Anti Trusts, Reforming an Excessively Flexible Legal Tool

37 Pages Posted: 3 Sep 2021 Last revised: 4 Sep 2021

Date Written: August 9, 2021

Abstract

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

Kades, Eric A., Anti Trusts, Reforming an Excessively Flexible Legal Tool (August 9, 2021). Available at SSRN: https://ssrn.com/abstract=3901708 or http://dx.doi.org/10.2139/ssrn.3901708

Eric A. Kades (Contact Author)

William & Mary Law School ( email )

South Henry Street
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757-221-3828 (Phone)

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