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May 5, 2015

Why You Should be Interested in Trusts and Estates Law

Suppose that S, scion of a prominent wealthy family but a bit of a ne’er do well, drunkenly and negligently wrecks his car, causing severe injury to innocent victim, V. V sues and wins a judgment against S, who is the beneficiary of a trust worth millions of dollars. Is V likely to collect on this judgment?

Not against the trust. Although S continues to benefit from the trust, the document that created it contains a “spendthrift clause.” Under the widely adopted Uniform Trust Code (UTC), a few simple words in the trust document numinously protect its corpus from claims of almost all third parties, including tort victims.

Should you be interested in trusts and estates law? Recently, two prominent economists weighed in on a similar query with regard to economics. Ha-Joon Chang’s 2014 book, Economics: The User’s Guide,  encouraged his readers to develop some facility with economic questions, the answers to most of which depend on the application of moral values and political views. His point was that when non-economists fail to engage economic questions, we get solutions skewed to the political biases of a handful of economists.

Likewise, French economist Thomas Piketty warned  that “the distribution of wealth is too important an issue to be left to economists, sociologists, historians, and philosophers.” Instead, he urged, everyone should be interested and involved. Piketty reported that inherited wealth accounted for at least 50–60% of total private capital in the United States in the late twentieth century and accounts for a much larger share today.

As in economics, moral and political values decide many questions about our laws governing inheritance. And if inheritance stands to play an increasing role in who gets what, as Piketty claims it will, questions of inheritance are crucial in determining how our resources are allocated.

Upton Sinclair wrote that it’s “difficult to get a man to understand something, when his salary depends on his not understanding it.”  Contemporary psychological studies confirm that what is now called “motivated reasoning” pervades our decision-making process. Rare is the person who adopts a political perspective or moral view that runs counter to his or her own livelihood. Trusts and estates lawyers make their living helping families hold onto their wealth across generations, meaning they are likely to be biased on questions regarding inheritance. Their vested interest runs towards ensuring entrenchment, rather than disbursement, of wealth. And they have outsized influence on the substance of inheritance law because they are motivated to give it their attention.

Let’s revisit S, the wealthy young man who negligently injured V. After V wins her judgment, Lawyer L defends S’s trust interest against V’s attempt to levy against it, but remains unpaid after billing S many times for his legal work. Fed up, L goes to court and gets a judgment against S for his fees. Is L likely to collect against the assets of the trust? Yes, because while the UTC shields the assets of the trust from almost all creditors’ claims, making it impenetrable by V, it opens the door to “a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust.”  Meanwhile, V remains uncompensated for her injuries.

Kent Schenkel

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