Trust settlors transfer gifts to trustees, but intend to benefit only the trust’s beneficiaries. So trust law ensures that trustees, who legally “own” trust property, are constrained in their actions by legal rules and fiduciary standards. But trusts are also malleable, subject to customization to achieve a settlor’s particular purposes. And that is where, according to Adam Hofri-Winogradow, in his article, “The Irreducible Cores of Trust Obligations,” a trustee’s obligations rest on “an enduring contradiction.” Hofri-Winogradow points out that trustees’ burdens include both duties and liabilities, but that trust settlors sometimes either explicitly exclude certain of these in the trust instrument, or “undermine” them by giving nonfiduciary third parties the power to direct actions of the trustee.
It is easy to see why a complete elimination of a trustee’s legal constraints would by extension eliminate the trust as a useful mechanism. Indeed, a trust without any fiduciary constraints is not a trust at all, it’s simply an equitable charge. But what trustee obligations are essential to the nature of a trust? This is a subject of considerable debate in the U.S. and abroad. Hofri-Winogradow focuses on this “irreducible core” of a trustee’s obligations, and maintains that attempts to find a single essential core are unstable within and across global jurisdictions. Given the many jurisdictions and contexts in which trusts are used, his article represents a fresh perspective on this issue.
American trust law does not use the term “irreducible core,” and instead styles the question as one of “mandatory” versus “default” provisions in trust law. In the U.S., trust settlors, who are given wide latitude to craft trusts as they choose, may exclude a default provision of trust law but are not free to exclude mandatory ones. Most U.S. trust law is default law, but the Uniform Trust Code (UTC), adopted in over half of U.S. jurisdictions, spells out the few mandatory rules that settlors cannot modify or eliminate. However, some of the UTC’s mandatory rules are only suggested, and most adopting states have left these out. Courts have taken differing views of whether certain types of attempts to modify trustees’ obligations and beneficiaries’ rights impinge upon mandatory rules.
Hofri-Winogradow’s article does not focus on U.S. law, but instead offers a comparative perspective across various common law jurisdictions, including also England, Canada, Australia, New Zealand, Hong Kong, Singapore, and Bermuda. But the article’s value for the reader in the U.S. lies in its summary overview of approaches across jurisdictions and contexts, and his insight that the contexts of the cases he examines cause courts to show certain “normative tendencies” that, in turn, reveal core aspects of trusteeship. He suggests that these normative tendencies point to the value of a separate core for at least three different categories of trusts.
The one that I find most interesting where U.S. trust law is concerned is the category of “non-settlor-controlled family trusts using remunerated trustees, some or all beneficiaries of which are minors or otherwise vulnerable.” So-called “silent trusts,” for example, which seem to be gaining popularity in the U.S., would generally fit into this category. Silent trusts typically exclude certain trustee reporting and disclosure requirements, often straining mandatory trust rules in the process. According to Hofri-Winogradow, “core” mandatory rules are important for at least two reasons. First, they bring about “order and predictability” in judicial decisions dealing with settlors who expressly opt out of certain duties or liabilities normally imposed on trustees or who enable the “undermining” of same. Hofri-Winodgradow writes that “[w]ithout an established irreducible core, . . . a large and undefined” number of trustee duties “may be disapplied. An irreducible core provides a floor for such disapplication.” Second, they maintain the trust as a vehicle for benefitting trust beneficiaries.
In the U.S., the UTC’s mandatory rules (the UTC’s “core”) include “the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and interests of the beneficiaries,” as well as certain notification and reporting requirements. Although Hofri-Winogradow doesn’t go into this, the UTC has placed some of its notification and reporting requirements in brackets, conceding that an enacting jurisdiction may omit them. Most enacting U.S. states have either modified or deleted these provisions from their trust codes.
Outside the U.S., mandatory rules vary across jurisdictions and contexts., Hofri-Winowgradow briefly reviews rules in some of these as well as the views of certain common law scholars on this issue. He also helpfully provides a chart that summarizes his findings. While observing considerable disagreement among scholars and jurisdictions, Hofri-Winowgradow identifies a “largely agreed core” that includes “trustees’ duties to know and perform the trust terms if any, and to act in good faith for the benefit of the beneficiaries.” This finding seems consistent with the UTC’s approach.
Hofri-Winogradow divides court decisions across jurisdictions into three categories of cases that speak to an irreducible core of trusteeship: (1) those in which courts validate trust provisions that opt out of trustee duties or liabilities (“thin core” findings), (2) those in which courts set aside or invalidate trust provisions that opt out of trustee obligations, and (3) those in which courts “declar[e] or imply[] trustee duties that do not appear in the trust instrument before the court, or that have been expressly excluded.”
To illustrate the third category, Hofri-Winowgradow presents a court decision from North Carolina, a jurisdiction that omitted mandatory (but bracketed) accounting and reporting requirements from its version of the UTC. In that case, the court permitted minor beneficiaries to conduct discovery necessary to enforce their rights under the trust, “any contrary provision in the trust instrument notwithstanding.” According to Hofri-Winogradow, “the majority bypassed both the settlor’s choice to exempt the trustee from the duty to provide beneficiaries with trust accounts or reports and the legislature’s choice to make that duty default, rather than mandatory, law.” This is true, to a point. But, in so doing, the majority relied on the non-waivable provision of the UTC and North Carolina trust law mentioned above, which requires a trustee to act in good faith and in the interests of the beneficiaries and recognizes the court’s power to take action in the interest of justice. Nonetheless, Hofri-Winogradow’s summary is apt: the court essentially found that discovery could be compelled due to what Hofri-Winogradow refers to as “the irreducible core of trustee obligations.”
Hofri-Winogradow looks for normative tendencies in the cases he reviews in order to gain insight into court’s responses, which he finds more helpful than “the doctrinal path.” His proposals are not particularly detailed, but he couches them as “a blueprint for further development.” For instance, he sees a need to enhance protections for trust beneficiaries and proposes a core that would subject trustees to “a mandatory duty of care.” His instincts are sound and his normative approach is insightful: trust law depends on some agreement as to a minimum set of mandatory or “core” legal rules. His article represents the beginning of an important discussion about the essential obligations of trusteeship.
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