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Changes in the role and the form of the trust at the new millennium, or, we don't have to think of England anymore.

I. INTRODUCTION

This Article is about changes in the role and the form of the trust at the turn of the century and, even more grandly, at the turn of the millennium, with a few thoughts about various reforms in the draft Restatement of Trusts,(1) the draft Uniform Trust Act,(2) the completed Uniform Principal and Income Act,(3) and the Alaska(4) and Delaware(5) trust codes.

Hopefully it contains a number of interesting ideas. Some of them may even be right. It is neither a grand unified theory nor a unified field theory of trusts. It is not a comprehensive assessment of where we have been or where we are going. It is a report from the front, if you will, or preliminary sketches of a work in progress.

We are in a moment in time when our ideas about what a trust is, what it is for, and how to operate it are under consideration and, indeed, are changing meaningfully.(6) To paraphrase Dickens: these are the best of times and the worst of times.(7)

In other words, do we still quite know what a trust is and will we still have trusts as we know them in the twenty-first century?(8) Looming changes may well modify our answers in the years to come.(9)

An article of this sort must begin with the time honored quote from Cardozo: "A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior."(10) And, in turn, we must ask if we will be saying that with a straight face ten or twenty years from now.

This Article alludes to several ideas. First, the agreement about what a trust is may well be breaking down.(11) Second, the high-mindedness is leaching out of the trusts and estates world. Cardozo is turning in his grave.(12) Third, everyone wants to slurp at the great river of money that is roaring through our society at the end of the century, as the depression generation starts to pass its money to the baby boomer generation, and as the market soars to new heights.(13) And a lot of those slurpers think the trust is the vessel that will give them a nice long drink. Fourth, the population of people using trusts, including esoteric trusts, is growing rapidly and that growth is changing the world of trusts.(14) Let us call this the massification of trusts. Or, the pedestrianization of trusts.(15) Fifth, there are so many trust reforms both completed, and underway, that our picture of the trust must change.(16)

II. BREAKDOWN OF AGREEMENT ON THE DEFINITION OF TRUSTS

What is a trust? Why do we have trusts at all? Some countries do not.(17) A law student would probably say that a trust is there to provide for successive ownership, to avoid probate, to protect spendthrifts other than the grantor, to provide management for grantors who later become mentally incompetent, to save some taxes, and to obtain professional investment "management," which historically has been conservative and tilted to income investments.(18)

A lot of lawyers will tell you that, just like trust investing, the trust itself is a benign, sleepy too(19) for reaching decent, socially wholesome goals,(20) such as taking care of poor Uncle Harry, who never met a horse, or a bottle, he did not like.

A client might well tell you that trusts are there for similar reasons, but would quickly add, in many cases, the proviso that trusts perform some kind of magic, and that trusts give sophisticated consumers of legal services an advantage over folks who are less aggressive.(21) Probate and taxes are for losers. Trusts make people into winners. Trusts are there to beat the probate system, Uncle Sam, and other creditors, like minor children of prior marriages and Medicaid.(22)

The view that trusts are there to beat somebody out of something is in the ascendancy.(23) The once unquestioned assumption that people want to pay their bills, and want their beneficiaries to pay their bills, is seemingly under siege.(24) Professors Hangman and Matte can be read to suggest that the definition and clarification of the relationship of the creditor to the universe of the trust--settlor, trustee, beneficiary, trust principal is the crucial point of the trust's existence.(25) One of the points of this Article is that the perceived view of the relationship between creditors and the world of the trust is changing.

Why is the trust hot? There are a number of reasons, including some of the points to be discussed below: the increasing number and diversity of players in the trust game; the diversity of goals of those different players; the merchandising of trusts and trust planning by those players; and the roaring bull market of the late 1990s.

In the spring of 1998, the author was walking through a parking lot near the University of California, Davis campus and passed an undergraduate's lowered and "souped-up" car. It was the modern-day version of a hot rod. One of the windows was covered with decals advertising the products used to speed up the car. One of them was stunning. It read, "TRUST--Racing Performance."(26)

There is meaning and a message in that serendipitous discovery--a number of settlors and their lawyers are looking to their trusts for racing performance. Twenty or thirty years ago, settlors and their lawyers both agreed on what a trust was, and what it was for, and neither was looking for hot rod performance. Today, there is reason to believe that, if asked, a meaningful population of clients think in terms of hot rod performance.

Indeed, it is not entirely clear what a client wants when she asks for a trust, or agrees to a trust suggested by an advisor. For most clients the word trust might be casually labeled a "heuristic":(27) the equivalent of asking the butcher for "something nice for dinner tonight." It is about as precise as "Give me something cheap, that will take care of my family, make me and them lots of money, save lots of taxes, and give my creditors a poke in the eye with a big stick, if they get too close to me. We'll call it a trust."(28)

III. THE LEACHING OF HIGH-MINDEDNESS

High-mindedness in trust law is fading like an old picture in a family album. Putting it differently, there seems to be an erosion in fiduciary responsibility in the trust world, still more surely as to creditors of various sorts, most surely if the term fiduciary responsibility is broadly defined.(29)

What follows are a number of different, but related, "proofs" of the erosion of fiduciary responsibility.

A. Duty's Loss of Power as an Organizing Principle

First, it seems that fiduciary duty, or to speak more broadly, fiduciary responsibility,(30) is losing some of its power as an organizing principle in the trust world. Fewer and fewer people believe in fiduciary duty, unless someone is watching. Fiduciaries may be held to the Cardozo standard(31) if they get caught, but it does not apply much offshore.(32) Stating it more broadly, one could fill a hall with people who would say the traditional doctrine of trustee duty and accountability is more moth-eaten than it is modern.(33)

Clearly, loyalty is a key part of fiduciary duty.(34) While mourning the death of loyalty in a different context, Professor Henry Louis Gates, Jr. quotes Jack Valenti (president of the Motion Picture Association of America) as saying, "`You can count me as an out-of-date dinosaur. I come from an era when loyalty and gratitude were regally honored.'"(35) Valenti goes on to say, "In a strange way, loyalty is now seen as some kind of a character flaw."(36) Gates says the most trenchant thing of all: "Loyalty, is, in essence, a premodern virtue.(37) As such, it is understood--even by those who profess devotion to it--to be one of those things we inherited and must do with, like a grandmother's quilt or the national debt."(38)

Thus far the discussion has been about trustee loyalty to the beneficiaries. Moth-eaten or not, loyalty and fidelity to beneficiaries still exists to one degree or another.(39) The standard causes of action for breach exist and are used all the time.(40) Of course, beneficiaries hope for dutiful (loyal) trustees, just as they hope not to have to sue their trustees. In the new trust world, the trustees who fear being sued may well seek, hopefully unsuccessfully, to avoid liability under all circumstances.(41)

Moving on from the trustee's relationship with her beneficiaries, the notion that the people who occupy the world of a given trust have "civic" responsibilities to those outside that world is essentially dead.(42) Once, in a simpler time, when the population of trust lawyers and people involved with trusts was much smaller, there arguably was a custom that suggested it was inappropriate, ungenteel, and perhaps even immoral to use trusts as tools of sharp dealing.(43) If you will, a gentleman(44) would not use his trust to "cheat" his creditors or his son's creditors unless his son was a spendthrift, and thus very much in need of protection.(45) This moral duty(46) to outsiders, if it ever existed outside the apprenticeships and practices of trust lawyers of an earlier time,(47) never became a duty enforced in equity.(48) It was a cultural norm; creditors, the Internal Revenue Service (IRS) in particular, got a free ride--gentle settlors, trustees, lawyers, and the like chose to pay their taxes (or advised paying taxes) and not to skate on thin ice. The free

ride is over.(49) To one degree or another, in one place or another, it is something of a given today that outsiders--whether in the person of the government, the IRS, other creditors of any sort, claimed stakeholders, or social beneficiaries--are given short shrift in the minds of most settlors and trustees.(50) The IRS is going to have to use law not norms.(51) Gentility no longer limits trusts and asset protection activities.

Professors Hansmann and Mattei tell us that "the fundamental contribution of trust law is in its arrangement of creditors' rights, and not in the fiduciary duties it provides."(52) It seems that we are in the process of lurching towards a rearrangement of those creditors' rights as a matter of law, in some jurisdictions, and a rearrangement of our cultural notions of those rights. We are redefining what is a "square deal" for creditors, and we continue wrestling with the idea that not all creditors are equal. Macy's bills and child support do not have the same bite, except in Alaska.(53)

It is clear that the IRS no longer believes in fiduciary duty. Oversimplifying, they assume that most trustees will breach their duty if breaching will save taxes.(54) The IRS sees a world of manipulative trustees, unbound by duty, especially when exercising discretionary powers.(55) The thought that duty constrains more than a few old-fashioned trustees will be treated as laughably naive in Washington--the equivalent of grandmother's quilt.(56)

The reader should take that in with great concern, because an important part of the tax-saving function of the trust is the IRS' willingness to accept several ideas: that trusts are predictable, that trust law is rational, and that trustees are constrained by fiduciary duty. If, as stated earlier, the IRS has lost faith in the idea of fiduciary duty as a constraint on trustee conduct, then the trust is likely to become less useful to lawyers and clients in their tax planning.(57)

B. Setting Aside of Trust Rules

A second proof that the high-mindedness of the trust world is fading is the fact that all kinds of "inconvenient" trust rules, especially the rules of trust law that protect creditors, are being set aside in boutique (specialty) jurisdictions, and for specialty trusts.(58) On the face of things, a settlor can spendthrift his assets against his own creditors in some exotic foreign jurisdictions(59) and now, to a more limited extent, in Alaska and Delaware.(60) Both states allow a settlor to create a trust for others that is essentially creditor--proof which is nothing new(61)--and that also gives an independent trustee a limited discretion to spend income or principal on the settlor.(62)

These magic trusts that creditors cannot reach are also intended to escape estate taxes, but not gift taxes. The promoters of the statutes argue that these magic self-spendthrift trusts cannot be included in the decedent's estate if the right steps are taken and the right circumstances exist.(63)

C. The Invasion of Outsiders

The third proof that the trust may no longer rest so firmly on a foundation of duty is that brokers and mutual fund organizations are falling all over themselves to get into the trust business and often they are not interested in being constrained by rules of fiduciary duty. This paragraph is not meant to suggest that brokers and fund operators are less dutiful than bankers.(64) Indeed, this "invasion" of outsiders may well function as a breath of fresh air.(65) There is much to be said for the total deregulation of the trust business.(66) The primary concern is that funds and brokers come to the trust business from a different vantage point and a different tradition,(67) and that therefore they may not pay as close attention to fiduciary duty as do bankers.(68)

D. Use of Boutique Jurisdictions and Exotic Investments

The fourth proof that duty is fading is that some of the high-end trust banks are turning to this new high-performance world of boutique jurisdictions and exotic investments.(69) Those exotic investments would have been seen as rank speculation, if not almost criminal, only a few decades ago; culturally they contribute mightily to the idea that a trust is a hot rod accessory.(70) Ordinary bank investing is growing less conservative, and banks, acting as trustees, are starting to invest in mutual funds, instead of their own common trust funds.(71)

IV. TRUST GIMMICKS

The third major point of this Article, with apologies to Kurt Vonnegut, is that everyone wants to slurp from the great river of money that is roaring through our society at the end of the century.(72) Everyone wants a piece of the pie, to mix metaphors. When there is that much money flowing by, folks are going to try all kinds of tricks to get a little bit and to save a little bit. Everybody's got a gimmick,(73) and much of what is going on in the trust world is a function of this gimmickry, solely designed to get a piece of the action.

That is why specialty, or boutique, jurisdictions, including Alaska, Delaware, and various islands,(74) are looking for trust business and are offering trusts that protect against creditors, to one degree or another.(75) A settlor could visit her Alaska trust in the summer and her Bermuda(76) trust in the winter and never endure an unpleasant day. As the IRS makes foreign trusts less attractive,(77) some U.S. settlors of foreign trusts will undoubtedly bring them home to friendly jurisdictions.(78)

When one reads the advertisements(79) of the great trust banks, which, of course, want a drink from this great river of money, there seems to be three basic approaches, two of which are old hat and one of which is new; of course, it is the new one that is most interesting. A few of the old banks still stress constancy and conservatism; several stress service above all else.(80) Other banks are stressing exotic investing and exotic trusts.(81) Their motto might be: "Think you're rich now, wait `til we get finished with you."(82) It is the trust banks that push the exotic investing and the exotic forms of trusts that are of interest here.

First, a brief discussion of the "exotic" types of trusts. This Article takes the position that these trusts have come into existence primarily as sales devices because there is so much money floating by. Perhaps that is right, and perhaps that is wrong. Be that as it may, they are with us.(83)

It seems fair to say that the one sentence description of all these trusts is that a lot of people do not want to pay their bills.(84) Without regard to jurisdiction, we live in a world of specialty trusts, designed to stiff creditors, that would have seemed exotic, or worse, only a few years ago. One need only cite, as examples, asset protection trusts(85) or Medicaid trusts.(86) If you include Uncle Sam as a creditor the list grows to include grantor retained annuity trusts (GRATs), grantor retained unitrusts (GRUTs), charitable remainder annuity trusts (CRATs), charitable remainder unitrusts (CRUTs), and all manner of flora and fauna.(87)

This proliferation of specialty trusts exerts a strong pull on society's understanding of what a trust is, thereby stressing it. Part of the explanation for all these mushrooms popping up is the massive transfer of wealth and the amazing increase in wealth in the last two decades,(88) One might add, as a footnote, that this also has something to do with an earlier point--that high-mindedness is leaching out of trust law.(89) Just as loyalty is a moth-eaten virtue, so is paying your bills and paying a standard amount of transfer taxes.(90)

V. THE MASSIFICATION OF TRUSTS

The fourth major point of this Article is that the population of people using trusts, including esoteric trusts, is growing rapidly. Let us call this the massification of trusts, or, the pedestrianization of trusts.(91)

Why is this happening? One reason is there are more people with taxable estates and the minute there are taxable estates people think about trusts. The number of estates subject to tax is increasing because of prosperity, investment success, inflation, and because of the river of money discussed earlier. It is also explained by the hunger for maximum inheritances of some of the Boomers--some have not saved enough themselves so they want their parents to pass as much as possible at death, using trust planning.(92)

Another reason is that people are living longer. They fear mental incompetence and physically debilitating disease. Of course, the trust is a superior solution to that problem and more trusts are funded for that reason alone.(93)

More and more people have come to believe in the magic of trusts and trust advantages. Various merchandising efforts are being made to sell trusts and estate planning.(94) Some are wholesome(95) and some are not. These efforts stem, in part, from the river of money, from freeing lawyers to advertise,(96) from the sheer number of lawyers,(97) from the easy availability of do-it-yourself trust books and software, and from the excess computer and management capacity of brokers and mutual funds.(98) It seems almost trivial for massive brokerages and mutual funds, with their enormous tax reporting, record keeping, and investment capacity, to add trust services. It is currently fashionable to say that brokers and mutual funds are becoming the equals of banks in our monetary system.(99) If so, it is no surprise that they offer trust services and offer them more aggressively than banks. They are more aggressive by nature and, as the new kid on the block, they have to be more aggressive in order to survive.(100)

The massification of trusts is furthered by the advent of trust mills selling revocable inter vivos trusts to old folks all over the country.(101) These operations use high-pressure sales techniques and generally do a dreadful job of drafting trust instruments and "planning" estates.(102) In California, lawyers are beginning to specialize in cleaning up the mess after someone dies with a trust from a trust mill.(103) The legal bills for the cleanup far exceed the costs of good estate planning. The messes make one wish for the return of Dacey trusts.(104) Compared to the trust mill trust, the Dacey trust looks like a dear old friend. There are also the tax protesters with their wacky trusts.(105) It is tempting to say that some people believe that the only thing a trust cannot do is cure disease.

