The Intention of the Settlor Under the Uniform Trust Code: Whose Property is it, Anyway?

57 Pages Posted: 26 Apr 2005

See all articles by Alan Newman

Alan Newman

University of Akron - School of Law

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Abstract

The question of the extent to which the owner of property may transfer it gratuitously, but subject it to enforceable restrictions on alienability and use, has a long history. During much of that history, the law protected donees from such efforts by donors. This traditional hostility to restraints imposed on property by donors protected the living from control by the dead, as well as the alienability of property. Opposing those interests, however, is the interest in respecting the freedom of the owner of property to dispose of it subject to whatever restrictions he or she chooses to impose.

Three fundamental questions these competing policies have raised are (i) the Rule Against Perpetuities issue of whether a trust settlor can create contingent interests that will last into the distant future, (ii) the Claflin doctrine issue of whether the beneficiaries of a trust can terminate it before the date specified for its termination by the settlor, and (iii) the spendthrift trust issue of whether the settlor can prevent the beneficiary from alienating - voluntarily or involuntarily - his or her interest in the trust. For more than a century, these issues have been important ones in the development of trust law with respect to the extent to which a settlor will be allowed to control property he or she has transferred in trust for others. The question of the extent to which a settlor's intent with respect to such property will be respected is not, however, limited to those three issues, but also arises in a variety of other circumstances.

The Uniform Trust Code (the "UTC"), promulgated in 2000, is the first comprehensive national codification of the law of trusts. As such, it provides an excellent opportunity to examine current thinking on how the balance should be struck between the property rights of donors who wish to control the future enjoyment of their property by others, and the interests of donees when those interests conflict, or are perceived by the donees to conflict, with restrictions or limitations imposed by the donor. The purpose of this Article is to engage in that examination.

A unique feature of the UTC is that while it generally provides default rules that apply only if and to the extent that the settlor does not provide otherwise in the instrument, the settlor's ability to override the UTC's rules is expressly limited by mandatory rules on fundamental subjects that apply regardless of the settlor's intent to the contrary. Although the UTC's mandatory rules will serve as an important focus of this Article, the issue of the extent to which the settlor's intent will be respected under the UTC arises in a variety of other contexts that also will be analyzed.

The tension between the property rights of settlors and the interests of beneficiaries arises with respect to many trust issues addressed by the UTC, including (i) the modification and termination of trusts, (ii) the alienability of the beneficiary's interest, (iii) the rights of beneficiaries to receive information with respect to the trust, (iv) the ability of the beneficiaries to change the trustee, (v) the ability of the settlor to impose value limiting restrictions on the management and investment of trust assets, and (vi) the ability of the settlor to relieve the trustee from the duty to act in good faith and to exculpate the trustee from liability for breaching a fiduciary duty. UTC provisions with respect to the settlor's ability to control property transferred in trust also involve the settlor's ability to fix the trustee's compensation or to waive or require a trustee's bond, the requirements for creating a valid trust, including that its purposes not violate public policy, the ability of the beneficiaries and the trustee to act collectively in ways that circumvent the settlor's intent, and the court's overriding ability to act as necessary in the interests of justice. The Article will demonstrate that the Uniform Trust Code has taken modest steps towards accommodating the interests of trust beneficiaries when those interests will not be served by strict adherence to the settlor's intent as set forth in the terms of the trust. In other respects, consistent with the common law, the UTC continues to honor the settlor's intent. Finally, in some respects the UTC provides greater protection to the settlor's intent than under common law.

Keywords: Uniform Trust Code, intention of settlor, dead hand control

JEL Classification: K1, K11

Suggested Citation

Newman, Alan, The Intention of the Settlor Under the Uniform Trust Code: Whose Property is it, Anyway?. Available at SSRN: https://ssrn.com/abstract=711281

Alan Newman (Contact Author)

University of Akron - School of Law ( email )

150 University Ave.
Akron, OH 44325-2901
United States

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