocating a share to charity would be majoritarian.
So how would the probate court select charities? Professor Hirsch’s ideas here are especially imaginative. He explains that people typically give to the same causes throughout their life. Thus, he proposes delegating the task of identifying which charities should be heirs to the administrator of the estate, who, after all, is already duty-bound to pore over the decedent’s finances.
Professor Hirsch also observes that there is precedent for permitting charities to be intestate heirs. He notes that twenty-eight American jurisdictions transmit escheated property to benevolent institutions. Some states even tailor these rules to specific decedents: for instance, Massachusetts provides that escheated property left by certain servicemembers flow to state-operated veterans’ homes. Accordingly, his proposal would be less of a departure than it first seems.
Finally, Professor Hirsch observes that states once excluded nonmarital children, “half-blooded” siblings, and even widows. Thus, as he puts it, “[c]haritable heirs could be only the beginning.”
Editor’s note: Reviewers choose what to review without input from Section Editors. Jotwell Trusts & Estates Section Editor Adam Hirsch had no role in the editing of this article.
Cite as: David Horton,
Charities as Heirs, JOTWELL
(December 9, 2024) (reviewing Adam J. Hirsch,
Beyond Privity of Blood: Intestacy and Charity, 76
UC L.J. __ (forthcoming, 2025), available at SSRN (March 16, 2024)),
https://trustest.jotwell.com/charities-as-heirs/.
Nov 29, 2024 Sergio Pareja
Although my law practice prior to entering academia focused on representing the uber wealthy, my recent interests focus more on preserving wealth in families of limited means. Professor Danaya Wright has written a thought-provoking article dealing with this issue.
Part I of Professor Wright’s article compares the stories of two decedents from Florida, Arthur Paulson and Mary Artis. Arthur and Mary’s stories highlight systemic inequalities in the preservation and transfer of wealth for working-class families. Arthur faced significant wealth erosion due to personal setbacks and economic downturns, but he was able to overcome some of those obstacles during life by tapping into his home equity by refinancing his home. In contrast, Mary never tapped into her home equity during life and thus managed to preserve substantial illiquid wealth, but the full value of her accumulated savings did not pass on to her heirs because they did not probate the property after Mary’s death. The latter outcome is unfortunate, but often happens because probate is viewed by laypersons as a complex and expensive legal process. Reforms like the Uniform Real Property Transfer on Death Act (URPTODA) and Uniform Partition of Heirs Property Act (UPHPA) improve the situation, but they do not fix the problem.
Part II of the article discusses the issue of “heirs property.” From the moment a person dies until property is re-titled in the name of beneficiaries, the decedent’s real estate is in heirs property status. As Professor Wright explains, this means that the owner of record is deceased, and the new owner has not received title to the property. This creates a legal state of limbo. Land left in this status is particularly vulnerable to loss through legal actions like tax sales or physical damage from natural disasters in the absence of insurance.
Part III of the article addresses ten barriers that prevent heirs from clearing title to real property by probating an ancestor’s estate, thereby prolonging heirs property status. Professor Wright proposes solutions in each of the ten situations.
First, she discusses the prevalence of oral agreements regarding property inheritance, particularly homes inherited by families of modest means. Many families operate under oral understandings about who will inherit what property after a parent’s death. Professor Wright suggests that while legal statutes typically require written evidence for property agreements, equitable principles like constructive trusts might justify honoring oral agreements in court, especially when injustice would otherwise result.
Second, Professor Wright discusses adverse possession and its application in property law, contrasting it with the rights of heirs to inherit property through the probate system. In particular, she criticizes the disparity between adverse possession and intestacy laws: strangers can gain title relatively quickly, while heirs in possession face restrictions such as a presumption that they aren’t adversarial towards co-heirs unless they explicitly oust them. Professor Wright proposes reforms, such as allowing heirs in possession to claim title against other heirs after a certain period of time.
