Empty Promises: Settlor's Intent, the Uniform Trust Code, and the Future of Trust Investment Law
52 Pages Posted: 6 Feb 2008 Last revised: 12 Nov 2010
Many trust documents contain specific investment management directives, such as a mandate that the trustee retain a specific investment. Whereas trust investment law historically has honored the intent of the settlors who impose such restrictions, some would read the Uniform Trust Code (the UTC) to codify a very different rule. Under this emerging rule, the enforceability of a trust investment restriction would hinge upon objective notions of prudence and efficiency, without regard to a settlor's subjective intent.
Although the UTC is now the law in nearly half of the states, this potentially revolutionary change has received almost no scholarly attention. The scant literature on this subject emphasizes the potential benefits of the emerging rule, predicting that it will liberate trust beneficiaries from irrational investment restraints and promote the most efficient deployment of trust investment resources. However, the literature completely lacks a critical analysis of the emerging rule's potential effect on future trust settlors. This Article fills that void, revealing how the emerging rule would produce a series of undesirable consequences and would weaken trust law by incentivizing trust settlors to avoid its undesirable provisions.
Viewed from this perspective, the emerging benefit the beneficiaries rule simply cannot achieve its desired impact, and the promises it offers trust beneficiaries prove to be empty ones. As such, trust investment law would be better served by expansion of what some might consider less ambitious doctrines - ones which seek to aid the beneficiaries of settlors who have made mistakes or failed to anticipate changed circumstances but provide no aid in cases where a settlor intentional and thoughtfully impaired beneficiaries' economic rights. Trust investment law cannot meaningfully redress those latter cases. It should not destroy itself by trying.
Keywords: Uniform Trust Code, UTC, settlor's intent, trust investment management, interpretation, prudent investor, UPIA, benefit the beneficiaries
JEL Classification: G1, H70, H73, K00, K11, K40, N20
Suggested Citation: Suggested Citation