Trust Term Extension

Over the last thirty years, most jurisdictions in the United States have repealed or abrogated the Rule Against Perpetuities, which prohibits perpetual donor control over property. This, in turn, has led estate planning practitioners to consider whether a trust created to comply with the Rule could, after the Rule’s repeal, be extended in perpetuity to provide for future generations of the settlor’s descendants upon petition of the trustee. Trust term extension in this context implicates fundamental questions about the purpose of a trust: For whose benefit—the beneficiaries’, the settlor’s, or the trustee/fiduciary’s—does the trust exist? This Article argues that the purpose of a private donative trust is to benefit beneficiaries selected by the settlor and that perpetual trust conversions are inconsistent with this purpose because they impair the interests of existing beneficiaries by converting remainder interests into less valuable life interests. Financial institutions serving as corporate fiduciaries, however, would further their own pecuniary interests by seeking perpetual trust conversions that extend the duration of commissions charged to the trust for performing administrative and managerial services. The possibility of trust term extension, therefore, not only implicates problems associated with dead hand control of property, but it also creates the potential for tension between corporate trustees and beneficiaries selected by the settlor. This Article, the first to examine the topic of trust term extension critically, argues that courts should reject trustee-proposed perpetual trust conversions for at least two reasons. First, modification should not be granted for the benefit of the fiduciary, particularly at a beneficiary’s expense. Second, an important recent trend in trust law has sought to favor the rights of living beneficiaries over a settlor’s right to exercise dead hand control over trust property, so evidence of what the settlor would have wanted but for the Rule should therefore not override vested beneficial interests. * Vice Dean, Professor of Law, and Judge Norma L. Shapiro Scholar, Rutgers School of Law, Newark. This author is grateful for helpful comments and feedback from the following scholars: Gregory Alexander, Mark Ascher, Gerry Beyer, Alfred Brophy, Ronald Chen, Stuart Deutsch, Mary Lou Fellows, Susan French, Thomas Gallanis, Adam Hirsch, Daniel Kelly, John Langbein, David Noll, Chrystin Ondersma, Jeffrey Schoenblum, George Thomas, Stephen Urice, and Lawrence Waggoner. 1 Weisbord: Trust Term Extension Published by UF Law Scholarship Repository, 2016 74 FLORIDA LAW REVIEW [Vol. 67 INTRODUCTION 74 I. Dead Hand Control and the Rule Against PERPETUITIES 79 II. PRACTICAL CONSIDERATIONS AFFECTING THE DECISION TO SEEK TRUST TERM EXTENSION 81 A. Settlor’s Intent 82 B. Retroactive Repeal of the Rule Against Perpetuities 83 C. Transfer Tax Implications 84 D. Bankruptcy and Fraudulent Transfer Law 86 E. The Trustee’s Potential Conflict of Interest 87 III. TRUST TERM EXTENSION AND THE DOCTRINE OF EQUITABLE DEVIATION 88 A. Equitable Deviation and Modification to Achieve the Settlor’s Tax Objectives 89 B. Arguments For and Against Trust Term Extension Under the Trust Modification Doctrines 94 C. Insights from Case Law 100 IV. THE LARGER CONTEXT: PERPETUITIES AND TRUST LAW REFORM 107 A. Perpetuities Reform: The Rise of Dead Hand Control 108 B. Trust Law Reform: A Modest Retreat from Dead Hand Control 112 1. Spendthrift Protection 113 2. Trustee Removal 116 3. Early Trust Termination 119 4. Administrative Deviation 122 C. Recommendation for Law Reform 123 CONCLUSION 123