Third, Professor Wright discusses marketable title acts and laws governing stale uses and reversions, which are legal mechanisms designed to simplify property ownership and promote marketability of land titles. These laws automatically terminate certain future interests in real estate, such as remainders and reversions, after a specified period if they are not properly re-recorded or challenged in court. Professor Wright suggests applying similar principles to simplify ownership disputes involving heirs property. She suggests that an heir should be able to obtain title to the land without opening a formal probate proceeding, such as by signing an affidavit as proof of uninterrupted possession, tax payment, and maintenance for a set period of time. Co-heirs would then have a limited time to challenge this title.
Fourth, Professor Wright discusses the complex relationship between property taxes and ownership rights. She highlights how payment of property taxes can create a sense of entitlement to ownership among heirs in possession. In many states, payments of property taxes are crucial for maintaining ownership because any delinquency can result in a tax sale. Professor Wright suggests that the heir in possession should inherit a larger share of the real property (i.e., corresponding to the heir’s proportional contribution of property tax payments), thereby incentivizing tax payments and reducing the risk of property loss from foreclosure.
Fifth, Professor Wright discusses statutes of limitation that apply to the probating of wills. She explains that while many states have statutes requiring wills to be probated within a certain timeframe after a decedent’s death, those statutes often do not adequately account for special considerations that apply in heirs property cases. Professor Wright proposes a selective application of statutes of limitations that cuts off claims only for will beneficiaries who have neglected responsibility for maintaining the property rather than penalizing those actively involved in the financial and physical upkeep of the home.
Sixth, Professor Wright focuses on the complexities and issues surrounding homestead protections. Certain states offer homestead protections that include property tax discounts and safeguards against forced sales and unsecured liens. However, these protections can be lost if heirs fail to promptly inform tax authorities of changes in property ownership. This oversight can lead to higher property taxes and penalties when the property is eventually probated. Professor Wright suggests simplifying the process of preserving and claiming homestead protections for heirs in possession who are paying taxes but have not yet probated the property.
Seventh, Professor Wright considers the issue of transmissible remainders, and, in particular, cases in which fractional ownership of real property has descended through the unprobated estates of multiple decedents (sometimes involving multiple generations and families). To simplify the untangling of titles in such cases, Professor Wright suggests that heirship should be determined at the time of distribution rather than at the time of the decedent’s death.
Eighth, Professor Wright focuses on the form of title that heirs must take under intestacy and the potential benefits of adopting joint tenancy as a default rule instead of tenancy in common. Under current laws in all states, when property passes by intestacy, heirs take title as tenants in common. Professor Wright argues that defaulting to joint tenancy could prevent further fractionation of inherited property because, upon the death of a joint tenant, their share automatically passes to the surviving joint tenant(s).
Ninth, Professor Wright emphasizes the need for reforms that streamline the notice process by using modern technology and administrative practices that help settle property titles efficiently while respecting the rights of all heirs involved. Her proposal aims to simplify the process for heirs to assert their rights without the necessity of hiring legal representation. This could include filing a claim directly with a property appraiser’s office or similar administrative body.
Tenth, Professor Wright questions the necessity of judicial supervision in probate administration and suggests streamlining the process by authorizing a simpler affidavit of heirship option. Most states have a summary administration process for small-value estates. However, many states exclude estates with real property from this simplified process. Professor Wright argues that states should consider expanding simplified procedures to include estates with real property.
Professor Wright concludes by advocating for reforms that enhance access to legal services, simplify probate procedures, and provide educational tools to empower heirs, all with the ultimate goal of facilitating the transfer of generational wealth more efficiently and equitably. She also proposes excellent model legislation that states could adopt to facilitate the orderly probate of real property for those estates in which the real property is the only asset requiring probate. Professor Wright has written an excellent, thought-provoking article.