Thirty years ago, the world of trusts seemed pretty clear-cut. There were not a lot of trusts, relatively speaking, and most of them were plain-vanilla. There were very few exotic trusts and the IRS and other creditors of the world could afford to ignore them because they were so few and far between.

We now face the pedestrianization of trusts and there is an awful lot of jaywalking going on. The trust is being pulled and stretched like a piece of taffy. The high-minded want to modernize it and the low-minded want to turn it into a high-pressure product.(106) Some traditional trust people are bound to get the vapors.(107)

What will come of this massification? Any number of things may result, including: clients will not be able to tell the good from the bad, whether it is lawyers, schemes, investments or trustees; the IRS is going to drown in avoidance maneuvers;(108) the breaking down of the escape valve function of fancy trust planning for the few squeaky wheels(109) and over-allocation of resources to bringing tax avoiders to heel.

VI. TRUST REFORMS

The 1990s have turned out to be the decade of trust reform.(110) We had the Prudent Investor portion of the Restatement of Trusts In 1992,(111) followed by the Uniform Prudent Investor Act in 1994,(112) and the Uniform Principal and Income Act in 1997.(113) These three mark the formal entrance of Modern Portfolio Theory into trust law,(114) and work is continuing on the rest of the Restatement. Work is also proceeding on the Uniform Trust Act.(115) Further, Alaska and Delaware have reformed (or changed, if reform is the wrong word) their trust statutes.(116)

Full discussion of the reforms, both accomplished and proposed, is outside the scope of this Article. Having said that, however, one might note the existence of three kinds of reforms--the dramatic, the commonsense, and the nuts and bolts. Of course, one person's drama is another person's common sense.

One reform in the Uniform Principal and Income Act is worthy of note, however. The prudent investor rule,(117) which allows for portfolio investing and which arguably allows a trustee to invest in almost anything, has created a meaningful principal and income problem for a number of trustees. Simply put, a trustee who does a wonderful job of investing could easily end up with very little traditional income for the income beneficiary.(118) In other words, these days we live in a total return world, where most of the apparent return is on equity, and comes in the form of capital gain.(119) This problem is exacerbated by the tendency of corporations to pay less in dividends as compared to the value of their stock.(120) If the trust gives the trustee a power to invade principal, there is not much of a problem in getting money out to the income beneficiary.(121) However, if there is no power of invasion, then a trustee desperate for a traditional income stream for the income beneficiary may have to forego the best investments and buy those bonds, or invest in utilities and stocks so out of favor(122) that they must pay dividends. This creates a problem if the trustee does not want to buy bonds, or invest in utilities or tobacco companies.(123) This is also a problem if bonds are not paying well, as was the case in the summer of 1998.(124) It seems poor policy to force trustees to buy bonds if they do not want them.(125)

There are at least three solutions being discussed. The first is to deny there is a problem--the old ways are the best ways. The second is section 104 of the Uniform Principal and Income Act, which gives a trustee an equitable power to adjust return so that beneficiaries get a square deal.(126) New York reformers will soon recommend a third solution--a unitrust default rule.(127) It has been suggested that the unitrust proposal will leave preexisting trusts as traditional trusts, unless the trustee and beneficiaries seek a conversion to a unitrust, and that trusts created sometime after a certain date in the future will automatically be unitrusts, unless the settlor insists that they be traditional trusts. In other words, there will be a two-tiered system, with the traditional default income term for trusts created prior to some date in the future, and the unitrust as the default income term for trusts created after that date.(128)

Thus, it seems that some change in the form, although not the role, of the trust is possible as the century turns, to accommodate the changes forced upon somewhat reluctant trustees by a new investment environment and new trust investment rules.

Leaving principal and income behind, another example of a dramatic change in the world of the trust is all the fiddling with the Rule against Perpetuities.(129) The changes range from the reforms of the Uniform Statutory Rule Against Perpetuities (USRAP),(130) to repeal of the Rule, to one degree or another, in Alaska,(131) Delaware,(132) South Dakota(133) and other jurisdictions.(134) There is room to speculate that the rule is on its last legs in New York, too, as people are going to other states to create perpetual dynasty trusts.(135) This is reminiscent of New York lawyers using New Jersey trusts to beat the old New York, two-lives, perpetuities rule.(136) If New York bankers are interested in repealing the Rule against Perpetuities in New York to stay commercially competitive, then the rule is unquestionably on its last legs. When the bankers want something, they get it.(137)

Another dramatic reform is the limited, self-settled spendthrift trust which is now available in Alaska(138) and Delaware(139) and which may sweep the money center jurisdictions, to the extent that the trust proves popular with clients. All things being equal, who would not want to spendthrift his own assets? If it works,(140) then, among settlors who fear their creditors, the only people who will choose not to spendthrift their own assets, are those who are afraid no one will do business with them(141) or loan them money ever again.(142) Very dramatic spendthrifting of ones own assets(143) is theoretically possible in places like the Cook Islands.(144) Much less daring, but still intriguing, self-spendthrifting is possible in Alaska(145) and Delaware.(146) Simply put, both states seek to allow settlors to create irrevocable trusts that cannot be reached by creditors under state law, and that allow independent trustees to make discretionary distributions to the settlor.(147) Alaska is rougher on creditors and, therefore, more attractive to settlor-debtors. It seeks to protect against tort, divorce, and most child support claims.(148) Both retain fraudulent conveyance statutes, but they are bearable in nature, from the settlor's viewpoint. The hope of the drafters of the statutes is that transfers to such trusts are not subject to estate tax,(149) although they are subject to gift tax. It is a good deal if it works, and people may go for it; it is a nice product for aggressive lawyers to sell.(150)

Before leaving the category of dramatic changes, it seems fair to say again that any change, no matter how dramatic, which leads to the loss of trust business in big money center jurisdictions, will lead to amendments of local law in those jurisdictions. In other words, the bankers will get what they want. So, trusts are bound to change dramatically.

The category of commonsense reforms includes many proposed by the American Law Institute in the draft Restatement (Third) of Trusts, and by the National Conference of Commissioners on Uniform State Laws in the draft Uniform Trust Act.(151) The Act is loosely based on the California Trust Law.(152)

Two particular examples of commonsense reforms in the draft Uniform Trust Act are worthy of discussion. One is a statutory power to reform a trust to meet a settlor's tax goals.(153) The other is a statutory right to divide a trust into separate trusts. Both can take place without court approval, so long as there is notice to the beneficiaries.(154) Another provision of the draft Uniform Trust Act gives the settlor of a charitable trust standing to sue if she feels the trust is being mismanaged in some way. This makes the settlor a private attorney general,(155) a very sensible change not only from the viewpoint of settlors, but also from the viewpoint of society. The proliferation of charities(156) and reductions in state government funding,(157) suggest that we can use all the help we can get in enforcing charitable trusts. Further, the draft Act allows for the revocation of a revocable inter vivos trust by will.(158)

The draft Restatement of Trusts has its share of commonsense changes, as well. For instance, the Restatement will ease the requirements to create trusts--there will be a de-emphasis of formality. That is, speaking generally, trusts will not fail under the Restatement for not meeting technical requirements. Putting it differently, if a settlor acted without a lawyer in a way that was sensible, or if a settlor followed the advice of an unskilled lawyer, or if the settlor did everything possible to create a trust, the trust will likely be valid.(159) As Professor Halbach, the Reporter for the Restatement, puts it, if it is safe to allow the trust to be created, then the trust can come into existence.(160) In essence, the Restatement will bring the Uniform Probate Code's rule of harmless error and substantial compliance for wills into the law of trust creation.(161)

The draft Restatement and the draft Uniform Trust Act also provide examples of nuts and bolts reforms. For instance, both the Uniform Trust Act and the Restatement will speak to the capacity necessary to create a revocable inter vivos trust. The Uniform Trust Act will use the same capacity standard as the Wills Act for all trusts(162) and the Restatement will be more situational, with different standards for different trusts.(163) Thus, a donative trust will have the same capacity standard as a will, but a trust with a commercial purpose will have to meet a contract standard of capacity.(164) The Uniform Trust Act will make it clear that the corpus of a revocable inter vivos trust must be used to satisfy the settlor's debts at death.(165) The Uniform Trust Act will also impose a duty on the trustee to keep the beneficiaries reasonably informed.(166)

VII. CONCLUSION

We seem to have decreasing faith in duty as a tool for regulating trustee conduct, insofar as the trustee has a duty to a nonbeneficiary. Fewer and fewer lawyers and regulators think that the unwatched trustee will seek to discharge his fiduciary duty.(167) Attention to duty seems quaint and the trustee as a creature of embraced duty is a relic.

We are at a crossroads where we are trying to decide what a modern trust is, and how it should work. The trust, as it is currently constituted, is not dying of its own weight. We have not reached the moment in time that is the end of trust history.(168) Trust law is, however, changing in fits and starts, as is commercial trustee conduct. Traditional trust law is causing problems, and closing off perceived commercial opportunities. There seems to be a determination to change it. Commercial trustees want to do less work, for more money.(169)

Everyone is poking at the poor old trust. The citadel is under attack. Further, there has been a shift in what a gentleman, or gentlewoman, can do to protect assets. There has also been a shift in what kind of trust such a person will use. More folks are creating trusts and it is getting harder and harder to think of the trust as the tool of social elites, or of the rich, only.

There is a legal culture clash coming, with the hot rod trust model in the ascendancy, but the trust will muddle through, somehow.(170)

(1) RESTATEMENT (THIRD) OF TRUSTS (Preliminary Draft No. 3, 1997).

(2) UNIF. TRUST ACT (Draft, Sept. 1998).

(3) UNIF. PRINCIPAL AND INCOME ACT (1997 Act) [subsections] 101-605, 7B U.L.A. 3 (Supp. 1998).

(4) ALASKA STAT. [subsections] 13.12.205(2)(A), 13.36.035(a),(c), 13.36.045(a)(2), 13.36.310, 13.36.390, 34.27.050(a)(3), 34.40.010 (Michie 1998).

(5) Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07.

(6) A very short list of relevant articles includes: Robert Cooter & Bradley J. Freedman, The Fiduciary Relationship: Its Economic Character and Legal Consequences, 66 N.Y.U.L. REV. 1045 (1991) (discussing how the fiduciary relationship is and should be treated under the law); Joel C. Dobris, New Forms of Private Trusts for the Twenty-First Century--Principal and Income, 31 REAL PROP. PROB. & TR. J. 1 (1996) (addressing the allocation of investment return); Joel C. Dobris, The Probate World at the End of the Century: Is a New Principal and Income Act in Your Future?, 28 REAL PROP. PROB. & TR. J. 393 (1993) [hereinafter Dobris, The Probate World] (discussing the selflessness of trust and estate lawyers in their reform efforts, default rules as instruments of reform, and reform of the Uniform Principal and Income Act); Henry Hansmann & Ugo Mattei, The Functions of Trust Law: A Comparative Legal and Economic Analysis, 73 N.Y.U.L. REV. 434 (1998) (analyzing the functions served by the law of trusts); John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 YALE L.J. 625 (1995) (explaining the conventional three-party trust as a prevailingly contractarian institution).

(7) See CHARLES DICKENS, A TALE OF TWO CITIES 1 (Andrew Sanders ed., Oxford Univ. Press 1988) (1859).

(8) Apologies to readers who find this Article too experiential, anecdotal, or subjective--i.e., storytelling. Storytelling is in vogue. The author is not the only law professor in the world (or trusts and estates professor) who tells stories. See, e.g., Jane B. Baron, Intention, Interpretation, and Stories, 42 DUKE L.J. 630 (1992) (discussing storytelling in "private" law); Jane B. Baron, Resistance to Stories, 67 S. CAL. L. REV. 255 (1994) (examining the resistance to legal storytelling); Jane B. Baron & Julia Epstein, Is Law Narrative?, 45 BUFF. L. REV. 141 (1997) (discussing "how meaning is made in law"); Kevin R. Johnson, "Melting Pot" or "Ring of Fire"?: Assimilation and the Mexican-American Experience, 85 CALIF. L. REV. 1259 (1997), 10 LA RAZA L.J. 173 (1998) (analyzing the limitations on assimilation of immigrant Latinos into dominant society by illustration of the author's own experiences); Thomas L. Shaffer, On Teaching Legal Ethics with Stories About Clients, 39 WM. & MARY L. REV. 421 (1998) (discussing the instruction of legal ethics through the use of clients' stories).

(9) "[T]he trust has endured because it has changed function." Langbein, supra note 6, at 637. Change makes people nervous. See Slavoj Zizek, Ideology Between Fiction and Fantasy, 16 CARDOZO L. REV. 1511, 1513-16 (1995) (arguing that the violent mutiny against Captain Bligh of the Bounty was a result of Captain Bligh's blindness to the "structural function of the ritualized power relations among the sailors"). We have a need to demonize financial figures, sometimes rightly and sometimes wrongly, especially in an era of change. See DANIEL FISCHEL, PAYBACK: THE CONSPIRACY TO DESTROY MICHAEL MILKEN AND HIS FINANCIAL REVOLUTION 300 (1995) (stating that Milken, who was instrumental in bringing change and innovation to the financial market of the 1980s, "should be viewed as the ultimate personification of the American dream, [but] is instead today a convicted felon"). Perhaps we can say that as Zizek is to Bligh, so Fischel is to Milken. We so much prefer the world in JAMES HILTON, GOODBYE MR. CHIPS (Bantam ed. 1934). Chips knew how to deal with change (financial and social): "After 1929, Chips did not leave Brookfield.... His income was more than he needed to spend, and his small capital, invested in gilt-edged stocks, did not suffer when the slump set in." Id. at 99.

