Thursday, July 23, 2015

Proliferating Trusts . . . Bulletproof Trustees

Thanks to Gerry Beyer for calling attention to Adam Hofri-Winogradow's survey of trusts around the world.

"More than ever before," Hofri states, "the trust is now heavily used across most of the globe as a key means for individual and family wealth planning...."

Unsurprisingly, the survey finds that dynasty trusts, designed to last more than a century if not forever, have surged in popularity. But "forever" may prove theoretical. A significant proportion of such trusts may run no longer than conventional generation-skipping arrangements, thanks to children or grandchildren armed with powers of appointment. 

U.S.-based trusts stand out from the global pack in a couple of ways: Greater emphasis on protecting beneficiaries from creditors, and a greater determination on the part of U.S. grantors to keep a degree of control over what they give away.


Until the last generation or two, generally trust beneficiaries could seek legal relief if they suffered losses due to the trustee's negligence. No longer. When the wealthy create trusts they are routinely expected to accept exculpation clauses that shield trustees from liability.  It appears, Hofri-Winogradow finds, "that exculpatory terms, without settlors receiving any quid-pro-quo for their inclusion, are now a conventional, nearly universal standard in donative trusts serviced by professionals. "

(He has enlarged on the theme of vanishing protections for beneficiaries in The Stripping of the Trust.)

Is legislation desirable to roll back the exculpatory tide? Or should the trend be welcomed if it shields trustees from beneficiaries who expect them to adhere to  the Will Rogers Rule of Investing?

You remember the Rule:

Buy stocks that go up. If they don't go up, don't buy them.

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