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Tulane Law Review

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directed trusts, conflict of laws, Uniform Directed Trust Act


Conflict of Laws | Law | Property Law and Real Estate


Directed trusts are an extremely important development in trust law, indeed truly transformative, because they challenge what was presumed to be the "irreducible core" of the trust.' That is, the trustee owes certain nonwaivable fiduciary obligations to the beneficiaries with regard to the management of the trust estate and also with respect to distributions.

The directed trust in its radical format, as found to a greater or lesser degree in Tennessee, Nevada, South Dakota, and Delaware, represents a fundamental assault on this irreducible core of trust law because, with respect to investments and distributions, new actors, known as trust advisers (advisors) or directors, take the place of the trustee while potentially avoiding the same high level of fiduciary duty. As a result, the irreducible core is indeed reduced, even eliminated, resulting in a very different model of the trust. That model might be termed the "neo-trust." While rooted in trust doctrine, it deviates from certain fundamental elements of the traditional trust in response to the demands of a large number of prospective trust settlors.

The radical directed trust laws of these "neo-trust" states ordinarily could be dismissed as localized responses from small states that are not leading centers of capital, with perhaps the exception of Delaware. However, they are quickly transforming into powerhouse centers of trust administration. How? Very simply-the conflict of laws. Nonresidents of these neo-trust states can go shopping for directed trust law in the neo- trust states and can do so very cheaply by designing their instruments in a way that relies on well-accepted, albeit somewhat murky, conflicts rules reflected in the Restatement (Second) of Conflict of Laws, the Uniform Trust Code (UTC), and the Uniform Directed Trust Act (UDTA). In an ironic twist, then, the widely accepted Restatement (Second) and Uniform Laws conflicts regimes enable avoidance of the very Uniform Laws and Restatement of Trusts substantive law regimes, which seek absolutely to preserve the "irreducible core." They enable domiciliaries of these states to adopt the neo-trust model while remaining domiciled in traditional trust law states.



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