(10) Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928). Professor Langbein complains about the mindless use of this totemic quote as a talisman: "Courts sermonize about fiduciary duties without paying adequate attention to the question of whether and why the particular person is a fiduciary and what standards the fiduciary relationship imports in the particular circumstances." Langbein, supra note 6, at 658.

(11) See infra notes 17-28 and accompanying text (covering the breakdown of agreement over the definition of trusts).

(12) See infra notes 29-71 and accompanying text (deploring the loss of high ideals in the world of trusts and estates law).

(13) See infra notes 72-90 and accompanying text (describing the group of people that see trusts as a key to easy wealth). The diction in the text is obviously taken from KURT VONNEGUT, JR., GOD BLESS YOU, MR. ROSEWATER 104-06 (1965) ("`When one of us claims that there is no such thing as the Money River I think to myself, "My gosh, but that's a dishonest and tasteless thing to say."').

(14) See infra notes 91-109 and accompanying text (noting the growth rate in the use of trusts).

(15) The term pedestrianization can be found in James R. Hedges, IV, The Pedestrianization of the Hedge Fund Industry, 137 TR. & EST. 62, 62 (1998) (discussing the flood of funds in the industry, resulting in an increase in capital for wealthy investors).

(16) See infra notes 110-70 (pointing out the numerous trust reforms that have taken place and are now being implemented). These changes are surely doctrinal and may be theoretical as well. Hansmann and Mattei observe this distinction and cite Langbein as a commentator who pursues core redefinitions. See Hansmann & Mattei, supra note 6, at 469 (discussing Langbein's theoretical argument that trust law is a branch of contract law and citing Langbein, supra note 6, at 627-28). Professor Langbein pursues doctrinal change as well. See John H. Langbein & Lawrence W. Waggoner, Reforming the Law of Gratuitous Transfers: The New Uniform Probate Code, 55 ALB. L. REV. 871 (1992) (arguing for reform of the Uniform Probate Code).

(17) See Hansmann & Mattei, supra note 6, at 435-36 (noting that "important efforts are underway to promote recognition by nontrust jurisdictions of trusts formed in other countries").

(18) Professors Hansmann and Mattei argue that "the most important contribution of the law of trusts is that it facilitates the partitioning of assets into bundles that can conveniently be pledged separately to different classes of creditors." Id. at 438.

(19) The trust, like the chain saw, is a dangerous tool.

(20) The social utility of much of what is discussed here is open to question.

(21) See infra notes 27-28, 101-05 and accompanying text (discussing clients' understanding of trusts and how the market has responded to their conceptualization).

(22) Professors might take a different view of the trust. Some will first take an applied approach to trusts and then proceed to take a planning approach in the three dimensional chess game of estate planning. Others can be counted on to explicate or reform trust doctrine. A smaller population of professors may take a more theoretical approach, arguing about whether a trust is a creature of contract law or property law. Compare Langbein, supra note 6, at 627-28, 650, 657-60 (analyzing "trust without contract"), and John H. Langbein, The Secret Life of the Trust: The Trust as an Instrument of Commerce, 107 YALE L.J. 165, 167 (1997) (arguing that trust law is a branch of contract law), with Hansmann & Mattei, supra note 6, at 440 (describing the common law approach to trusts as property law). Other professors might observe, in the language of law and economics, that trusts are efficient regimes of default rules that clarify the relationship among settlor, trustee, and beneficiary and that signal to outside creditors the meaning and risks of dealing with any member of the trio. See Hansmann & Mattei, supra note 6, at 437 (focusing on the reasons why one system of trust is preferable over another). Others might take a historical view. See Gregory S. Alexander, The Dead Hand and the Law of Trusts in the Nineteenth Century, 37 STAN. L. REV. 1189 (1985) (studying the historical background of the trust).

Without taking sides in the argument about whether or not a trust is a contract or a property transaction, it seems fair to say that contracts are becoming more important in the world of the trusts and estates lawyer. One need not look beyond prenuptial agreements.

(23) See Hansmann & Mattei, supra note 6, at 438 (pointing out that shielding one's assets from creditors is one of the most important contributions of trust law).

(24) Even in 1998, Professors Hansmann and Mattei assume that people pay their bills. See id. at 451-54 (discussing the relationship between the trust recipient, the transferor, and their respective creditors). For a recent, general discussion of spendthrift trusts, see Adam J. Hirsch, Spendthrift Trusts and Public Policy: Economic and Cognitive Perspectives, 73 WASH. U.L.Q. 1 (1995) (defining a spendthrift trust); see also Anne S. Emanuel, Spendthrift Trusts: It's Time to Codify the Compromise, 72 NEB. L. REV. 179 (1993) (discussing the historical debate over the legitimacy of spendthrift provisions and proposing that a statutorial spendthrift trust be created).

(25) See Hansmann & Mattei, supra note 6, at 451-54 ("A more vital function of trust law lies in arranging the expectations of the personal creditors of the Transferor, Manager, and Recipient.").

(26) Trust is a coveted brand of automobile speed equipment. The Trust website is <http://www.trust-power.com>.

(27) Simply put, a heuristic is a rule of thumb. This is a useful misuse of the word. It is likely that most clients have only a vague, "rule of thumb" idea of what they are doing when they put assets into a trust.
 A heuristic is a strategy, usually a simplifying strategy, which provides
 aid and guidance in solving a problem. A heuristic is the opposite of an
 algorithm. In deciding what move to make in a chess game, one could
 systematically consider and evaluate every possible move. This would be an
 algorithmic strategy. Or one could evaluate only the positions of pieces in
 the center of the board and the most important pieces. That would be a
 heuristic strategy.


Michael J. Saks & Robert F. Kidd, Human Information Processing and Adjudication: Trial By Heuristics, 15 LAW & SOC'Y REV. 123, 131 n.11 (1980-81). "People use a number of simplifying operations, called `heuristics,' to reduce the complexity of information which must be integrated to yield a decision. These simplifying strategies often lead to errors in judgment." Id. at 127.

Change causes discomfort. When a heuristic ceases to work it can seem that the world is ending. Thus, one might write of the end of the trust, to the extent the trust heuristic is changing. That seems unnecessary and not to be the case.

(28) The changes discussed in this Article are affecting the way trusts are drafted, used, and perceived in the culture. Conceptions of trusts are changing. These conceptions change from culture to culture, both within the United States and among and between nations. The financial paradigm is changing, too. See Jeffrey N. Gordon, Employees, Pensions, and the New Economic Order, 97 COLUM. L. REV. 1519 (1997) (proposing capital market and regulatory innovations that would facilitate greater employee accumulation of equity wealth and open new avenues for broader participation in the "New Economic Order").

(29) "Fiduciary responsibility" and "creditor" are being used in a broad-brush fashion; fiduciary responsibility, as used at this point, includes: the fiduciary's legal duties to beneficiaries; the fiduciary's legal duties to creditors; the trust lawyer's legal and ethical duties and responsibilities to deal fairly with creditors and the IRS, and to shy away from planning that is too sharp; and the historic likelihood that commercial trustees would refuse unusual as sets, and tax plans. Professor Langbein tells us that fiduciary duties "embody deep moral precepts about the behavior appropriate for a trustee or other fiduciary." Langbein, supra note 6, at 658.

The executor's first duty is to the probate estate's creditors. The beneficiaries merely get what is left. See THOMAS E. ATKINSON, HANDBOOK OF THE LAW OF WILLS 100 (2d ed. 1953) (stating the principle that "the law respects the following interests in order: (1) Creditors; (2) devisees and legatees; (3) heirs at law and distributees"). An aggrieved creditor can even surcharge an executor. See Estate of Starkweather v. United States Fidelity & Guar. Co., 75 Cal. Rptr. 2d 766 (Ct. App. 1998) (granting a creditor's petition to set aside the final accounting and distribution of the decedent's estate and to surcharge the personal representative after the creditor was deprived of its opportunity to file a claim against the estate due to the representative's perpetration of extrinsic fraud). This is usually cut-and-dried. Most claims are easily boxed as legitimate or illegitimate and are paid in a timely fashion. A trustee, usually having many fewer creditors than an executor, especially if he is the passive owner of investment assets, always paid his bills, as well. But this mundane idea, that a fiduciary (especially an executor) owes a duty to creditors has indirectly held down, or kept below the surface, the use of the trust for hot rod purposes until recently.

(30) See supra note 29 and accompanying text (defining fiduciary duty and responsibility); see also RESTATEMENT (SECOND) OF TRUSTS [subsections] 169-185 (1959) (explicating the duties of the trustee); RESTATEMENT (THIRD) OF TRUSTS [sections] 2 (Tentative Draft No. 1, 1996) (discussing the fiduciary duty of trustees); RESTATEMENT (THIRD) OF TRUSTS: PRUDENT INVESTOR RULE [subsections] 227-229 (1990) (detailing standards of conduct).

(31) See Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) ("Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.").

(32) See infra notes 58-63 (discussing trusts and fiduciary duty outside the United States).

(33) See Tony Blair's Mighty Servant, ECONOMIST, Feb. 21, 1998, at 60 (remarking on the "traditional though moth-eaten doctrine of the accountability of civil servants").

(34) See RESTATEMENT (SECOND) OF TRUSTS [sections] 170 (1959) (stating that a trustee has a duty of loyalty to beneficiaries); infra note 44 and sources cited (discussing fiduciary standards and the principle that the trustee act with full loyalty).

(35) Henry Louis Gates, Jr., The End of Loyalty: Why Has Betraying Clinton--and Everyone Else--Become a National Pastime?, NEW YORKER, Mar. 9, 1998, at 34, 36. See generally GEORGE P. FLETCHER, LOYALTY: AN ESSAY ON THE MORALITY OF RELATIONSHIPS (1993) (discussing loyalty in America).

(36) Gates, supra note 35, at 36.

(37) Can it be that the trust is premodern (or, to use a different label, preindustrial)? Can it be that the changes discussed here mark a change to modernity or postmodernity? Although attenuated, it can be argued that this new lack of regard for creditors (IRS, Medicaid, commercial, tort, and familial) is the long delayed switch from the premodern trust--rooted in community and custom--to the postmodern trust, rooted in nothing, and responding to a variety of economic and social forces including market forces. If "postmodern trust" is an oxymoron for the reader, then perhaps "modern trust" will do. If "postmodern" is not strong enough, perhaps "beyond-modern" will do. On premodernity and the trust, see Hansmann & Mattei, supra note 6, at 438-45.

(38) Gates, supra note 35, at 36.

(39) See Wood v. Honeyman, 169 P.2d 131, 166 (Or. 1946) ("[N]o trust instrument can relieve a trustee from his duty to account in a court of equity.").

(40) See, e.g., N.Y. EST. POWERS & TRUSTS LAW [sections] 11 (McKinney 1967 & Supp. 1998) (creating statutory power, duties, and liabilities of fiduciaries). For example, section 11-2.3 of the Estates, Powers and Trusts Law codifies the Uniform Prudent Investor Rule, which requires the trustee to follow a standard of conduct. See id.; RESTATEMENT (THIRD) OF TRUSTS: PRUDENT INVESTOR RULE [subsections] 227-229 (1990) (stating, in the General Comment to section 227, that the "trustee must exercise reasonable care, skill and caution and must act with undivided loyalty to the beneficiaries and with impartiality among them").

(41) A discussion of the waivability of fiduciary duties can be found in Hansmann & Mattei, supra note 6, at 449 (citing Tamar Frankel, Fiduciary Duties as Default Rules, 74 OR. L. REV. 1209, 1242-51 (1995)).

(42) This is strangely reminiscent of social investing. See, e.g., Joel C. Dobris, Arguments in Favor of Fiduciary Divestment of "South African" Securities, 65 NEB. L. REV. 209 (1986) (arguing that trustees should divest, and that they could do so without violating their fiduciary duty to the trust).

(43) Compare Joseph Bankman, The New Market in Corporate Tax Shelters, 54 TAX. L. REV. (forthcoming Winter 1998) (manuscript at 1-2, 14, on file with author) (discussing corporate tax shelters and the new willingness of blue-chip advisers--lawyers and Certified Public Accountants--to take advantage of ambiguous or flawed tax laws and structural defects in the corporate tax system to deliver favorable tax results to clients, who will likely safely survive the "audit lottery," or be unaffected by government detection and prospective reform). This dilemma, as it faces the practicing tax lawyer, is discussed in David C. Garlock, A Tax Executive's Guide to Evaluating Tax-Oriented Transactions, 17 TAX MGMT. WKLY. REP. 370 (Mar. 16, 1998).

(44) In the old days, a gentleman did not protect assets. A genteel trustee did not seek or accept asset protection trusts. Apologies for the use of the word "gentleman." It is intended, informative, ironic, and appropriate.

Looking back, the word "gentleman" has connotations beyond gender. To one degree or another the term implicates someone of "aristocratic" breeding, higher social class, possibly well-educated, and with good manners. See BLACK'S LAW DICTIONARY 350 (5th ed. 1983) (defining a gentlemen's agreement as "an unsigned and unenforceable agreement made between parties who expect its performance because of good faith"); MERRIAM-WEBSTER DICTIONARY 316 (1994) (defining gentleman as "a man of good family; a well-bred man"). The idea of the "gentleman" in the world of the trusts is expanded on by Mary Louise Fellows, Spendthrift Trusts: Roots and Relevance for Twenty-First Century Planning, 50 REC. ASS'N. B. CITY N.Y. 140, 141-49 (1995) (discussing how the notion of "manliness" has played a role in the evolution of the spendthrift trust); Langbein, supra note 6, at 638-39 (comparing old and modern trustees and referencing the idea of the "gentleman trustee").

