Give the People What They Want? The Onshoring of the Offshore

• Author: Lionel Smith
• Position: Sir William C. Macdonald Professor of Law, Faculty of Law, McGill University
• Pages: 2155-2174

2155

Give the People What They Want? The

Onshoring of the Offshore

Lionel Smith*

I. INTRODUCTION ........................................................................... 2155

II. THE IRREDUCIBLE CORE OF THE TRUST ..................................... 2156

III. THE OFFSHORE STORY ................................................................ 2158

IV. THE ONSHORING OF THE OFFSHORE .......................................... 2159

A. DECISIONS OF ONSHORE JUDGES ............................................. 2159

B. RECOGNITION OF FOREIGN TRUSTS AND CHOICE OF LAW ......... 2163

C. ONSHORE LEGISLATION ......................................................... 2166

V. SHOULD WE GIVE THE PEOPLE WHAT THEY WANT? .................. 2167

A. WHAT IS THE POINT OF THESE OLD RULES? ........................... 2167

B. COMPETING WITH THE OFFSHORE? ........................................ 2172

VI. CONCLUSION .............................................................................. 2174

I. INTRODUCTION

My lecture today is about the limits of freedom of choice in trust law.

Trusts are magnificently flexible, and this has been one of the strengths of the

trust institution since its origin in the middle ages. But trusts are not infinitely

flexible. A trust has a certain logic to it, and there are aspects of this logic that

are not susceptible to freedom of choice, except perhaps in a particular form

which I will illustrate with a story.

* Sir William C. Macdonald Professor of Law, Faculty of Law, McGill University. This is a

revised version of the 2017 Tamisiea Lect ure in Wealth Transfer Law, given at th e College of

Law, University of Iowa on 8 September 2017 as part of the Iowa Law Review/ACTEC Symposium

on “Wealth Transfer Law in Comparative and International Perspective”. I thank Pr ofessor

Thomas Gallanis for the honour of the invita tion. For their hospitality, I express my gratitude to

Professor Gallanis, the members of the Iowa Law Review, t he ACTEC Foundation, and the College

of Law. This research is part of a project on Conflicts of Interest and Fiduciary Obl igations, funded by

a Killam Research Fellowship during 2014–2016. I acknowledge with gratitude the support of

the Killam Trustees.

2156 IOWA LAW REVIEW [Vol. 103:2155

I once found myself travelling on an aircraft at the time when the flight

attendants were serving a meal. They start at the front and work their way

back. I could hear them, as they approached, asking other passengers, over

and over: “Would you like chicken or vegetarian?” But sometimes they run

out of one thing or another. When they arrived at my row, the attendant

offered a meal to my neighbor, and said, “Sir, the meal is a vegetarian pasta

dish.” The passenger replied, “Isn’t there a choice?” The flight attendant—

who, I can only assume, was having a bad day—paused, and said very

deliberately: “Yes sir, there is a choice. You can take it, or you can leave it.”

No one has to choose a trust. But there are some things that people want

to do with trusts that may attract the same answer as that given by the flight

attendant. There are some things that you cannot do with a trust, and if you

want to do them, you will have to find some other way. Although trusts are

flexible, this is only up to a point.1

In recent decades, the offshore jurisdictions of the world have made a

business of responding to what people want. They have done this through low

rates of taxation, but also through the provision of legal institutions that do

not exist in other places.2 And now some of these institutions are appearing

onshore, in places like Alaska and Delaware.3 My lecture sounds a cautionary

note in relation to these developments. I believe as much as anyone in

freedom of choice. But I also believe that the rules of private law reflect

important truths about interpersonal justice. We are responsible for our

actions, and the law reflects this. The law should reflect this. When the law does

not reflect this, we need to ask why. It is the exception, not the norm. Every

normative order contains exceptions, but by their nature, exceptions are

exceptional. They need to be justified.

II. THE IRREDUCIBLE CORE OF THE TRUST

The trust is so flexible, as a legal institution, that Professor John

Langbein, in a 1995 article, famously compared it to a contract.4 But in later

writing, he explored the limits of the trust’s flexibility and what might be

called the mandatory part of trust law.5 In the Commonwealth this is often

called, after a famous article by David Hayton, “the irreducible core” of the

1. EVELYN WAUGH, SCOOP ch. 3 (1938).

2. Some exa mples will be given in Section III.

3. Some exa mples will be given in Section IV.C.

4. See generally John H. Langbein, The Contract arian Basis of the Law of Trusts, 105 YALE L.J.

625 (1995).

5. See generally John H. Langbein, Mandatory Rules in the Law of Trust s, 98 NW. U.L. REV.

1105 (2004) [hereinafter Langbein, Mandatory Rules]; John H. Langbein, Burn the Rembrandt?

Trust Law’s Limits on the Settlor’s Power to Direct Investments, 90 B.U. L. REV. 375 (2010) [hereinafter

Langbein, Rembrandt].