Notes
1 Parts of this chapter are taken from Greycourt White Paper No. 48: Best Practices Trusts (2010), cowritten with my partner, Thomas R. Moore. The paper is available at www.Greycourt.com.
2 Meinhard v. Salmon, 164 N.E. 545 (NY 1928).
3 Thrupthi Reddy, How Not to Get Sued (April 1, 2005). Available at registeredrep.com/mag/finance_not_sued/registeredrep.com/mag/finance_not_sued/. Ms. Reddy was a senior editor at Trusts & Estates magazine.
4 At least one trust company, which manages almost all trust assets in its own mediocre products, was recently quoted as bragging that its clients trusted it because “we have no conflicts of interest.” Such is the sad, deluded state to which corporate trustees have fallen.
5 Following the Norman conquest of England in 1066, all land on the island was confiscated in the name of the Crown. The king then parceled it out to his lords, who passed it on to their own vassals and so on, via the process of subinfeudation. Obligations, including heavy taxation and severe restrictions on the sale and use of the land, flowed from the bottom up: from the serfs to the higher vassals to the lower and higher lords and so on, up to the king. Because these obligations applied to the holder of legal title, the common-law trust—which divided legal title from beneficial use—was a kind of trick to avoid many of these obligations, especially taxes. In 1535 Henry VIII convinced Parliament to enact the Statute of Uses (a “use” is a trust), which collapsed legal title and equitable use back into each other. Henry's purpose was to destroy the monasteries, which, to avoid the Statutes of Mortmain (1279 and 1290), were all held in trust. (I know, it's complicated, but it gets better.) Henry dissolved the monasteries, all right, but most other trusts persisted via a nice bit of sleight of hand: Trusts were now created by making a grant in fee simple “unto and to the use of A in trust for [i.e., for the use of] B.” Because a use upon a use had not been contemplated by the Statute of Uses, the Statute was held not to apply to these clever trusts.
6 F. W. Maitland, A. H. Chaytor, W. J. Whitaker Equity: A Course of Lectures, Cambridge: Cambridge University Press (1936).
7 Gilbert Paul Verbit, A Ninth Century Treatise on the Law of Trusts, Bloomington, IN: Xlibris (2008). It is a matter of considerable dispute whether the trust was independently invented by English common law or whether Crusaders returning from Arab lands brought the idea back with them. See, for example, Monica M. Gaudiosi, “The Influence of the Islamic Law of Waqf on the Development of the Trust in England: The Case of Merton College,” University of Pennsylvania Law Review 136, no. 4 (April 1988): 1231–1261.
8 See Greycourt White Paper No. 24: A Modest Proposal: Let's End Conflicts of Interest in the Wealth Advisory Business (2003), available at www.Greycourt.com.
9 There were many reasons for this, but the main one was that bank and trust company cultures and compensation practices were inherently incompatible with superior securities management.
10 One of the most common issues involves holding concentrated securities positions. I'm not a fan of concentrated positions, but when the enterprise is a family company there can be very important reasons to be flexible about such holdings. Institutional trustees, on the whole, aren't.
11 “The law, in its majestic equality, forbids the rich as well as the poor to sleep under the bridges.”
12 Most of these issues are discussed elsewhere in this book. See Chapter 22.
13 There are a (very) few institutional trustees that handle tax accounting for partnerships competently. For all others, partnership accounting should be unbundled and outsourced.
14 A common example would be a request by an income beneficiary for a principal distribution. Principal distributions are often permitted by the trust instrument, but are usually surrounded with qualifications. Only a completely independent fiduciary can make such decisions.
15 The rise of the boutique trust company is an important phenomenon. Typically launched by trust professionals who are refugees from the large institutional firms, these boutiques are usually located in and associated with a specific jurisdiction (Delaware, Nevada, South Dakota) that has abolished the Rule Against Perpetuities and has adopted other family-friendly laws and regulations. Other boutiques are regional firms not attempting to take advantage of a particular trust situs but simply designed to be much more user-friendly.
16 If your trust doesn't contemplate the use of a directed trustee, it is usually possible to have the trust language reformed (in court). If the state of your trust's domicile doesn't acknowledge directed trustees, it is usually possible to move the domicile to a more modern state.
17 For example, the South Dakota provision covering directed trustees: “Any excluded fiduciary [i.e., a directed administrative trustee] is also relieved from any obligation to perform investment reviews and make recommendations with respect to any investments to the extent the trust advisor has the authority to direct the acquisition, disposition or retention of any such investment.” SDCL Sec. 55-1B2.
18 552 US 1 (2008). Following Knight, and in light of proposed regulations issued by the Treasury department, most fees paid by trusts (bundled or unbundled) will be subject to the 2 percent floor; in particular, custody fees and investment advisory fees. For trustees who bundle services under a single fee, the trustee must unbundle the fees and use a reasonable method to allocate the single fee between the costs subject to the 2 percent floor and those that are not (trust accountings, filing of tax returns, etc.).
19 Uniform Trust Code §706(b)(3).
20 Uniform Trust Code §706 (Comment); Restatement (Third) of Trusts Section 37, comment e (Tentative Draft No. 2, approved 1999).
21 See Chapter 6, especially the discussion of open architecture as a disruptive business model.
22 In other words, the Act allows a PTC chartered in one jurisdiction to maintain a full-service trust office in any other jurisdiction that has adopted the model Act or a similar measure.
23 Duncan, John P. C., “The Private Trust Company: It's Come of Age,” Trusts & Estates (August 2003): 49ff.