Professor Daniel B. Kelly’s well-researched and carefully reasoned article discusses the traditional justifications for restricting testamentary freedom, not only from a legal perspective, but also an economic or functional one. The article first discusses the structure and goal of American succession law and the relevance of distinguishing between the ex ante perspective versus the ex post perspective. Next, the article explains the economic justifications for restricting testamentary freedom. Finally, the article critically analyzes the legal limitations on testamentary freedom.
Professor Kelly begins by noting the fundamental principle of American succession law—testamentary freedom. One justification for the law generally deferring to owners of property in deciding how to utilize or transfer their property is that it promotes social welfare. An advantage of testamentary freedom is that it aligns an individual’s “incentive to work, save, and invest with what is socially optimal,” which would facilitate long-term capital accumulation and productivity. Another advantage of testamentary freedom is that, in many situations, the testator is likely to be better informed than legislators or judges on how best to distribute the testator’s property. Finally, Professor Kelly notes that testamentary freedom may benefit familial relationships. However, even with all these advantages, a system based on testamentary freedom does not always coincide with the overall goal of advancing social welfare, at least in part because the law sometimes fails to incorporate the ex ante perspective. Consequently, the issue arises of when should the courts facilitate testamentary freedom, even though doing so permits a testator to assert “dead hand” control, and when should the courts restrict testamentary freedom, even though doing so means intervening in the testator’s disposition of property.
To shed new light on this perennial issue, the article delves into the importance of distinguishing between ex ante and ex post analysis in the context of succession laws. Ex ante analysis looks at an event or dispute before the fact (forward looking) while ex post analysis looks at an event or dispute after the fact (backward looking). Professor Kelly notes the importance of this distinction because there is often a risk, among courts as well as legislators and law reformers, of ignoring or discounting ex ante considerations and adopting an ex post analysis. Professor Kelly notes the dangerousness of ignoring the ex ante perspective. In general, ex ante analysis is superior because, unlike an ex post perspective, the ex ante perspective “incorporates the effects of legal rules on incentives and avoids the trap of hindsight bias.” Thus, in the context of succession, ex ante analysis can assist in determining the circumstances when the legal system should step in on behalf of individuals not otherwise entitled to the testator’s property.
There are three justifications for restricting testamentary freedom: (1) imperfect information, (2) negative externalities, and (3) intergenerational equity. First, the testator is limited in foreseeing the future and the circumstances or events that could arise after his or her death; thus, legislators and courts assert that they should have the power to step in to modify a gift because of unforeseen circumstances. Second, the testator may attempt to transfer property in a way that entails “externalities” (external costs), which would cause the donative intent to be inconsistent with maximizing social welfare. Third, the testator could, by transferring property or imposing certain conditions on its use, neglect the utility of future generations, creating an intergenerational inequity.
Professor Kelly points out that although many of the legal restrictions imposed on testamentary freedom are consistent with these economic justifications, many legal doctrines have overlooked the incentives of testators and other parties and fallen into the “trap of hindsight bias” by failing to incorporate the ex ante analysis, which could assist in maximizing social welfare. For example, on the issue of trust modification, the English rule allowing modification of a trust if all the beneficiaries consent may be superior ex post. But, as Prof. Kelly argues, the American rule disallowing modification if so doing so would violate a “material purpose” of the trust might be justifiable ex ante. Moreover, the recent liberalization of the American rule in some states such as California may have a legitimate functional justification: namely, the settlor’s imperfect information.
However, law reform efforts that allow courts to modify a trust merely because the beneficiaries’ ex post interests outweigh the settlor’s material purpose may be problematic because the potential for intent-defeating intervention ex post can create perverse incentives for the settlor ex ante, including incentives that ultimately may hurt the beneficiaries themselves. (Compare, for example, Uniform Trust Code § 412(a) which allows a court to modify a trust because of “unanticipated circumstances” but requires that the modification be made “in accordance with the setttlor’s probable intention.”) Professor Kelly also notes that court intervention is not always warranted and intervention depends on the specific legal doctrine and the effects that intervention could have on the parties’ incentives.
Professor Kelly astutely concludes by stressing that if testators believe legislatures and judges will not facilitate their intent, testators are likely to be less happy, accumulate less property, and alter inter vivos gifts. Testators will gain the “forbidden fruit” of knowledge that the law often ignores their donative intent to benefit particular donees who are not the intended objects of their bounty. This is likely to harm not just the testators but donees as a class. In reality, giving testators the ability to exercise a certain degree of “dead hand” control actually may benefit donees in the long run, rather than necessarily restricting the testators’ freedom based on ex post considerations or categorically denying their ability to control property after death.
I highly recommend this stunning article to anyone interested in this insightful take on American succession laws. Although succession laws have been around for a while, the issue of how much control the legal system should afford the living versus the dead is still a hot topic, and Professor Kelly provides a unique, functional, and beneficial perspective for analyzing and potentially resolving this thorny issue.
[Special thanks to the outstanding assistance of Eva Hung, J.D., Texas Tech University School of Law for her assistance in preparing this review.]
* Paraphrased from Planet of the Apes (1968). Note that this epigraph may inaccurately suggest that Prof. Kelly is making a libertarian argument against restricting testamentary freedom in all circumstances, rather than an economic/functional argument for restricting testamentary freedom only in some circumstances. Nonetheless, I find it an apt epigraph as I personally am suspect of restrictions on testamentary freedom which override the testator’s intent when that intent is not illegal or against unarguable public policy.