Similarly, this idea holds even today. See 1 A. JAMES CASNER & JEFFREY N. PENNELL, ESTATE PLANNING [sections] 4.1.4, at 4-17 (6th ed. Supp. 1998) (stating that "reputable trust companies will not assist a client who is looking to dodge existing creditors, spousal or child support obligations, tax liabilities, or to engage in any form of criminal activity"). A genteel lawyer did not draft asset protection documents. The increasing respectability and commonplace nature of asset protection trusts and asset protection planning is very interesting. The Medicaid asset planning phenomenon and the phenomenon of rich debtors moving to Florida and buying huge, creditor-proof houses have a not-unimportant effect on our social attitudes towards such planning. See Larry Rohter, Rich Debtors Finding Shelter Under a Populist Florida Law, N.Y. TIMES, July 25, 1993, at 1. Even ex-baseball commissioner Bowie Kuhn, once a Wall Street lawyer, took advantage of the Florida Homestead exemption. See Murray Chass, Kuhn's Descent from Commissioner to Legal Outcast, N.Y. TIMES, May 12, 1991, [sections] 8, at 3 (stating Kuhn "was in the right place" to be baseball commissioner but chose a "wrong time" to resume his "career as lawyer"); Bowie Kuhn Releases Statement, PR NEWSWIRE, Feb. 12, 1990, available in LEXIS, News Library, Arcnews File. Increased awareness of creditor-proofing, in the context of Florida homesteads and Individual Retirement Accounts, makes asset protection trusts more acceptable. Increasing litigation (or the appearance of increased litigation) also makes asset protection seem more necessary. Dislike of government (which taxes settlors and provides a forum for plaintiffs) also makes asset protection more palatable. Anger at phantom litigants justifies asset protection. Anger at government justifies hiding assets. Wealthy folks go to the Cook Islands or the Channel Islands. See infra notes 59-63 and accompanying text (discussing favorable asset protection in foreign jurisdictions). Primitive folks create useless "constitutional" or "pure" trusts. See James F. Ingraham, The "Pure Equity Trust": A Tax Bomb for the Unwary, 26 COLO. LAW. 47 (Apr. 1997) (describing the fraudulent, mass-marketing of pure equity trusts and the pitfalls that beset unwary buyers).

But, a discussion about Bowie Kuhn is ultimately a sideshow. The ultimate point is that asset protection has become very popular. The accounting firm of Deloitte & Touche publishes a newsletter aimed at current and potential clients, explaining in simple terms various topics of likely interest to prosperous individuals. In a June 1998 issue, it was noted that one of the features of qualified terminal interest property (QTIP) estate planning is asset protection for a surviving spouse. This either suggests that Deloitte & Touche thinks that asset protection sells basic estate planning, or it suggests that prosperous America is besotted with asset protection. See What is a Qualified Trust?, DELOITTE & TOUCHE REV. (Deloitte & Touche, Wilton, CT), June 8, 1998, at 7. A crude search in LEXIS suggests that the phrase "asset protection" (in the context of trusts and estates) first appeared in 1988 in a general circulation newspaper. Search of LEXIS, News Library, Majpap File (Oct. 22, 1998). Similarly, the phrase did not appear in a law review until 1989. Search of LEXIS, Lawrev Library, Allrev File (Oct. 22, 1998).

It does seem that lawyer, client, and even commercial trustee resistance to pushing the planning envelope is at an all time low. Everybody is out there on thin ice. Arguably, this is just trustees waking up from a centuries-long sleep and paying more attention to their duty of loyalty to their beneficiaries, but it seems that something more is going on.

The IRS knows that lawyers are less fastidious than they used to be--for example, in the tax shelter context. The IRS is always trying to establish (or reestablish) the sense of responsibility that many lawyers once felt, and that fewer lawyers now feel, to give Uncle Sam a fair fight and a square deal. See Bankman, supra note 43, at 10-21 (discussing the changes in the incentive structure and the set of norms to which tax lawyers in the tax shelter industry subscribe).

One is reminded, in a surreal way, of Kenneth Starr's 1998 complaint that lawyers do not care about the truth. See The Worrying Zeal of Ken Starr, ECONOMIST, June 6, 1998, at 32. Ken Starr purports to describe a disease that threatens our society:
 The disease, he explained, is that lawyers no longer take their
 responsibility to the truth seriously. It used to be that lawyers were like
 Atticus Finch, the hero of Harper Lee's novel, "To Kill a Mockingbird":
 people who searched out the truth to counter an injustice. Now, says Mr
 [sic] Starr, lawyers are like "Bruiser" in John Grisham's book, "The
 Rainmaker": people who will do anything for their clients.


Id.

The citizens of the trust world do not feel the sense of propriety and shame their forebears did, and the restraint on conduct that the senses of propriety and shame exerted is gone. See, e.g., Toni M. Massaro, The Meanings of Shame Implications for Legal Reform, 3 PSYCHOL. PUB. POL'Y. & L. 645 (1997)(discussing and critiquing "the recent revival of interest in shame"); Michelle L. VanWiggeren, Experimenting with Block Grants and Temporary Assistance: The Attempt to Transform Welfare by Altering Federal-State Relations and Recipients' Due Process Rights, 46 EMORY L.J. 1327, 1352 (1997) (discussing Congress's dissatisfaction with the "entitlement mentality" of the Aid to Families with Dependent Children (AFDC) program); James Q. Whitman, What is Wrong with Inflicting Shame Sanctions?, 107 YALE L.J. 1055 (1998) (considering and rejecting a variety of arguments against the infliction of shame sanctions); America Goes Bust, ECONOMIST, July 4, 1998, at 78 (discussing the rise in personal bankruptcies due to America's debtor-friendly bankruptcy laws and the "moral hazard" of reckless spending and borrowing they encourage); Jacob M. Schlesinger, Card Games: As Bankruptcies Surge, Creditors Lobby Hard to Get Tougher Laws,--But Whether Many People Shirk Bills They Can Pay Remains Open to Debate, WALL ST. J., June 17, 1998, at A1 (illustrating the arguments for and against an overhaul of bankruptcy laws).

Notions of propriety change with lightning speed in the trust world these days, although the law can change much more slowly. The Cook Islands put its trust code in place in 1984. See infra notes 59-63, 144 (discussing the favorable asset protection laws adopted by the Cook Islands and other foreign jurisdictions). By the mid-1990s, Alaska and Delaware were enacting "Cook-Islands-Lite" codes. See ALASKA STAT. [subsections] 13.12.205(2)(A), 13.36.035(a),(c), 13.36.045(a)(2), 13.36.310, 13.36.390, 34.27.050(a)(3), 34.40.010 (Michie 1998) (amending Alaska's trust code); Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07 (enacting the Delaware Qualified Dispositions in Trust Act).

Arguably, the same lost sense of shame means that more beneficiaries are willing to sue trustees. Commercial trustees are now leery of "new" causes of action against them. This, in turn, impedes certain reforms. For example, where a problem would be solved by giving trustees more discretion, their fear of suits arising from that new discretion causes them to fight the reforms aimed at helping them. Thus, there has been resistance to section 104 of the Uniform Principal and Income Act, because some bankers fear it "gives" beneficiaries a "new" cause of action. Settlors, on the other hand, are growing more comfortable with giving trustees discretion; this is especially true in the context of offshore asset protection, because it is discretion that often gives those trusts their advantages. Trustees that balk at new discretions may be shooting themselves in the foot. In the new global village of trust law, the Channel Islands are not that far away. Perhaps all the discretionary trusts will migrate there. Arguably, some of this comfort with foreign trustees began with comfort in investing in foreign securities. For a discussion of trustee discretion, see Edward C. Halbach, Jr., Problems of Discretion in Discretionary Trusts, 61 COLUM. L. REV. 1425 (1961).

Which duties are owed and to whom is a subject of much discussion and diversity of views. This can be entertainingly illustrated from literature. Oscar Wilde said, "The first duty in life is to be as artificial as possible. What the second duty is no one has as yet discovered." OSCAR WILDE, EPIGRAMS: PHRASES AND PHILOSOPHIES FOR THE USE OF THE YOUNG 141 (Aldine Publ'g Co. 1910) (1909). Penelope Fitzgerald wrote, "Duty is what no-one else will do at the moment." PENELOPE FITZGERALD, OFFSHORE 9 (1979).

Today, there seems to be room to argue that few trustees see any aspirational duties to outsiders, and that run-of-the-mill commercial trustees' personnel still seek to protect the bank first and feel even less obligation to the beneficiaries. Bank management is oriented to the bottom line and wants nothing to interfere with profit; a trust officer's job can be lost in the twinkle of an eye; New Age, broker/mutual fund captive trusts do not prize fidelity to genteel notions of duty. Perhaps trust people who see themselves as inheritors of a centuries-old tradition should look to their pensions.

(45) See Fellows, supra note 44, at 150 (describing one source of spendthrift trusts: as a means to protect foolish children from wasting their inheritance).

The author was told the following story by a lawyer: The client came in and asked for a Cook Islands trust for his son, "the bum." As it turned out, all he wanted, or needed, was a domestic spendthrift trust. But the magazine he read would never have run an article on domestic spendthrift trusts--boring. And, he likely chose that specific firm because he was certain he needed a Cook Islands trust and that they were experts in offshore planning. If you were a partner in that firm you might well see the point of the product and the subspecialty. Anybody can be an expert in Cook Island law--that status is not limited to people from the Cook Islands.

(46) For a discussion of the distinction between law and morality, see Oliver Wendell Holmes, The Path of the Law, 10 HARV. L. REV. 457 (1897); Richard A. Posner, The Path Away From the Law, 110 HARV. L. REV. 1039 (1997). Additional discussion can be found in Herbert Hovenkamp, Law and Morals in Classical Legal Thought, 82 IOWA L. REV. 1427 (1997).

(47) Tradition trumps few cards today; or, if you prefer, duty does not often function as an aspirational standard that controls trustees who are not afraid of a lawsuit. We are past the crossroads where societal change intersected with tradition. We are also viewing, in a rearview mirror, the end of the traditional monopoly on trusts and trust outcomes. See, e.g., LOUIS AUCHINCLOSS, THE GREAT WORLD AND TIMOTHY COLT (1956) (discussing the idea of the traditional lawyer); JEROLD S. AUERBACH, UNEQUAL JUSTICE: LAWYERS AND SOCIAL CHANGE IN MODERN AMERICA (1976) (discussing the framework of law and traditional values); ERWIN O. SMIGEL, THE WALL STREET LAWYER: PROFESSIONAL ORGANIZATIONAL MAN? 347 (same). This elegy for the noble trustee is akin to the call for the better lawyer. See Timothy J. Sullivan, The Legal Profession and Its Future: Recapturing the Ideal of the Statesman-Lawyer, 32 U. RICH. L.R. 477 (1998).
 The gentleman trust lawyer is also to be found in the writings of Edith
Wharton:

 Harvard first--then Oxford; then a year of wandering and rich
 initiation. Returning to New York, he had read law, and now had his desk in
 the office of the respectable firm in whose charge the Dagonet estate had
 mouldered for several generations. But his profession was the least real
 thing in his life. The realities lay about him now: the books jamming his
 old college bookcases and overflowing on chairs and tables; sketches
 too--he could do charming things, if only he had known how to finish
 them!--and, on the writing-table at his elbow, scattered sheets of prose
 and verse; charming things also, but, like the sketches, unfinished.

 Nothing in the Dagonet and Marvell tradition was opposed to this
 desultory dabbling with life. For four or five generations it had been the
 rule of both houses that a young fellow should go to Columbia or Harvard,
 read law, and then lapse into more or less cultivated inaction. The only
 essential was that he should live `like a gentleman'--that is, with a
 tranquil disdain for mere money-getting, a passive openness to the finer
 sensations, one or two fixed principles as to the quality of wine, and an
 archaic probity that had not yet learned to distinguish between private and
 `business' honour.

 No equipment could more thoroughly have unfitted the modern youth for
 getting on....


EDITH WHARTON, THE CUSTOM OF THE COUNTRY 47-48 (Bantam Books 1991) (1913). As to many things, including the role of custom, and its intertwining with law, see ROBERT C. ELLICKSON, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES (1991).

(48) Equity's enforcement of the moral duties of long ago lead to trust law as we see it today. See, e.g., 1 AUSTIN WAKEMAN SCOTT & WILLIAM FRANKLIN FRATCHER, THE LAW OF TRUSTS [sections] 1, at 8 (4th ed. 1987); Hansmann & Mattei, supra note 6, at 440.

One might argue that the "moral duty" of a "gentleman" not to misuse the trust was enforced in cases finding arrangements to be illusory when designed to disinherit the widow. See Newman v. Dore, 9 N.E.2d 966 (N.Y. 1937).

Professor Langbein, both writing for himself and quoting Frederic Maitland, refers to the family trustee in, arguably, similar terms. See Langbein, supra note 6, at 638 & n.61 ("`[A]lmost every well-to-do-man was a trustee....'" (citation omitted)). Indeed, he specifically refers to the "gentleman trustee." Id. at 639.

(49) See Bankman, supra note 43, 14-18 (discussing the role of the fastidious tax adviser in reducing taxpayer aggressiveness).

(50) This can be changed by statute as in the case of the rare statute approving of social investing or enhancing the rights of the state as Medicaid creditor, or the surviving spouse who wants an elective share contribution from an inter vivos trust. For a list of state statutes that forbid investing in Northern Ireland, South Africa, and tobacco companies, see Roberta Romano, Public Pension Fund Activism in Corporate Governance Reconsidered, 93 COLUM. L. REV. 795, 809 (1993).

(51) See Robert H. Feldman, Abusive Trusts: When Can a Trust Not be Trusted?, 12 PRAC. TAX. LAW. 37 (1998) (stating that "the IRS has announced that it is actively examining trust arrangements that it deems to be abusive"). It is interesting to note that the new Restatement of Trusts is likely to enhance creditors rights. To the extent creditors have been relying on norm-responsive settlors, trustees and beneficiaries, this is arguably a fall-out of "people not paying their bills."

(52) Hansmann & Mattei, supra note 6, at 471.

(53) See JOEL C. DOBRIS & STEWART E. STERK, RITCHIE, ALFORD AND EFFLAND'S ESTATES AND TRUSTS 528 (9th ed. 1998) (noting limitations upon creditor claims in spendthrift trusts).

(54) For example, saving taxes for the family trumps the duty of impartiality. See generally supra note 44 (decrying the loss of traditional fiduciary responsibility).

(55) Everybody is out to fool the IRS.
 Never let the revenooers know anything. Pay cash, keep your lips closed,
 put nothing through banks that does not appear later in tax returns--pay
 taxes greater than your apparent standard of living and declare income
 accordingly. We had been audited three times since Mama died; each time the
 government returned a small `overpayment'--I was building a reputation of
 being stupid and honest.


