Anti Trusts, Reforming an Excessively Flexible Legal Tool
37 Pages Posted: 3 Sep 2021 Last revised: 4 Sep 2021
Date Written: August 9, 2021
Trusts are one of the most flexible legal tools in lawyers’ arsenals, deployed for socially desirable used ranging from supporting orphans to structuring complex investments. Trusts, however, are also used for a host of socially undesirable purposes, including restraint of trade, cheating creditors, establishing family dynasties akin to feudalism, and avoiding taxes. This negative litany shows that flexibility has a dark side, and these undesirable trust uses have accelerated in the last few decades. Creative lawyers continuously find novel uses for moldable tools like the trust. This article argues that long experience and recent developments teach us that dark eclipses light for private trusts: the costs of undesirable innovations exceed the benefits of desirable ones. Applying a novel normative theory of flexible legal tools, this article calls for fundamental reform of private trust law. With a small exception for financial investments, the current fully flexible private trust should be replaced with a much less flexible device, the Restricted Donative Trust, designed to prevent abusive uses while permitting desirable innovations.
Keywords: trusts, spendthrift trusts, asset protection trusts, dynasty trusts, tax avoidance, GRAT, flexible legal tools, excessive flexibility
JEL Classification: D00, D14, D31, D61, D64, D91, H26, K00, K22
Suggested Citation: Suggested Citation