Nov 13, 2024 Kent D. Schenkel
Brian Galle, David Gamage & Darien Shanske,
Money Moves: Taxing the Wealthy at the State Level, 112
Cal. L. Rev. __ (forthcoming, 2025), available at
SSRN (January 14, 2024).
Polls show that a majority of Americans believe that inequality is increasing, and that taxes should be raised on the very wealthy. But income tax rates on high earners remain historically low, and estate planning techniques that minimize the reach of federal transfer taxes proliferate. What about state-level taxation? Conventional wisdom holds that progressive state tax regimes backfire by triggering wealth flight to low-tax jurisdictions, leading many states to stick with regressive sales and property taxes. But the consequences of progressive state tax policy are misunderstood, and states have many options, write Brian Galle, David Gamage and Darien Shanske, in their comprehensive, informative and practical article, Money Moves: Taxing the Wealthy at the State Level.
The tax theory of “fiscal federalism” holds that only the federal government should impose progressive taxes to fund government benefits. Fiscal federalists argue that if individual states undertook to create progressive tax regimes, the wealthy would just relocate to other states, creating “horizontal externalities.” Therefore, the federal government has put in place its more progressive income tax, which enables it to return tax revenues to the states in the form of grants or other types of revenue sharing.
But according to Galle, et al., there is no empirical support for the view that progressive state-level taxation triggers migration to tax-friendly states. In fact, they write, it’s money that usually moves while taxpayers largely stay put. And anyway, fiscal systems should be “federalism neutral.” This occurs when “voters and businesses are indifferent to whether policies are funded at the national level or instead by state or local governments. That is, political players have no reason to think that they will pay more or pay less based on which government is imposing the tax.” But since the federal tax system is generally more progressive than that of the states, the wealthy favor tax policy devolving to states. It need not be this way.
What challenges do state lawmakers face when implementing progressive tax policy? The authors helpfully borrow the descriptive term “exploitive mobility” from Julie Roin. It refers to the jurisdictional flight of taxpayers or their money that allows them to “extract benefits from one jurisdiction while escaping the costs of providing those benefits.” Exploitive mobility violates the normative principle that “the jurisdiction in which wealth or income is accrued should have the priority claim of taxing that wealth or income.” The authors further break down exploitive mobility into “exploitive migration” (physical relocation of the taxpayer) and “exploitive money moves” (relocation of “money”).
Exploitive migration takes advantage of the well-known “realization rule,” which taxes the appreciation in the value of property only when the property is sold, and never before this “realization event.” So, a resident of State X, which has an income tax, acquires property and allows it to appreciate while living in state X, and enjoying the state’s benefits. The resident then moves to State Y, which has no income tax, and sells the property there (or dies holding it), escaping the costs imposed by State X.
To combat this technique, the authors advocate taxing the owner on the property’s periodic appreciation. The recommended approach, called a “mark-to-market” tax, requires the property owner to pay a tax on the value of any appreciation in the property that occurred during the tax period. A common criticism of a mark-to-market tax is that it is difficult to measure the value of many types of property in the absence of an arm’s-length sale. Ever practical, the authors have a proposal to deal with this problem. The taxpayer can give the taxing authorities an IOU rather than a cash payment. The IOU comes due when the asset is sold (or, presumably, when the taxpayer dies), and interest on the tax debt is due at the asset’s appreciation rate. The debt is secured by “notional equity,” a proportional non-voting share in the asset. As an added feature, the taxpayer can be required to consent to the state having jurisdiction to collect the tax liability in the future.
The authors also suggest a state-level wealth tax. Here again, they pay heed to the normative principle of assigning taxing authority to the jurisdiction where wealth accumulated. They point out that since wealth taxes are “backward-looking” (wealth is built up over a period of time and taxed periodically), residency for purpose of the tax should be “phased both in and out, symmetrically, over a period of multiple years. So, their wealth tax proposal includes something called “phased residency rules.” For example, a bill in the California legislature uses a four-year phase-in and phase-out period. New residents only have one-fourth of their wealth taxed in the first year, then half in the second year, then three-fourths, and then all. A migrant out would be taxed on three-fourths of their wealth in the year after their move, then one-half, and then one-fourth, with nothing thereafter. The authors also suggest that the phasing rules could be a default fallback to “equitable apportionment” rules, that would give the taxpayer or the government room to argue for lesser or greater apportionment than the default rules provide.