ROBERT A. HEINLEIN, THE NUMBER OF THE BEAST 78 (1980). As to the propriety of citing Robert Heinlein in a law review, see Dmitry N. Feofanov, Luna Law: The Libertarian Vision in Heinlein's The Moon is a Harsh Mistress, 63 TENN. L. REV. 71, 74 (1995) (discussing Heinlein's works and stating that "there is at least some relation between the general culture and a legal system").

The IRS would like to see less discretion because they see discretion as the weapon used most against them. The banks would like less discretion because it is expensive to exercise discretion and because beneficiaries with opposing interests are more likely to sue over exercises of discretion that displease them. So, both oppose discretion to make their corporate lives easier. Of course, discretion is the essence of the modern trust and of the various anti-creditor trusts discussed in this Article. The point that discretion is essential is made in Hansmann & Mattel, supra note 6, at 473.

There are several ways to evaluate the modern approach to trusts. First, if one takes a two category, or binary approach, there is the high road of tax planning and the low road of tax avoidance. Second, there is a spectrum running from the person who seeks no tax advantage whatsoever, to the person who engages in standard planning, to the person who pushes the envelope, to the person who plays the audit lottery, to the person who engages in civil fraud, to the person who engages in criminal tax fraud. There are innumerable other categories and a dynamic relationship between these categories. Third, another binary approach is to suggest that we are looking at a "vernacular" versus "cultivated" view of trust planning. These concepts (the "vernacular" and the "cultivated") are set forth, in a nonlegal context, in JOHN KOUWENHOVEN, MADE IN AMERICA 53-95 (1948). Having established the dichotomy, Kouwenhoven goes on to say that the categories are blurring into each other. One is also reminded of Ferdinand de Saussure's distinction in language between la langue (speaking) and la parole (language). FERDINAND DE SAUSSURE, COURSE IN GENERAL LINGUISTICS 9-13 (Wade Baskin trans., 1959).

We are looking at a situation where the "cultivated" category of estate planning with trusts is expanding, often by borrowing from the "vernacular." What was verboten to high road trust lawyers thirty years ago is now appropriate.

Mainstream reporters and legal commentators attribute the rise in popularity of trusts for asset protection to the increase in the litigiousness of our society. See Richard S. Amari, Asset Protection Trusts: Nuclear Bomb Shelter, FLA. B.J., July/Aug. 1992, at 17; Jane Bryant Quinn, Asset Protection: Playing Fair vs. Playing Dirty, PITT. POST-GAZETTE, Mar. 24, 1997, at B8. Jane Bryant Quinn also claims another reason for the rise of trusts is that "wealthy people don't want to pay their debts." Quinn, supra, at B8; see Lynn M. LoPucki, The Death of Liability, 106 YALE L.J. 1, 23-30 (1996) (discussing asset securitization as a judgment-proofing strategy).

One suggestion is that the phenomenon originated with doctors concerned that malpractice suits would wipe them out. Another is that lawyers use them because, as one lawyer said, "`I don't want someone to do to me what I do to people all day long.'" Nick Ravo, The Offshore Trust: A Shield Against Certain Swords, N.Y. TIMES, July 20, 1997, [sections] 3, at 10.

(56) "Boys in uniform, carrying guns, marched with their eyes ahead of them, marched, their arms stiff, and on their faces an expression like the letters of a legend written round the base of a statue praising duty, gratitude, fidelity, love of England." VIRGINIA WOOLF, MRS. DALLOWAY 76 (1925). These traditional aspirations are antiquated; as love of England is off the list for the modern trustee, you no longer have to think of England.

(57) The author thanks Professor Edward C. Halbach for sharing this and many other ideas with the author. The trust, and its predecessor, the use, have been used to avoid laws and creditors for hundreds of years. See SCOTT & FRATCHER, supra note 48, [subsections] 1, 1.4, 2, at 7-8, 14-16, 38. As Professors Hansmann and Mattei put it, "[i]ndeed, the protean nature of the trust makes it particularly well suited to efforts at fiscal and regulatory avoidance, and this has been among the reasons that the European civil law countries have been reluctant to adopt the form." Hansmann & Mattei, supra note 6, at 479. They also point out that "[i]t is possible to tax trusts in any way desired." Id. at 478. So, the flummoxing of taxing authorities via the trust stands on something other than natural law.

(58) Arguably, this is an unintended result of the flurry of wholesome reforming of probate and trust law of the last several decades. It is inevitable that reform for the sake of modernity would pave the way for reform for the sake of tax avoidance.

(59) See Gideon Rothschild, Establishing and Drafting Offshore Asset Protection Trusts, 23 EST. PLAN. 65 (1996) (discussing the factors that need to be considered in selecting the most favorable jurisdiction in which to establish an offshore asset protection trust). See generally Elena Marty-Nelson, Offshore Asset Protection Trusts: Having Your Cake and Eating it Too, 47 RUTGERS L. REV. 11 (1994) (discussing offshore asset protection trusts (OAPTs)).

(60) See generally ALASKA STAT. [subsections] 13.12.205(2)(A), 13.36.035(a),(c), 13.36.045(a)(2), 13.36.310, 13.36.390, 34.27.050(a)(3), 34.40.010 (Michie 1998) (amending the Alaskan trust laws to protect settlor's assets from creditors); Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07 (enacting the Delaware Qualified Dispositions in Trust Act to protect settlor's assets from creditors); Douglas J. Blattmachr & Richard W. Hompesch II, Alaska vs. Delaware: Heavyweight Competition in New Trust Laws, 12 PROB. & PROP. 32 (1998) (comparing the amendments to the Alaskan and Delaware trust laws as they affect asset protection). Alaska and Delaware have the vice and the virtue of being close to home. Foreign trusts can be an easier sell because they are far away--harder for creditors to reach, possibly more fun to visit, and exotically attractive. See, e.g., Jeffrey A. Schoenblum, Multijurisdictional Estates and Article H of the Uniform Probate Code, 55 ALB. L. REV. 1291 (1992) (noting that an increasingly mobile population can have assets in several jurisdictions at once); see also INTERNATIONAL ESTATE PLANNING PRINCIPLES & STRATEGIES 441-638 (Donald D. Kozusko & Jeffrey A. Schoenblum eds., 1991) (discussing estate planning in various jurisdictions inside and outside of the United States).

(61) See ERWIN N. GRISWOLD, SPENDTHRIFT TRUSTS [sections] 1, at 2 (2d ed. 1947) (noting that a settlor may create a trust in which the beneficiary's interest is inalienable and creditor-proof). When there is self-spendthrifting, the tension between the freedom of disposition of the donor and of the donee essentially disappears. There is no dead hand dilemma at least until the settlor disappears from the equation. See Gregory S. Alexander, The Dead Hand and the Law of Trusts in the Nineteenth Century, 37 STAN. L. REV. 1189, 1232 (1985). Spendthrift trusts were new in the nineteenth century. See id. at 1193-1201 (describing the evolution of the spendthrift trust in England and the United States in the nineteenth century). These new trusts may be protective of wealth and of families and family genes in ways we have not thought of before, or have not thought of allowing before. It is a counterintuitive truth, perhaps--tie up your money to achieve greater freedom and greater wealth.

(62) See ALASKA STAT. [sections] 34.40.110(a) (Michie 1998); Act of June 29, 1998, ch. 343, sec. 5, [sections] 3570(9)(c), 1998 Del. Adv. Legis. Serv. 302, 304. Alaska and Delaware still preserve fraudulent conveyance law to one degree or another. Oversimplifying, Alaska and Delaware allow suits against the trust to take place for up to four years after the trust transfer is made. The Cook Islands have an even more debtor-friendly fraudulent conveyance law with, among other things, a two year statute of limitations from the date the trust was created or an addition was made. The law also requires creditors prove "actual intent to defraud," a standard "almost impossible to meet." Marty-Nelson, supra note 59, at 60; see Cook Islands International Trusts Act 1984 [sections] 13B (1) (amended in 1989, 1991, and 1996), principal act reprinted in LEWIS D. SOLOMON & LEWIS J. SARET, ASSET PROTECTION STRATEGIES 361 (1993). It is said, "... Belize is best. The Cook Islands adopted at least some version of fraudulent conveyance law; Belize (the former British Honduras) did not even try." Thomas M. Mayer, Sheltering Assets in 1994, REAL ESTATE WORKOUTS AND BANKRUPTCIES 446 (PLI Real Est. Law & Practice Course Handbook Series No. N4-4585, 1994).

(63) See Jonathan G. Blattmachr et al., New Alaska Trust Act Provides Many Estate Planning Opportunities, 24 EST. PLAN. 347 (1997) (discussing the new Alaska Trust Act and its allowance for a "perpetual trust"); Leslie C. Giordani & Duncan E. Osborne, Will the Alaska Trusts Work?, J. ASSET PROTECTION, Sept./Oct. 1997, at 7. The statutory techniques include declaring that certain settlor retained powers do not make a trust revocable (such as a settlor's power to refuse a distribution from the trust, to retain special powers of appointment, or the receipt of discretionary distributions from the trust). One has to wonder if it is wise to allow for the creditor-proofing of assets in a credit economy.

(64) The author is on a private listserv where, in June of 1998, there were a series of posts complaining of the conduct of one broker's captive trust company. Specifically, the conduct bemoaned was extremely aggressive and was characterized as overreaching and engaging in the unauthorized practice of law. Regardless of the merit of these criticisms, the bank at issue surely was not playing by the old rules. The venality and incompetence of some brokers is discussed in Thomas Wuil Joo, Who Watches the Watchers?, 72 S. CAL. L. REV. (forthcoming 1999).

(65) See Ellen E. Schultz, Banks Get New Competition for Trusts, WALL ST. J., Nov. 24, 1995, at C1 ("The musty trust business is getting a mutual-fund makeover.").

(66) Total deregulation should lead to competition and reduction in inefficiencies due to various agency costs and the bank monopoly on the service. Sadly, there would inevitably be more losses to consumers due to fraud.

(67) Their main concerns are investing and physical management of assets and asset information.

(68) Rumor has it that at least one broker-formed, captive trust bank in California will not hire any lawyers with prior trust experience because those lawyers are "too fussy." Gossip has it that one broker-formed, captive trust bank in another state is asking for receipts and releases without offering accountings. See Wood v. Honeyman, 169 P.2d 131 (Or. 1946) (the duty to account is not waivable).

For a discussion of using mutual funds as alternatives to banks in a different context, see Kenneth E. Scott, Mutual Funds as an Alternative Banking System (John M. Olin Prog. L. Econ. Stanford L. Sch. Working Paper No. 142, May 1997).

(69) See Private Banks Strike Gold With Alternative Investments, GLOBAL PRIVATE BANKING (Inst. Investor, Inc.), Mar. 9, 1998, at 1 [hereinafter Private Banks] (reporting the growth of these alternative investment strategies).

(70) Hot trust investments are to ordinary trust investments as hedge funds are to old-line, balanced mutual funds. See A Hitchhiker's Guide to Hedge Funds, ECONOMIST, June 13, 1998, at 76 (explaining how the bad reputation of hedge funds may be unfounded); Bethany McLean, Everybody's Going Hedge Funds, FORTUNE, June 8, 1998, at 177 (discussing why many bright, talented people are leaving Wall Street to start hedge funds); Mitchell Pacelle, Bull Market Has a Bumper Crop: Hedge Funds, WALL ST. J., June 5. 1998, at C1 (stating that "young hotshots are leaving mutual funds and investment banks to set up hedge funds at a rate of more than one a day"). Hedge funds are getting pedestrianized, too. See James R. Hedges, IV, The Pedestrianization of the Hedge Fund Industry, TR. & EST., Mar. 1998, at 62 (discussing the tremendous growth and change that the hedge fund industry has been experiencing).

(71) See, e.g., In re OnBank & Trust Co., 688 N.E.2d 245 (N.Y. 1997).

(72) See VONNEGUT, supra note 13, at 104 ("`The Money River, where the wealth of the nation flows.... We can slurp from that mighty river to our hearts' content.'").

(73) With apologies to Arthur Laurents (book), Jule Styne (music), and Stephen Sondheim (lyrics). "You Gotta Get a Gimmick" is from the musical Gypsy.

(74) The Cayman Islands seem to be a favorite place to establish offshore trusts. For a discussion of the offshore banking business in the Cayman Islands, see Offshore Focus; Cayman Islands, GLOBAL PRIVATE BANKING (Inst. Investor, Inc.), Jan. 26, 1998, at 8. The Channel Islands are another popular offshore trust jurisdiction.

Offshore planning can take place in Liechtenstein, using Anstalts (or foundations), or in France. For a discussion of Anstalt estate planning, see Edsel Doran, Private Foundations: A New Option in the Netherlands Antilles, 9 J. INT'L. TAX'N 39 (1998); Dr. oec Kurt Alig, Liechtenstein Tax System Has Advantages for Holding Companies and Foundations, 8 J. INT'L. TAX'N 318 (1997). The language barriers and the different system of law make these arrangements less popular, because they are harder to understand. Of course, this is an argument for using these arrangements. Foreign law and foreign languages, the lack of transparency and the inefficiencies if you will, will scare off any number of plaintiffs.

(75) In the winner-take-all-world in which we live, the first jurisdiction to be accepted as "the place to go" (the way Delaware is "the place to incorporate") will dominate the market for this kind of business. The same may be true for the respected trust companies that establish a clear identity in those markets. Some suggest that tax shelters should be rated in the same manner as movies. See Michael S. Powlen & Raj Tanden, Corporate Tax Shelters or Plus Ca Change, Plus C'est La Meme Chose, TAX PLANNING FOR DOMESTIC AND FOREIGN PARTNERSHIPS, LLCs, JOINT VENTURES, AND OTHER STRATEGIC ALLIANCES 537, 549-55 (PLI Tax Law and Estate Planning Course Handbook Series No. J0-000K, 1998).

(76) For a discussion of offshore trusts in Bermuda, see Minna Lacey, Offshore Focus; Bermuda, GLOBAL PRIVATE BANKING (Inst. Investor, Inc.), Feb. 23, 1998, at 10.

(77) See Dean C. Berry et al., Foreign Trusts and Gifts: Part 1: Definitions of Foreign and Domestic Trusts and Reporting/Penalties, 8 J. INT'L. TAX'N 347 (1997).

(78) See generally James T. Lorenzetti, The Offshore Trust: A Contemporary Asset Protection Scheme, 102 COM. L.J. 138 (1997) (discussing the shortcomings of domestic asset protection devices and the benefits of offshore asset protection trusts for serious investors).

(79) See, e.g., Bessemer Trust Advertisement, N.Y. Times, Nov. 19, 1995 (Magazine), at 46.

