Introduction.

• Author: Schoenblum, Jeffrey A.
• Position: The Rise of the International Trust

Preface

On February 26-27, 1999, Vanderbilt University Law School and the student-edited Vanderbilt Journal of Transnational Law hosted a symposium entitled "The International Trust." The articles appearing in this issue and the next issue of the Journal are the product of that symposium. The Symposium, as well as this and the next issue of the Journal, represent an attempt to give serious consideration to a topic that to date has received relatively little serious examination.

The international trust, the subject of the Symposium, is experiencing an extraordinary reception worldwide. It is being utilized by individuals from countries with legal cultures that traditionally have not known this form of ownership. In fact, there is no formal legal construct known as the "international trust." Rather, the term as used in the Symposium and as used herein, is intended as an organizing principle to explore the various implications of trusts with international or transborder linkages. The focus is on private trusts, those utilized to manage the wealth of individuals and their families, although much of the discussion pertains as well to trusts used for business, commercial, and broad-based mutual and pension funds.

There is a great similarity between the generative conditions behind international trusts today and the conditions that gave rise to the trust in the first instance. Used as a vehicle for bypassing restrictions on clerical ownership of property in England, the trust soon evolved into an essential and commonplace means both for wealth management and its disposition within a family. The trust's tasks are both of a horizontal and vertical nature. The trust permits private regulation by the settlor and finite differentiation among beneficiaries at a particular generational level. It also permits precise, private control over the administration of wealth and its disposition among successive generations across time. The settlor can be assured that the plan will be effectuated due to the high duties imposed on the trustee, who serves as a fiduciary. This same private managerial and distributive control system that has traditionally characterized the trust remains much in demand. The international dimension, however, is increasingly taking center stage, and actually effecting an evolution in the trust persona, because of several crucial factors:

1. Increased mobility of capital

   Advances in technology have now eliminated delays in the deployment and redeployment of investment capital worldwide. Technology has also afforded access to immediate information worldwide regarding economic and political conditions. These developments have substantially reduced risk in connection with long-distance capital deployment and have enhanced the ability of the investor to seek globally the most efficient market for his capital.

   In addition to the rise of global portfolios, the barriers that previously existed in terms of currency exchange and capital export controls have largely fallen. Thus, far fewer restrictions limit the investor's ability to take advantage of promising investments in other parts of the world.

   The potential for the free outflow of capital to the most competitive markets has also exercised an impact in fostering the deregulation of imported capital. Previous concerns regarding foreign economic imperialism have become less defensible in view of the intense competition for capital. Countries must now compete to retain capital as well as to attract new capital.

   In this new environment, a settlor in Europe or South America can transfer assets electronically to a trustee in the Cayman Islands. The trustee can obtain real-time information from New York and Hong Kong. On the basis of that information, the trustee can proceed to make investment allocation decisions and then effect these decisions in an instant.

2. The rise of the geographically extended family

   The collapse worldwide of investment barriers and the correlative development of technologies that facilitate universal investment strategies also exert pressure in favor of the worldwide free flow of labor. This is especially true among the highly educated and those proficient in much-needed technical skills. Immigration and visa restrictions have, of necessity, become less rigid. High-level executives spend considerable time in other jurisdictions and develop enduring ties. Concomitantly, traditional national, racial, religious, and social constraints regarding marriage and family formation are falling. Persons with ties to and family capital in more than one country join together and intertwine their economic interests. Members of families seek out the best educational and employment opportunities, wherever they may be located. This worldwide education and labor market tends both to create multinational families and to spread out families, not unlike the great mobility experienced within the United States' "common market" in the post-World War II period.

   In short, wealth now has to be managed and will be ultimately distributed in ways that do not respect artificial political and territorial barriers. Family beneficiaries may live...