Trust Law and the Title-Split: A Beneficial Perspective

Abstract

Recent functional analyses of the trust tend to emphasize its effect on the parties to the trust deal and give less attention to the nature of the beneficiary's interest, especially in relation to persons outside the trust transaction. In contrast, this article takes a critical approach to the trust from the primary perspective of the benefits it provides to beneficiaries. From this perspective, it finds that while the trust maintains the flexibility of a contract it also restricts legal interests of third parties who are strangers to the trust bargain; a feat that contracts are unable to accomplish. Third parties are affected because the trust externalizes certain costs of property ownership. Trust beneficiaries gain from these externalizations because the benefits of externalization currently exceed their costs. These consequences emerge because of the fiction of the trust form, which is that it splits title into "legal" and "equitable" parts. In some cases courts acknowledge that evasion of ownership burdens by trust beneficiaries should be trumped by policy arguments in favor of third-party claimants to trust property; in others such arguments are ignored, and a deductive analysis of the title-split prevails without meaningful inquiry. Historically, trusts were used by the relative few and problems caused by the title-split fiction were sporadic. With trusts becoming more widely-used, a more measured approach to the analysis of a beneficiary's interest is warranted.

Keywords: trusts, estates, wills, law

JEL Classification: K11