(80) See Matt Smith, Bankers Book Bucks, S.F. WEEKLY, Apr. 2, 1997, at 12. Being wined and dined by Northern Trust is reason number 278 for wanting to be rich. Or, putting it differently, "Want to meet John Berendt or Dominick Dunne, just come down to our Palm Beach branch." See James S. Hirsch, Novel Idea of Literary Clubs Pays Off for Chicago Trust Company, PALM BEACH POST, Mar. 15, 1997, at 5B; Stephanie Rosen, By Invitation Only: Referrals Mean a Lot to Affluent Investors Looking for a Financial Advisor, BANK INV. MKTG., June 1997, at 57. The articles are about the outreach efforts of the private banking services part of the bank. That is only one step down the hall from the trust department for purposes of this Article. See Hirsch, supra, at 5B. The bank is also discussed in Scott McMurray, Northern Star, INST. INVESTOR, Dec. 1997, at 167. For an article about one bank that says it has forsworn dog walking, see James Mackintosh, No More Dog Walking: Private Banking, FIN. TIMES (LONDON), Nov. 12, 1997, at 18.

(81) See Private Banks, supra note 69, at 1. There seems to be a general agreement that one needs at least five million dollars in financial assets to get the attention of a first tier American trust company, and the same amount to send offshore to justify an offshore trust. Five million dollars is one of those mythic figures that has not changed in a while. See Bessemer Trust Advertisement, supra note 79, at 46. This has been the minimum for the last five years. For an interesting at-least-$5-million-in-financial-assets story, see Geraldine Fabrikant, Talking Money with Stephanie Powers: Lights! Camera! Caution, N.Y. TIMES, July 12, 1998, [sections] 3, at 1. Several decades ago, the author decided that the figure that would give him total financial freedom was $12 million. That has not changed either.

(82) See American Financial Regulation: The Great Escape, ECONOMIST, Mar. 14, 1998, at 86 (noting the push for legislation that will permit investment banks to buy commercial banks, allowing investment banks to offer more trust and estate planning services).

(83) We may come to look back to these times and recognize that we are looking at a period of time when there was great change in the nature of the trust, especially as to spendthrift rules and the Rule against Perpetuities. For a discussion of such changes a century ago, see Alexander, supra note 22, at 1189.

(84) See Quinn, supra note 55, at B8 (describing the manner in which many wealthy people avoid paying their bills by hiding money in pension funds and other trusts).

(85) See generally Marty-Nelson, supra note 59, at 11 (discussing offshore asset protection trusts); Peter Spero, How to Arrange a Client's Property for Asset Protection, 22 EST. PLAN. 226 (1995) (advising estate planners on asset protection issues).

(86) See Joel C. Dobris, Medicaid Asset Planning by the Elderly: A Policy View of Expectations, Entitlement and Inheritance, 24 REAL PROP. PROB. & TR. J. 1 (1989) (examining the phenomenon where elderly persons purposefully become poor so that they will then qualify for Medicaid). In 1998, the Wall Street Journal had a stow about Medicaid patients being kicked out of a nursing home--the great fear of all who artificially impoverish themselves to get Medicaid. See Michael Moss & Chris Adams, For Medicaid Patients, Doors Slam Closed: Citing Finances, Nursing Home Evicts the Needy, WALL ST. J., Apr. 7, 1998, at B1.

(87) See M. CARR FERGUSON ET AL., FEDERAL INCOME TAXATION OF ESTATES, TRUSTS, AND BENEFICIARIES [sections] 11.02 (3d ed. 1998) (discussing CRATs and CRUTs); CASNER & PENNELL, supra note 44, [sections] 6.4.3 (discussing GRATs and GRUTs). The author dreams of inventing the JOEL--Just One Eensie Little (tax bill): the JOEL.

(88) See Laura Castaneda, Leaving a Lasting Legacy Group Urging Average Citizens to Include Charities in Wills, S.F. CHRON., May 27, 1998, at B1 (crediting this increased wealth to a strong economy and large numbers of baby boomers who are starting to inherit from their parents); Christopher Drew & David Cay Johnston, For Wealthy Americans, Death is More Certain than Taxes, N.Y. TIMES, Dec. 22, 1996, at A1 (describing the amount of taxes that the wealthy are able to avoid). Both increase the audience for this kind of planning.

(89) See supra notes 29-71 and accompanying text (discussing this high-mindedness).

(90) See Quinn, supra note 55, at B8 (reporting on people who utilize trusts to avoid paying their bills). There are several categories to observe, at a minimum: stiffing one's trade and tort creditors; sophisticated tax planning--approved by no less than Learned Hand--and improper tax avoidance. As to Learned Hand's view of tax planning, see Commissioner v. Newman, 159 F.2d 848, 850-51 (2d Cir. 1947); Marvin A. Chirelstein, Learned Hand's Contribution to the Law of Tax Avoidance, 77 YALE L.J. 440 (1968). These days, blue-chip trust lawyers are less in the business of defining what the standard estate plan is and what a standard amount of taxes payable by law-abiding persons is; instead, they are more involved in finding the fraud line and trying to stay ahead of, and away from, the schlockmeisters. The blue-chip lawyers essentially do guarantee a high minimum level of competence and freedom from theft. And good manners.

In the old days, when there were a few standard tax-oriented plans--plans that most thoughtful lawyers agreed on--lawyers, clients, and creditors operated in the same universe. That is no longer the case. In part, this is possible because law is remarkable in the handcrafted, custom-tailored nature of the product. Very little of the production of lawyers is cut and dried. Law is a craft. This allows lawyers to take great liberties if they choose to do so. This point is implicit in Bankman, supra note 43.

(91) One might date the massification of trusts from the appearance of Dacey's How to Avoid Probate. See NORMAN F. DACEY, HOW TO AVOID PROBATE (1965); NORMAN F. DACEY, HOW TO AVOID PROBATE (5th ed. 1993) [hereinafter DACEY (5th ed.)]. It is not unrealistic to say this began in the 1960s, even though the following two cases bracket the 1960s. See Barnette v. McNulty, 516 P.2d 583 (Ariz. 1973); Farkas v. Williams, 125 N.E.2d 600 (Ill. 1955). The massification of trusts means litigation is less likely to involve sophisticated clients and lawyers. This will lead courts to reach out to litigants and try to lend a helping hand as in Barnette. Courts are less likely to punish the well represented who forgot to dot every "i" and cross every "t." But see Farmers' Loan & Trust Co. v. Winthrop, 144 N.E. 686 (N.Y. 1924) (refusing to honor the settlor's intent, where his attorney made an error in drafting the trust documents).

Of course, mass versus class is not a new thought in the world. The proliferation of information and information sources (including the world-wide-web) has democratized trust planning and undermined the high priest status of the downtown trusts and estates lawyer. See Leah Nathans Spiro & Geri Smith, Tax-Haven Whiz or Rogue Banker?, Bus. WK., June 1, 1998, at 136; Philip Crawford, Offshore Centers: No Longer Elite, INT'L HERALD TRIB., Sept. 28, 1993, at 14. Arguably, the diminution of the high priest was noted in an earlier decade. See Robert A. Stein & Ian G. Fierstein, The Role of the Attorney in Estate Administration, 68 MINN. L. REV. 1107 (1984) (describing the dissatisfaction of many clients with their estate attorneys).

As of April 1, 1998, Nolo Press, which sells do-it-yourself trust products, had sold just under 400,000 of these products. E-mail interview by Katy Filner with Jennifer Spoerri, Nolo Press representative (Apr. 6, 1998). The organized bar of Texas seems to be trying to keep Nolo Press, and similar organizations, from selling its products in Texas. See Bob Egelko, Texas May Ban How-To Law Books, SEATTLE TIMES, Oct. 19, 1998, at A7 (noting that in the past, the Texas State Bar's Unauthorized Practice of Law Committee has "argued that books advising the lay public about solving legal problems are as dangerous as bad lawyers"). To the extent that changes in the trust are generated by non-lawyers, this type of effort to redirect the democratic response to trusts slows down the process of change.

(92) See Bill Steigerwald, For Boomers Getting Older Will Be a Trip, PITT. POST-GAZETTE, Dec. 14, 1995, at B1 (discussing the proposition that many baby boomers are self-indulgent); Edward E. Furash, Demographics Dominate--Demographics of Bank Customers, J. LENDING & CREDIT RISK MGMT., Mar. 1996, at 7. Securing the family inheritance can be all the more important where the source of the family fortune and income is no longer viable--securing it in the sense of getting it and securing it in the sense of keeping it secure against creditors and fools. As an aside, the 1997 increase in the estate tax exemption is not relevant to this discussion because the amounts involved are not large enough to matter.

(93) See DOBRIS & STERK, supra note 53, at 446.

(94) The June 14, 1998 Sunday papers in Yolo County, California carried an advertisement placed by "Asset Preservation Services" offering Medicaid asset planning, avoiding state Medicaid liens, avoiding probate, and advice regarding revocable inter vivos trusts. See Advertisement from Asset Protection Services for June 17, 1998 Senior Financial Survival Workshop (on file with author). This is the low end of asset protection--how to use and beat Medicaid. Obviously, the proprietors of "Asset Protection Services" believe that label helps make sales. If they are rational business people, it does. This suggests that the idea of asset protection has entered the trust heuristic. The low end is also described in Edward Iwata, IRS Cracks Down on '90s `Fake' Tax Shelters, S.F. EXAMINER, July 26, 1998, at Al; see also What is a Qualified Trust, supra note 44, at 7 (discussing asset protection for the upstanding upper middle class). Of course, people have always sought to protect themselves and their assets by using trusts. Historically, that was done only by way of choice of trustee, choice of assets, and spendthrift trusts for weak beneficiaries. Now, more magic is invoked.

(95) At the very least, "wholesome" includes encouraging people to put their affairs in order, engaging in proper planning, making charitable gifts, and the like.

(96) See RICHARD C. WYDICK & REX R. PERSCHBACHER, CALIFORNIA LEGAL ETHICS 90-117 (2d ed. 1997) (discussing the practice of advertising for legal services).

(97) See Frank L. Maraist & Thomas C. Galligan, Jr., The Legal System: Defective Product or Sign of the Times?, 58 LA. L. REV. 411,416 (1998) (arguing that there is an "oversupply" of lawyers and that law schools are "cash cows" for universities).

(98) See James S. Hirsch & Robert McGough, Fidelity Denies Rumors of Intention to Sell Firm, WALL. ST. J., June 12, 1998, at C1 (discussing "a vast technology infrastructure").

(99) See Fewer Secrets, More Competitors, ECONOMIST, Mar. 28, 1998, at 72-73 (discussing how private banking and investment banking are becoming similar because of growing customer demand for more sophisticated services and competition for brokers).

(100) See id. (finding that "American investment banks offer a wider range of products than European banks").

(101) See Karen Hube, Some Revocable Living Trusts Can Cost Thousands of Dollars in Needless Taxes, WALL ST. J., Feb. 6, 1998, at C1 (discussing the problems in Louisiana, Ohio, and Oregon and stating that "retirees and others are often paying thousands of dollars for fill-in-the-blank documents `that have little chance of accomplishing their goals'"); see also In re Estate of Pozarny, 677 N.Y.S.2d 714, 716 (Sur. Ct. 1998) (stating at the outset that the case raises "troubling questions about the use of pre-printed or form living trusts, which are now being heavily marketed in New York State").

(102) See In re Estate of Pozarny, 677 N.Y.S.2d at 716-17 (discussing the "heavily promoted" estate planning packages that are sold through franchises and noting that "[o]ne of the dangers of such a system ... is that it leads participant franchisees, who may have little if any experience in sophisticated estate and tax planning, to consider themselves competent to `draft' complex instruments and purvey them on a large scale"); Hube, supra note 101, at C1 (discussing how, in addition to the costs of creating these ineffective and sometimes invalid trusts, they may cost thousands in more unnecessary taxes); see also Alicia R. Bromfield, Comment, The Florida Bar v. American Senior Citizens Alliance: Is "Gathering the Necessary Information" the Unlicensed Practice of Law?, 12 QUINNIPIAC PROB. L.J. 523 (1998) (discussing the problems of trust mills that target the elderly).

(103) See ANTIDOTES FOR ESTATE PLANNING SCAMS, BOTCHED TRUSTS, AND OTHER DISASTERS, CONTINUING EDUCATION OF THE BAR (Program Handbook, March/April 1998).

(104) See generally DACEY (5th ed.), supra note 91 (providing various trust forms with easy to follow instructions for each). Organized bar associations fought the Dacey trust many years ago, and lost. See, e.g., New York County Lawyers' Ass'n v. Dacey, 234 N.E.2d 459 (N.Y. 1967) (reversing an order finding Norman Dacey guilty of the unauthorized practice of law because of his book on how to avoid probate). The trial court opinion details how his probate book provided forms to create 23 instruments. See New York County Lawyer's Ass'n v. Dacey, 282 N.Y.S.2d 985, 986 (Sup. Ct.), rev'd, 234 N.E. 2d at 459 (N.Y. 1967). This may predict the outcome of the Texas Bar's attacks on Nolo Press. See Greg Miller, A Turf War of Professionals vs. Software, L.A. TIMES, Oct. 21, 1998, at A1 (stating that Nolo Press is to appear before the Texas Supreme Court in order to avoid being sued by the Texas Bar's Unauthorized Practice of Law Committee).

(105) See Certain Trust Arrangements, I.R.S. Notice 97-24, 1997-16 I.R.B. 6. Sophisticated lawyers and clients avoid taxes through nuanced and sophisticated positioning and drafting. Seen through a smudged lens, such planning is often primitively imitated by trust mill operators and other promoters, and by people who represent themselves.

(106) To use a dreary word, the productization of the legal profession is part of what is going on. Taking that as a given, at one end of the spectrum the wealthy get custom-tailored products, while the unsophisticated, or less wealthy, get off-the-rack products via software or form books for lawyers. Do-it-yourselfers do it themselves, with software or books. Lawyers have always thought in terms of packages of documents, tailored one way or another for the client. In other words, the lawyer used to mediate between the client and the package. Too often now, however, the lawyer is the peddler of the package that is designed to beat the government and the creditor, with little concern about the value of the package to the specific client. The pressure to move the package ends up putting the lawyer in league with the devil. All of this in an era when wise counsel is all the more valuable. There is wisdom in the following quote from an article about the productization of television news: "There is nothing wrong with treating news as a product for sale; but you must treat it carefully, because it contains ingredients like trust and decency that spoil easily." Stop Press, ECONOMIST, July 4, 1998, at 19.

