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
 
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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 20142016. 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 daypaused, 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 Laws Limits on the Settlors Power to Direct Investments, 90 B.U. L. REV. 375 (2010) [hereinafter
Langbein, Rembrandt].

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