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Exposing the Hocus Pocus of Trusts

74 Pages Posted: 28 Feb 2011 Last revised: 6 Nov 2012

Kent D. Schenkel

New England Law | Boston

Date Written: February 27, 2011

Abstract

A trust beneficiary may receive substantial benefits to property, and perhaps even virtual control over that property, yet the trust shields that property from costs associated with beneficiary’s commission of a tort, or a default on unsecured debt obligations, or the failure to provide for the surviving spouse at death, to give a few examples. While the outright owner of property must hold that property subject to the valid claims of these other parties, no participant in the trust arrangement undertakes these burdens. Instead, in an act of hocus pocus, they seem to simply vanish.

Unfortunately, the magic of trusts turns out to be a chimera, as the costs do not really disappear; they merely resurface elsewhere, falling on those outside the trust relationship. For example, burdens placed on outsiders as a result of property held in trust lead to litigation over rights of tort creditors as against trust beneficiaries and increase the cost of insurance and credit. This article serves as a call for recognition of what it terms these “elective externalities,” as well as a search for a practical approach to reducing them.

Keywords: Trusts, Property, Probate, Externalities, Wills, Asset Protection, Spendthrift, Estates, Gifts, Tax

JEL Classification: K00, K10, K11, K34, K13

Suggested Citation

Schenkel, Kent D., Exposing the Hocus Pocus of Trusts (February 27, 2011). Akron Law Review, Vol. 45, p. 63, 2012. Available at SSRN: https://ssrn.com/abstract=1771642

Kent Schenkel (Contact Author)

New England Law | Boston ( email )

154 Stuart St.
Boston, MA 02116
United States

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