(107) Perhaps Timothy Colt might get the vapors. See AUCHINCLOSS, supra note 47. A modest part of the discomfort with the massification of the kind of trusts discussed in this Article is the discomfort generated in the general society about the effect of the new sources of information and the new medium of the Internet on the consumption of legal services. See Lucy Schlauch Leonard, Comment, The High-Tech Legal Practice: Attorney-Client Communication and the Internet, 69 U. COLO. L. REV. 851 (1998) (discussing the new implications the Internet has on practicing law); Human Factors, COMPUTERWORLD, Feb. 5, 1996, at 2 (finding that "many Americans still hold computers in great awe").

(108) The Wall Street Journal announced that the IRS is going to audit more gift tax returns because so many people are aggressively using partnerships in estate planning. The IRS cannot declare the technique illegal or the use of the form void, and they can no longer rely on good taste or a sense of shame or duty. See Tom Herman, A Special Summary and Forecast of Federal and State Tax Developments, WALL ST. J., June 3, 1998, at Al.

(109) An explanation: historically, the highly-motivated, tax-oriented individual could expend resources looking for an acceptable tax reduction scheme by hiring fancy lawyers and/or accountants to prepare custom-tailored versions of the generally accepted legitimate tax reduction trusts. One might say that a select few knew about and used marital deduction and save-the-second-tax trusts. They were "gentlemen" who could be relied on to use them in the "right" ways. See HARRISON TWEED & WILLIAM PARSONS, LIFETIME AND TESTAMENTARY ESTATE PLANNING 1-3 (10th ed. 1988). Those who really cared were served and the masses paid excess taxes. Or, if you wish, the squeaky wheel got the grease. Now, the squeaking has become a din and the IRS cannot deal with it. Everyone wants to go to the head of the line. Everyone is a friend of the manager. Everyone wants a discount for using a trust. Every lawyer knows about marital deduction trusts, and specialists who wish to distinguish themselves in the marketplace must offer ever more exotic estate planning tools--trusts--in order to make a living. There is, if you will, a trust glut.

(110) One might wonder where all the reform came from? There are several possible answers, including the following. The first is the increased interest of law professors in theory. See Joel C. Dobris, Boomer Twenty Years Later: An Introduction, with Some Footnotes About "Theory," 54 ALB. L. REV. 171, 179 n.54 (1990). Theory led to the theory-based reform of trust investing. See RESTATEMENT (THIRD) OF TRUSTS: PRUDENT INVESTOR RULE [sections] 227(b) (1992); UNIF. PRUDENT INVESTOR ACT, 7B U.L.A. 56-57, 61 (Supp. 1998). Reformed investing led to principal and income reform. See UNIF. PRINCIPAL AND INCOME ACT [sections] 104 (1997 Act), 7B U.L.A. 3, 8-9 (Supp. 1998). The second possible answer is the general hunger of professors and a certain type of practitioners to do reform, with a specific probate reformers' interest in superior default rules. See Dobris, The Probate World, supra note 6, at 395 (discussing how trust and estate lawyers are reform-minded). The third is commercial trustee and lawyer pressure to improve a creaky system. The fourth is a possible selfish desire on the part of commercial trustees to reduce their liability and to shuck off fiduciary duties. The fifth is an increased interest on the part of clients in beating out creditors which may well be a manifestation of increased materialism and income gaps in our culture and the breakdown of civil society. The sixth is that law reform is one of the last respectable things that a doctrinal law professor can do these days. If the topic is civil society, see STEPHEN L. CARTER, CIVILITY: MANNERS, MORALS, AND THE ETIQUETTE OF DEMOCRACY (1998); EDWARD SHILS, THE VIRTUE OF CIVILITY: SELECTED ESSAYS ON LIBERALISM, TRADITION, AND CIVIL SOCIETY (Steven Grosby ed., 1997).

Another explanation for "reform" in distant jurisdictions with settlor-friendly trust codes is the shrinking of the world and its markets via jet planes, faxes, satellite communications, the world-wide-web, and the like. Ideas are taken up much more quickly; and there are fewer filters available. People are subject to information overload and are forced to discriminate less among ideas, just to stay afloat. A foreign trust is not so dramatic an idea as the millennium turns.

One could say there is high-minded reform and there is commercially-minded reform, though, in truth, there must be a lot of overlap. In theory, the reforms of the American Law Institute (ALI), National Conference of Commissioners on Uniform State Laws (NCCUSL), and various state law reform commissions are high-minded and neutral, while the Alaska, Delaware and foreign jurisdiction reforms are commercial in nature. Of course, that is simplistic. For a symposium devoted to the reform role of the ALI, see Symposium, The American Law Institute: Process, Partisanship, and the Restatements of Law, 26 HOFSTRA L. REV. 567 (1998).

One might also categorize the ALI's Restatement of Trusts project as shaping up the trust, as we know it, for the new millennium. The ALI is getting rid of all the rules that foolishly impede effectuating the settlor's intent. The Restatement is also drafted to ensure similar outcomes without regard to whether the decedent disposed of his property by will or by revocable inter vivos trust. This paragraph is an oversimplification, by the author, of a conversation with Professor Halbach, the Reporter for the Restatement. While not directly relevant, the ALI is also reforming the law of wills as well as the law of trusts. See RESTATEMENT (THIRD) OF PROPERTY: WILLS AND OTHER DONATIVE TRANSFERS (Tentative Draft No. 2, 1998).

(111) RESTATEMENT (THIRD) OF TRUSTS: PRUDENT INVESTOR RULE [sections] 227(b) (1992).

(112) UNIF. PRUDENT INVESTOR ACT, 7B U.L.A. 56-57, 61 (Supp. 1998).

(113) UNIF. PRINCIPAL AND INCOME ACT [sections] 104 (1997 Act), 7B U.L.A. 3, 8-9 (Supp. 1998). The Act is discussed in S. Alan Medlin, Proposed New Fiduciary Accounting Rules, PROB. PRAC. REP., Mar. 1998, at 1.

(114) Modern Portfolio Theory is the term often used to describe a constellation of several theories about the nature of modern markets and the investment of financial assets. See R.A. BREALEY, AN INTRODUCTION TO RISK AND RETURN FROM COMMON STOCKS (2d ed. 1983); ROBERT HAGIN, MODERN PORTFOLIO THEORY (1979); JONATHAN R. MACEY, AN INTRODUCTION TO MODERN FINANCIAL THEORY (2d ed. 1998). Modern Portfolio Theory means essentially unrestricted total return investing, to most people. The thought is Professor Ronald C. Link's. Thus it seems fair to say that the new trust has to impound both risk and security.

(115) See generally UNIF. TRUST ACT (Draft, Sept. 1998) (discussing all aspects of the trust in court and in history).

(116) See ALASKA STAT. [subsections] 13.12.205(2)(A), 13.36.035(a),(c), 13.36.045(a)(2), 13.36.310, 13.36.390, 34.27.050(a)(3), 34.40.010 (Michie 1998); Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302,302-07.

(117) See UNIF. PRUDENT INVESTOR ACT, 7B U.L.A. 56-57, 61 (Supp. 1998).

(118) This was very much the case in the summer of 1998--a time when both dividends on stocks and bond interest were both low. As to dividends, see Gregory Zuckerman, As Yields Drop to Historic Levels, Future of Rates Depends on Asia, WALL ST. J., June 15, 1998, at C1. As to bonds, see Toddi Gutner, Bond Investors Will Have to Lower Their Sights, BUS. WK., June 15, 1998, at 106; Gregory Zuckerman, As Bonds Rally, Name of the Game is Falling Rates, and Analysts Say Boon to Borrowers Isn't Over Yet, WALL. ST. J., June 17, 1998, at C1 [hereinafter Zuckerman, As Bonds Rally]. Where is the traditional income to come from?

(119) See Roger E. Alcaly, How to Think About the Stock Market, N.Y. REV. BOOKS, June 25, 1998, at 22.

(120) See Christine Jolls, Stock Repurchases and Incentive Compensation (National Bureau of Economic Research, Inc., Working Paper No. 6467, 1998) (discussing the effects of buybacks on dividend policies).

(121) The trustee can usually invade principal to give value to the income beneficiary.

(122) See James K. Glassman, Philip Morris's Appeal: Breathtaking Returns, WASH. POST, Sept. 29, 1996, at H1 (stating that the price of Philip Morris stock is low because it is the "target of hundreds of lawsuits ... for making a product that shortens people's lives"). President Clinton stated, "The tobacco industry has no right to peddle cigarettes to children or encourage them directly or indirectly to smoke. It is immoral." Michael K. Frisby, Clinton Lauds Affirmative Action, Slaps Tobacco, WALL ST. J., Aug. 21, 1996, at A3.

(123) See Glassman, supra note 122, at H1 (warning "readers too fastidious to purchase (or even to ruminate about) tobacco stocks to stop reading right here and move on to the sports page" before discussing the benefits of investing in tobacco). We seem to live in a world of total return and our trustees now live there, too. The problem is to get a good total return using equity and get some of that return out to the income beneficiary when there is no power to invade principal. In other words, all of these changes are going to make it harder to come up with an income stream for the life tenant. The solution of the new Uniform Principal and Income Act is a power to equitably adjust return when it comes in the form of capital gain instead of dividends or interest. Some observers think that is just fine. Others think that it goes too far and others think it does not go far enough. Professor Jolls argues, persuasively, that the low dividends are a function of top hat, executive compensation policies. See Jolls, supra note 120.

(124) Bonds are low payers too. See Zuckerman, As Bonds Rally, supra note 118, at C1.

(125) It seems inevitable, and in many cases unfortunate, that many trustees will choose an allocation of 60% equity and 40% bonds, so the number of trustees "forced" to buy bonds may be smaller than one might fear. The whole system of operating a trust is under review, if not under attack. In the past, the garden variety trustee of an "income to A, remainder to B" trust would create a conservative portfolio, enabling him to pay the traditional income to A and when A died, pay the remainder to B. The more conscientious trustee might try to come to an understanding of what the settlor intended and what the income beneficiary wanted, and structure the investments accordingly. Modern Portfolio Theory to the contrary notwithstanding, trustees will likely continue to operate in the way described. There will be, however, more pressure on lawyers to discuss with their clients the clients' ideas about what kind of income stream the trust is expected to provide for the life tenant and what kind of value is to go to the remainder beneficiary. To the extent that lawyers currently steer clear of discussions of investment return and the financial role of the trust in the beneficiaries' lives, that is likely to change over the next decades.

In several contexts it has become openly proper to consider the circumstances of particular trusts and trustees. Nowhere is this clearer than in trust investing. See William L. Hoisington, Modern Trust Design: New Paradigms for the 21st Century, 31 U. MIAMI INST. ON EST. PLAN. [paragraph] 600-05 (1997) (discussing the different models of trusts). There is similar pressure to consider the circumstances of the particular trust beneficiaries in designing the terms of the trust.

(126) See UNIF. PRINCIPAL AND INCOME ACT (1997 Act) [sections] 104, 7B U.L.A. 8 (Supp. 1998).

(127) See Arthur M. Sherwood, Tax Aspects of Using a Unitrust Amount to Define Appropriate Benefit Currently Distributable from Non-Charitable Trusts, 70 N.Y. ST. B. J., Sept./Oct. 1998, at 70 (discussing the Legislative Advisory Committee's recommendation to change the current New York Principal and Income Act). There is interest in a similar solution in Pennsylvania, too. See Letter from Robert L. Freedman, Dechert Price & Rhoads, to E. James Gamble (Feb. 20, 1998) (on file with author).

(128) See Sherwood, supra note 127, at 70 (discussing the New York reforms). The "unitrust" approach was rejected by NCCUSL. See generally Dobris, The Probate World, supra note 6 (discussing various possible principal and income regimes). Equitable adjustment is preferable to the unitrust; if a unitrust is used, the lower the percentage, the better. One should be concerned about any unitrust payout in excess of three percent, if the goal is impartiality between income and principal and/or if the trust is a long-term trust.

At some point in the future, clients may well be telling drafters whether they want a unitrust or not and what percentage they want and/or they will be telling drafters whether the trust is to be tilted to the life tenant, to the remainder beneficiary, or whether the trust is a family endowment that is expected to crank out the same level of purchasing power for a very, very long period of time. To give the reader a sense of the kind of changes being thought about, in 1998, lawyers in Pennsylvania were thinking of sponsoring legislation that would allow trustees to convert their trusts to unitrusts and to pick a payout percentage, with notice to the beneficiaries, of anywhere from two percent to seven percent. See Letter from Robert L. Freedman, Dechert Price & Rhoads, to E. James Gamble, supra note 127.

(129) The Rule against Perpetuities will affect legal interests as well as equitable interests, but the vast majority of interests affected by the Rule are equitable interests created under trusts.

(130) UNIF. STAT. RULE AGAINST PERPETUITIES [sections] 1, 8B U.L.A. 53 (Supp. 1997). The draft Restatement will also ease the rule as it applies to trusts. See RESTATEMENT (THIRD) OF TRUSTS [sections] 29 (Preliminary Draft No. 3, 1997). For a discussion of USRAP in Tennessee, see Amy Morris Hess, Freeing Property Owners from the RAP Trap: Tennessee Adopts the Uniform Statutory Rule Against Perpetuities, 62 TENN. L. REV. 267 (1995).

(131) See ALASKA STAT. [sections] 34.27.050(a) (Michie 1998).

(132) See DEL. CODE ANN. tit. 25, [sections] 503 (1989 & Supp. 1996).

(133) See S.D. CODIFIED LAWS [sections] 43-5-8 (Michie 1997); Thomas H. Foye, Using South Dakota Law for Perpetual Trusts, PROB. & PROP., Jan./Feb. 1998, at 17.

(134) See IDAHO CODE [sections] 55-111 (1997) (extending the Rule against Perpetuities 25 years beyond lives in being); WIS. STAT. ANN. [sections] 700.16 (West 1981 & Supp. 1997) (extending the Rule against Perpetuities 30 years beyond lives in being).

(135) Oversimplifying, a dynasty trust allows a transferor to create a $1 million--or $2 million per married couple--trust which will be exempt from federal estate tax (after the year 2006) and generation-skipping transfer (GST) tax for the entire duration of the trust. The trust can pay descendants income "forever" in a jurisdiction that has abolished the Rule against Perpetuities. It can also be spendthrift, to the extent of local law. The dynasty trust has the lure of transfer-tax-free compounding. Tax-free compounding always attracts taxpayer attention and is particularly alive in the public mind because of the constant discussion of the tax-free compounding inside a Roth IRA. See Virginia Munger Kahn, In Estate Planning, A Roth I.R.A. Shines, N.Y. TIMES, June 28, 1998, [sections] 3, at 7. As to dynasty trusts, see Jesse Dukeminier, Dynasty Trusts: Sheltering Descendants from Transfer Taxes, 23 EST. PLAN. 417 (1996). The author thanks Professor William P. Lapiana for sharing his thoughts about dynasty trusts.