When the tax base is value, volatility can be a problem. To deal with this, the authors propose that while all gains should be treated as realized in every year, a percentage of them should be unrecognized. This spreads out fluctuating gains over time. They also propose making partial non-recognition elective. Taxpayers choosing to defer recognition would be required “to agree that they would continue to report and make payments on the unrecognized balance,” regardless of whether they remain in the state or migrate out. States that implement both wealth and mark-to-market reforms could also make the wealth tax payments creditable and refundable against the mark-to-market reforms.
What about exploitive money moves? As mentioned, taxpayers can, through a number of techniques, take advantage of low tax jurisdictions without physically relocating to those jurisdictions. Instead, they can move their “money” to these jurisdictions, which is often just the movement of records and paper. Although this problem seems less tractable, the authors have a number of ideas to combat it, but here I will mention just a few.
Money can be moved to trusts. Trusts are problematic because, as the authors note, they “replicate all the estate planning strategies offered by gifts, but with greater flexibility, and the benefit of generous IRS rulings that often allow for even better estate and gift tax results.” The Supreme Court, in a 2019 case called Kaestner, held that a state’s attempt to tax a trust based only on the fact that a discretionary trust beneficiary resides in the state violated due process. According to Kaestner, the beneficiary must have “some degree of possession, control, or enjoyment of the trust property or a right to receive that property before the State can tax the asset.” This case confirmed the presence of a large loophole through which taxpayers can slip, avoiding state taxation of wealth that sustains a currently discretionary trust beneficiary who benefits from state services. The settlor need only ensure that the trustee resides in a low or zero-income tax jurisdiction. The beneficiary can even borrow against the trust assets while avoiding state income taxes in the state of residency.
The authors point out that Kaestner seemed to approve of California’s “throw-back tax.” This tax applies “when a beneficiary ‘vests,’ or becomes entitled to, the trust assets.” Importantly, the tax includes an assessment “for any prior years when the beneficiary lived in California.” A loophole to this tax, however, is that the trust beneficiary must live in the jurisdiction in the year when the trust interest vests. “If the trust beneficiary moves to Nevada, vests, then moves back to California, there is no throwback.” Of course, from that point forward it would seem that the beneficiary could be taxed in California on the income generated by the vested trust interest.
They also present ideas for taxing “’nonqualified’ deferred compensation plans” that are not subject to the contribution limitations and nondiscrimination rules of “qualified plans,” and grant highly compensated employees “unlimited” deferral of taxes. They maintain that states can subject taxpayers to wealth taxes on amounts set aside under these plans. The phased residency scheme discussed above should also work here.
In this review, I have attempted to highlight just some of the suggestions in the authors’ box of “anti-avoidance tools,” that would serve to increase the progressivity of state taxes. They have clearly been working on these ideas for some time, and have even helped design legislation, pending in some states, using some of the techniques highlighted here. Given that constituents are calling for a response to increasing inequality by way of more progressive tax policy, their ideas are timely and constructive, and recommended reading for tax scholars and policymakers alike.
Cite as: Kent D. Schenkel,
Practical Considerations for State Taxation of Wealth, JOTWELL
(November 13, 2024) (reviewing Brian Galle, David Gamage & Darien Shanske,
Money Moves: Taxing the Wealthy at the State Level, 112
Cal. L. Rev. __ (forthcoming, 2025), available at SSRN (January 14, 2024)),
https://trustest.jotwell.com/practical-considerations-for-state-taxation-of-wealth/.
