The New Direction of American Trust Law

AuthorThomas P. Gallanis
PositionN. William Hines Chair in Law, University of Iowa
Pages215-237
215
The New Direction of American Trust Law
Thomas P. Gallanis
I.INTRODUCTION ....................................................................................... 216
II.BACKGROUND ......................................................................................... 217
III.TRUST ADMINISTRATION ......................................................................... 218
A.THE SPENDTHRIFT CLAUSE ................................................................ 219
B.ADMINISTRATIVE DEVIATION ............................................................. 223
IV.TRUST TERMINATION .............................................................................. 226
A.VOLUNTARY ACTION OF THE BENEFICIARIES ....................................... 226
B.THE RULE AGAINST PERPETUITIES ..................................................... 229
V.A THEORETICAL FRAMEWORK ................................................................. 234
VI.CONCLUSION .......................................................................................... 237
N. William Hines Chair in Law, University of Iowa. This Article is a revised version of
the Shirley A. Webster Lecture in Wealth Transfer Law given at the University of Iowa Coll ege
of Law on October 21, 2010. It is a pleasure to thank Dean Gail B. Agrawal for inviting me to
deliver the lecture, the College of Law for research supp ort, and John M. Newman and Andrew
Seyfer (both of the University of Iowa College of Law Class of 2011) for research assistance.
Shirley A. Webster, a 1932 graduate of the University of Iowa College of Law, was a
distinguished lawyer and law reformer. His colleagues affectionately called him “Mr. Iowa
Probate Law” in recognition of his long-time leadership in the effort to reform the probate law
of Iowa. That effort came to fruition in 1963 when the Iowa Probate Code was enacted. The Iowa
Probate Code contained many of the reforms later reflected in the Uniform Probate Code,
promulgated nationally in 1969. I serve on the board that monitors and updates the Uniform
Probate Code, and we are still benefiting from ideas and provisions originating in Iowa and
advocated by Shirley Webster. It was an honor to deliver a lecture bearing his name.
I serve as the assistant executive director of the Joint Editorial Board for Uniform Trust
and Estate Acts within the Uniform Law Commission and as an associate reporter of the
Restatement (Third) of Trusts. I also participate in the Members Consultative Group for the
Restatement (Third) of Property: Wills and Other Donative Transfers. The views express ed in this
Article are personal and are not offered on behalf of the Uniform Law Co mmission or the
American Law Institute.
216 IOWA LAW REVIEW [Vol. 97:215
I. INTRODUCTION
There is a central tension in the law of trusts between the rights of the
donor and the rights of the beneficiaries. On the one hand, the position of
the donor seems paramount. The donor—known in trust law as the
“settlor”1—establishes the terms of the trust2 and, therefore, has the power
to determine the extent of the beneficiaries’ equitable interests and the
power to control the actions of the trustee in the trust’s administration.
Indeed, the organizing principle of the law of donative transfers, as stated in
the Restatement (Third) of Property: Wills and Other Donative Transfers, is that the
“donor’s intention is given effect to the maximum extent allowed by law.”3
On the other hand, the position of the beneficiaries also has a claim to
supremacy. Only the beneficiaries hold the ownership interests in the trust,
not the settlor.4 Of course, it sometimes happens that the settlor is also a
beneficiary,5 but here we are speaking of the settlor as such. The
beneficiaries, not the settlor, have the equitable ownership of the trust
assets, and this would seem to limit the power of the settlor to control the
trust. And indeed the Restatement (Third) of Trusts emphasizes that “a private
trust, its terms, and its administration must be for the benefit of its
beneficiaries.”6
In navigating between the extremes of settlor control and beneficiary
control, the law of trusts has at times taken a position more favorable to the
settlor, and at other times a position more favorable to the beneficiaries.
In this Article, I shall offer both a descriptive and a normative analysis
of where we currently stand and where we are going. I shall argue that
American trust law, after decades of favoring the settlor, is moving in a new
direction, with a reassertion of the interests and rights of the beneficiaries. I
shall also argue that this new direction is appropriate and welcome.
1. See UNIF. TRUST CODE § 103(15) (amended 2004), 7C U.L.A. 414 (2006) (“‘Settlor’
means a person, including a testator, who creates, or contributes property t o, a trust.”);
RESTATEMENT (THIRD) OF TRUSTS § 3(1) (2003) (“The person who creates a trust is the
settlor.”).
2. See RESTATEMENT (THIRD) OF TRUSTS § 4 (2003) (defining the phrase “terms of the
trust”).
3. RESTATEMENT (THIRD) OF PROP.: WILLS & OTHER DONATIVE TRANSFERS § 10.1 (2003).
4. See RESTATEMENT (THIRD) OF TRUSTS § 3(4) (2003) (“A person for whose benefit
property is held in trust is a beneficiary.”).
5. See id. § 3 cmt. d (“The settlor or the trustee, or both, may be beneficiaries; but a sole
trustee may not be the sole beneficiary . . . .”).
6. Id. § 27(2); see also UNIF. TRUST CODE § 404, 7C U.L.A. 484 (2006) (“A trust and its
terms must be for the benefit of its beneficiaries.”).

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