(136) See generally Alexander, supra note 22, at 1213 (noting the complexity of property law).

(137) As the Rule declines in importance, fewer and fewer teachers will teach it. This was clear at the January 1998 American Association of Law Schools (AALS) property teachers' section meeting where a number of teachers indicated that they give the Rule limited or no coverage. At this point its death is accelerated. If the point needs further illustration, consider the following story. One of my law school friends is a very successful lawyer. He recently asked me what I was teaching that week. I said the Rule against Perpetuities. He said, "What's that?" What happens to law no one teaches any more?

(138) See ALASKA STAT. [sections] 34.40.110(a) (Michie 1998).

(139) See Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07. Courts have always been willing to impose restraints on alienation in a family context, although they have always frowned on self-spendthrifting. See Alexander, supra note 22, at 1195-1208 (discussing restraints in property and trust law). One might argue that self-spendthrifting is just an extension of the idea of family protection. One might also argue that it is wise to allow it in the new buccaneer, capitalistic world in which we find ourselves living. Perhaps there has never been a better time to allow settlors who are necessarily disengaging from society to self-spendthrift. Historically, courts in this country have been willing to expand, and been pragmatic about, expanding spendthrift doctrine. See id. at 1202-04 (discussing the history of spendthrift trusts in the American court system and the need for restraints on alienation). Equity, too, has been "responsive[ ] to private intentions." Id. at 1215.

The wholesomeness of self-spendthrifting is beyond the scope of this Article. The virtually automatic assumption is that self-spendthrifting is unwholesome. But, if the world we live in is one that requires self-spendthrifting, then, historically it would be equity's job to expand the doctrine. In this era of timid judges it is not beyond the realm of imagination to say that it is appropriate for bold legislatures (in Alaska and Delaware) to usurp equity's role and expand the spendthrift trust as nineteenth century American courts were willing to do. See id. at 1202-04 (discussing American courts' role in restraining alienation of spendthrift trusts). This certainly is a time, like the end of the nineteenth century, when we are willing to change both spendthrift rules and the Rule against Perpetuities. Professor Alexander recounts the perceived connection between dislike of perpetuities and dislike of restraints on alienation. See id. at 1202-08. Perhaps it is no surprise that, at the same point in time we are doing away with the Rule against Perpetuities, we are also doing away with the rule against self-spendthrifting. Liberal property law is designed to effectuate intent through the clearing away of intent-frustrating rules from another era--especially when change will attend to the "unforeseen needs of families." See id. at 1217. While the author is not prepared to dismiss out of hand the asset protection trust, like many others, his horseback opinion is that it is for scoundrels and lick-spittle running dogs of capitalism. For a discussion of the triumph of capitalism, see DANIEL YERGIN & JOSEPH STANISLAW, THE COMMANDING HEIGHTS: THE BATTLE BETWEEN GOVERNMENT AND THE MARKETPLACE THAT Is REMAKING THE MODERN WORLD (1998). For a discussion of the arguments against accumulations of wealth, see Mark L. Ascher, Curtailing Inherited Wealth, 89 MICH. L. REV. 69 (1990). Having spoken-up for wholesomeness, it must be said that a little asset protection, in a battle, may not be a bad idea.

(140) A recent article in Forbes suggests that the Cook Islands is not the haven it has appeared to be for the last decade or so. See Brigid McMenamin, Your Trust Has a Hole, FORBES, June 15, 1998, at 240. This may result in settlors preferring the jurisdictions that offer less to the settlor by way of creditor protection, but with more certainty. Half a loaf is better than none. See Riechers v. Riechers, No. 21833/94, 1998 WL 686662, at *1 (N.Y. Co. Ct. June 30, 1998) (holding that a Cook Island Trust held by the defendant husband was marital property which could be indirectly used to craft a remedy).

(141) One of the classic arguments against any creditor-proof trust interest is that the beneficiary's access to trust funds may lure a creditor into doing business without realizing that the trust interest cannot be attached. This argument has some bite if the creditor does not know about the trust. It may also have bite if the creditor knows about the trust, but not its terms. It is tempting to argue that an offshore, Alaska or Delaware trust is, in and of itself, a signal that something may go wrong. The trust form as a signal is discussed in Hansmann & Mattel, supra note 6, at 455.

(142) Right or wrong, the author has been told that in Silicon Valley, it is not uncommon for clients with over $300 million to put some "mad money" into an islands trust, established by California lawyers, with the help of very creditable offshore accountants. An acquaintance of the author's seeking to establish a simple, sabbatical checking account in a London branch of a U.K. bank was heavily "sold" (but did not accept) offshore services. Another acquaintance of the author saw his simple, sabbatical checking account in a London branch of a U.K. bank converted into an offshore account for the convenience of the bank.

(143) It may be that self-spendthrifting would encourage venture capitalism and be good for society. At that point, a cost-benefit analysis would have to be made. Harm to unwitting creditors and dispiriting of those who do not like the idea of not paying ones bills versus investment and jobs. The point can be found in America Goes Bust, supra note 44, at 78. For a more detailed discussion of bankruptcy in America at the end of the decade, see Elizabeth Warren, The Bankruptcy Crisis, 73 IND. L.J. 1079 (1998). Professor Hirsch is not as offended by self-spendthrifting as some are. See Hirsch, supra note 24, at 91-95 (discussing the problematic effects of the spendthrift trust).

(144) The Cook Islands, considered a major tax haven, are a democratic self-governing island state in association with New Zealand, and are comprised of fifteen islands located in the South Pacific between Fiji and Tahiti. See 25 THE NEW ENCYCLOPEDIA BRITANNICA, MACROPAEDIA 289 (15th ed. 1994); see also supra note 62 (discussing the Cook Islands International Trusts Act of 1991).

(145) See ALASKA STAT. [subsections] 13.12.205(2)(A), 13.36.035(a),(c), 13.36.045(a)(2), 13.36.310, 13.36.390, 34.27.050(a)(3), 34.40.010 (Michie 1998).

(146) See Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07.

(147) See ALASKA STAT. [sections] 34.40.110 (Michie 1998) (discussing self-settled spendthrift trust rules); Act of June 29, 1998, ch. 343, secs. 1-11, [subsections] 3570-3576, 1998 Del. Adv. Legis. Serv. 302, 302-07 (adding a section entitled "Retained interests of transferor").

(148) See ALASKA STAT. [sections] 13.36.310 (stating that trusts are not voidable even if they seek to avoid "a marital or similar right"). Even if it does not protect against creditors, it may protect against the weak and poorly-represented ones, especially until the first creditor beats an Alaska or a Delaware trust.

(149) The claims of no estate tax are based on cases like Estate of German v. United States, 7 Cl. Ct. 641 (1985), and In re Estate of Uhl, 241 F.2d 867 (7th Cir. 1957). In a sentence, the thought is that limited discretionary powers in the trustee to pay trust funds to the settlor do not constitute a retained interest sufficient to include the trust in the settlor/decedent's estate.

(150) It has been said to the author that "everyone" in Alaska is running from the IRS and from child support claims. Of course, that is a gross exaggeration, but it does describe fertile ground for the statute in question.

(151) See UNIF. TRUST ACT [subsections] 601-604 (Draft, Sept. 1998).

(152) See CAL. PROB. CODE [subsections] 15000-15004 (West 1991 & Supp. 1998).

(153) See UNIF. TRUSTACT [sections] 412 (Draft, Sept. 1998).

(154) See UNIF. TRUSTACT [sections] 413 (Draft, Sept. 1998).

(155) See JOSEPH k. SAX, DEFENDING THE ENVIRONMENT: A STRATEGY FOR CITIZEN ACTION 158 (1971) (discussing citizen activism). If the author is right, that trustees are less dutiful, especially to creditors, and that the ever more essential tool for getting a trustee's attention is litigation, then it seems wise to deputize another plaintiff--the settlor.

(156) See Diane Sierpina, New Look to the Old Charity Drive, N.Y. TIMES, Sept. 7, 1997, [sections] 13, at 1 (discussing nonprofit organizations' need for charitable events). A story on National Public Radio suggests, perhaps contrary to the statement in the text, that small operating charities are under pressure to merge to achieve economies of scale for their funders. See All Things Considered: Non-Profit Mergers (National Public Radio broadcast, July 2, 1998), available in LEXIS, News Library, Curnws File (highlighting nonprofit organizations' urgent need to raise funds).

(157) Abraham McLaughlin, Beyond Soup Kitchens, CHRISTIAN SCI. MONITOR, Oct. 21, 1998, at B1 (finding that welfare reform has resulted in the government's lack of funding in poor neighborhoods); Aaron Zither, Fight Looms over NIH Funding, B. GLOBE, June 24, 1998, at D12 (discussing proposed "`slash and burn cuts' in social programs").

(158) See UNIF. TRUST ACT [sections] 602 (Draft, Sept. 1998). The new New York statute also allows for the revocation of inter vivos trusts. See N.Y. EST. POWERS & TRUSTS LAW [sections] 7-1.16 (McKinney 1998). This reform was suggested in the 1970s but went nowhere. See Grayson M.P. McCouch, Will Substitutes Under the Revised Uniform Probate Code, 58 BROOK. L. REV. 1123 (1993).

(159) This is a codification and a broadening of the holding in In re Alleged Will of Ranney, 589 A.2d 1339 (N.J. 1991).

(160) Conversation between Professor Edward C. Halbach and the author.

(161) See UNIF. PROBATE CODE [sections] 2-503, 8 U.L.A. 147 (1998 & Supp. 1998). There is something of a clash in values here. Recent New York and Florida statutes require more formalities for the creation of a revocable inter vivos trust than were previously required while the Restatement is tending to require less formality. See N.Y. EST. POWERS & TRUSTS LAW [sections] 7-1.16 (McKinney 1998); FLA. STAT. ANN. [sections] 737.111 (West Supp. 1998). As to New York, see Gerald I. Carp & Thomas G. Draper, Jr., Newly Enacted Laws Dealing with Lifetime Trusts: An Analysis, N.Y. ST. B.J., Feb. 1998, at 26. As to Florida, see Steven G. Nilsson, Are Living Trusts Void When Commercially Formed Through the Unauthorized Practice of Law?, FLA. B.J., Apr. 1995, at 24; Steven G. Nilsson, Can Living Trusts Defeat Elective Share?, FLA. B.J., Oct. 1996, at 34.

(162) See UNIF. TRUSTACT [sections] 601 (1998) (Draft, Sept. 1998).

(163) See RESTATEMENT (THIRD) OF TRUSTS [sections] 11 (Preliminary Draft No. 1, 1996).

(164) See id. [sections] 12.

(165) See UNIF. TRUSTACT [sections] 3-104(b) (Draft, Jan. 1998).

(166) See UNIF. TRUST ACT [sections] 814 (Draft, Sept. 1998). The draft Restatement makes a trust for a dog valid. They have always been invalid in most jurisdictions, either because there was no beneficiary to enforce the trust or because the Rule against Perpetuities requires that interests vest, or fail to vest, within human lives in being plus 21 years, not dogs' lives. The author leaves it to the reader to decide if that change is dramatic, commonsensical or a matter of nuts and bolts. See RESTATEMENT (THIRD) OF TRUSTS [sections] 48 (Preliminary Draft No. 3, 1997).

(167) The breakdown in fiduciary duty will be accelerated, not only by the entry of new players into the trust game, but also by the commercial banks' desire to reduce the opportunities for trustees' exercise of discretion--in order to reduce administrative costs and bank liability. The point that discretion is essential is made in Hansmann & Mattei, supra note 6, at 473. If that which is essential to the trust--discretion--is reduced, as some point the trust fades, even if it does not disappear. The commercial trustees may be playing a dangerous game.

(168) The world began without the trust and it will end without it. But that moment has not yet arrived. See generally Mark Lilla, The Politics of Jacques Derrida, N.Y. REV. BOOKS, June 25, 1998, at 36, 37 (quoting Claude Levi-Strauss as stating, in translation, that "`[t]he world began without the human race, and it will end without it'"). Although we approach the millennium, we are not witnessing the death of the trust--a precursor to Armageddon, no doubt.

(169) Arguably, commercial trustees are less willing to take what many would think are the risks that trustees are paid to take. Perhaps they would defend themselves by saying that they take less risk because now they get sued all the time. If so, is this because we live in a more litigious society or is it because beneficiaries are becoming more sophisticated in their pursuit of their trustees? Perhaps trustees should be allowed to offer inferior service for a discounted fee, or safe harbor service that allows for no suing of trustees. For example, if the trust is "income to A for life, remainder to B," and if the trusts assets are wisely allocated and invested in a 60% Russell 5000 index fund and 40% Lehman Brothers bond index fund, then the beneficiaries are not allowed to sue for mismanagement of the trusts assets.

Perhaps we should blame the run-of-the-mill bankers' seeming reluctance to serve beneficiaries on the bankers' consultants, their desire to lower payroll costs with less help, cheaper help, and computers, and the bankers' desire to serve more customers.

(170) E. James Gamble, the author's co-reporter, has a pet name for the Uniform Principal and Income Act: the Uniform Trust Operations Principal and Income Act. That, of course, is UTOPIA.

Joel C. Dobris, Professor of Law, University of California, Davis, School of Law. B.A., Yale College, 1963; LL.B., University of Minnesota Law School, 1966. Copyright 1998, Joel C. Dobris. This Article derives from the 1998 Ruth Lewinson Memorial Lecture given by the author at the New York County Lawyers' Association on April 9, 1998, in New York City. The author would like to thank Gerald I. Carp and Jerome S. Solomon for inviting him to give that lecture and the members of that audience for their comments, including Ann Berger Lesk, Marc Bekerman, Micky Ordover, and Millard L. Middonick. He also thanks former Dean Bruce Wolk of the University of California, Davis, School of Law and current Dean Rex R. Perschbacher for their financial support of his research. In addition, he thanks John D. "Jack" Ayer, James P. Garland, Holly D. Doremus, and Kevin R. Johnson. Katy Filner of the University of California, Davis, School of Law, Class of 1998 and Colleen E. Kavanagh of the Class of 2000 provided excellent research assistance.
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Date:Dec 22, 1998
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