They don’t know how to use Business Trusts for private contracts or asset anonymity. Yet I do. And here’s why…
American Law Schools:
What do our legal professionals really know about Trusts?
Stanford and Harvard Law Schools decided in the early 1960’s that students and practitioners could graduate without learning the laws of Trusts.
More than 180 other law schools approved by the ABA followed their prestigious leaders.
Consequently, Trust law which encompasses agency, fiduciary and equity is now virtually nonexistent in American law school curriculum. Required courses were eliminated and few elective courses remain. In contrast, trust law remains mandatory in UK, Wales, and N Ireland schools.
- § 8.25 Few American Law Schools Still Require Agency, Trusts and Equity [from Loring and Rounds: A Trustee’s Handbook (2022)]
National Bar Exam:
The only test questions about business structures are partnerships, corporations, and LLCs. These all revolve around legislative statutes. Common law structures are missing. The National Conference of Bar Examiners removed trust law from the multi-state Bar exam.
Personal Trusts:
These are also known as Living Trusts which are a component of Estate or Legacy Planning. Passing family wealth can involve a wide variety of documents which include Health Care Directives, Power of Attorneys, Last Will and Testament, Family Limited Partnerships, LLCs, and Life Estates, etc.
In these situations the Living Trust is a passive device for distributing assets. It is highly popular for those who prefer to avoid court appointed probate courts and lawyers. Once the living trust is created it might be modified over time (assets, beneficiaries, instructions) but in the end is a singular use legal instrument.
Appointing a garden variety lawyer as your living trust trustee can be risky. Malfeasance and remedies for errors are difficult because not only lawyers, but judges and courts are out of touch with common law trust concepts. This can be very painful and costly for the beneficiaries.
Living Trust Story:
A man on marriage #2 made his attorney successor trustee with instructions. The man died. Heirs challenged the distributions. Trial court said the lawyer did everything right according to the terms of the trust. They applied statutory law ignorant of common law principles.
On appeal it was overturned. The court reasoned the man was under duress from wife #2 to amend his trust. Fortunately they applied common law principles. She lost. Heirs won. Just imagine how this could have turned out.
If a lawyer advisor causes economic harm to your living trust, it is the trustee who is liable. No matter if trustee acted in good faith on advice of counsel. The lawyer might have civil liability, but rarely faces any professional disciplinary actions. Make certain your lawyer has malpractice insurance.
Competent estate planning living trust lawyers do exist. Just be careful. Or consider a ‘professional trustee’ service provider. If you have family conflicts or are a single individual, this is a viable solution. These are lawyers or bankers with niche expertise. Look them up on google.
It you just need help completing living trust paperwork or recording a real estate deed then you might use a legal document assistant. The California website is here. They don’t offer advice but can make certain your paperwork is technically correct.
Commercial Trusts
These business trust instruments are principally designed for commercial transactions. For example, mutual funds, SPACs, bond financing and REITs. They are vital tools of capital markets and large dollar public finance.
Their design includes secretary of state registrations and compliance along with state and federal securities disclosures. These are known as statutory business trusts. They’re often setup in Delaware or Massachusetts. Interestingly, the Delaware Chancery Court is a common law equity forum.
But there’s another version of business trusts. Those are non-statutory based upon common law. We also call them unincorporated associations because they’re ‘not’ incorporated per the state definition. Generally they’re unlisted.
You can design them for private transactions or for anonymous title to public assets. This requires a different mindset, strategies, and deft navigation of various external factors. They’re very flexible.
As you can now see attorneys and lawyers who work for REITS and Mutual Funds using statutory business trusts are completely different than practioners who use non-statutory business trusts for private affairs.
Unlike our single use ‘personal’ living trusts, the ‘commercial’ business trust is multifaceted and dynamic. It must manage and adapt to market changes over time.
2022 Reality
Our financial society has clearly embraced more fiduciary agency relationships. Each one is a “trust” relationship.
Examples include – insurance agents, real estate brokers, travel agents, accountants, lawyers, power of attorneys, mortgage brokers, mortgage servicers, and securities brokers that act on your behalf.
(Agency explains why people obey your instructions even if against their will. Think of politicians and the military or police.)
Your “contract rights and interest” with any of these fiduciaries is known as equity. Your business relationship with any of these people is effectively a trust.
Yet as described earlier, the US legal community decided common law relationships (trusts) are unworthy of study. Corporate, criminal, or tax law offer them greater financial rewards and prestige.
So individuals with legal issues such as agency, contracts, torts, property (equity interests) and trusts are at a disadvantage. If you have a problem or just a probing question regarding your rights about an insurance policy, mortgage, or mutual fund – it’s difficult to find a lawyer with expertise.
Judges are lawyers too. This means most everyone in the American legal eco-system that might impact your “trust” affairs has the same knowledge handicap. Beware.
Asset Protection Trusts:
These are statutory trusts following state law and regulations. Just like corporations and LLCs they’re fairly rigid in nature. Most garden variety lawyers can assist you. All they need do is follow civil code rules. There’s very little need to know or understand common law trust principles.
But just remember that your safety with these trusts depends upon the statutory rules of a given state and government promises.
Summary:
Many of the new and exciting innovations in in trust law have been developed by non-trust lawyers seeking to achieve results not available using traditional tools. For example, contract privacy or asset anonymity is unavailable by using a corporation, partnership, or limited liability company.
How Do You Find a Business Trust Lawyer?
The ones who work for REITS and Mutual Funds are located in world financial capitals. They’re difficult to find and very expensive. Call them if you want to do a bond offering with public investors.
If you want a lawyer familiar with non-statutory trusts for contract privacy or asset anonymity – good luck because you’re on your own. Do the research and piece it together.
Or if you want our expert guidance explore the business trust e-seminar.
p.s. we have lawyers as customers