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ACTEC Law Journal

Article Title

Democracy and Trusts

Authors

Carla Spivack

Abstract

Spendthrift trusts which shield assets from creditors have been an ongoing problem for the law since their advent in the nineteenth century. Other, very recent, forms of trust are an even bigger problem: they take the notion of asset protection much farther, allowing settlors to protect not only the beneficiary’s assets, but their own, from creditors; these are called “self-settled asset protection trusts". Moreover, more and more states allow so-called “dynasty trusts” which allow settlors and beneficiaries to maintain assets in trust tax free for generations, overturning long-settled principles of the common law such as the Rule Against Perpetuities. All of these trusts represent bad public policy: they disrupt contracts by allowing debtors to avoid their debts, they disrupt the tort system by denying victims compensation and removing deterrents to high risk behavior, and they withhold vast tax revenues from the public fisc.

Most efforts to reform trust law to alleviate the problems of these trusts have been statutory - and unsuccessful, for reasons I explain below. No one has looked to principles in the law itself for a brake on their proliferation. This is a serious oversight because property law itself does offer a solution in the obsure but important doctrine of numerus clausus. Students in common law juridictions do not study this doctrine, and few academics pay attention to it, but it is nonetheless a foundational principle of the law and one which unequivocally bars the types of trusts discussed above.

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