This post kicks off a mini-series on the invisibilized power of trusts in modern financial capitalism.
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This past month, an internationally consequential battle for corporate control over Rupert Murdoch’s media empire was resolved by what might seem an unlikely decision-maker — a Nevada probate commissioner. Even more surprisingly, the process lacked any of the usual markers of transparency — even a docket number — that one would expect from a public forum. Meanwhile, billions of dollars from authoritarian regimes around the world continued to flow into the financial institutions of another sparsely populated U.S. state, South Dakota, which is on pace to soon harbor more than a trillion dollars of assets. In this modern regulatory oasis, the often-global life of these assets will receive little oversight, much less interference, from any government foreign or domestic.
What ties these two phenomena together is the fundamental transformation of an area of law that has been nearly totally absent from public discourse — trust law. This stealth transformation has occurred across the common-law world over the last fifty years and now penetrates into an increasingly wide range of regulatory areas, from the bleeding edge of financial engineering to environmental regulation and family law. Now central to the operation of global financial capitalism, modern trust law is crucial to understand for those concerned with democratic accountability and economic inequality.
The Inversion of Trust Law
Trust law is originally a creature of equity — a system of law that historically grew in parallel with the common law until they were “fused” together in the 19th century. Curiously marginal in U.S. legal education, equity aims to combat the inequities of legal formalism by imbuing the law with substantive norms of justice, such as unconscionability or good conscience. The commonly cited origins of the trust are draped in tropes affirming this nobility, which revolve around sympathetic cases such as protecting a child whose parents had predeceased them. The trust offered a creative solution to the need for an other-regarding and altruistic legal invention to serve such scenarios: the split between legal and equitable ownership. Herein, an altruistic trustee would hold legal title to assets and be bound by strict duties to manage them on behalf of the vulnerable, equitable owner. And, indeed, in the centuries since, trust law has often been used to promote novel and laudable objectives — such as the administration of pensions and providing support for persons with disabilities — and has inspired the fiduciary duties governing a wide range of modern social relationships.
In each of these cases, however, trusts were theoretically premised on a clear bargain: alienation of full legal title by an asset holder, or settlor, in exchange for a powerful set of legal protections for the assets held in trust. Modern trust law has largely abandoned this foundational premise by allowing settlors to control their assets transferred into trust while retaining and expanding their exceptional treatment. Today, the cost of transferring an asset into trust involves no loss of control over the property but simply the price of sophisticated legal services; it is a legal technology that exceeds traditional property law’s scope while evading its normal limitations.
The result is frequently a complete inversion of equity’s nobler aspirations — sanctioning legal formalism at the expense of substantive justice. In my current research, I describe this transformation as the democratically-problematic “rise of super-property.” Such super-property enjoys potent privileges, including broad insulation from creditor claims (including divorce settlements and child support responsibilities), diminished tax obligations, insulations in insolvency proceedings, and exemption from disclosure and reporting requirements on which most every form of democratic regulation and accountability relies. The result is a categorically superior form of property than can be otherwise enjoyed by regular citizens.
Regulatory Capture and Judicial Permissiveness
How did this perversion of trust law come about? And why did it confront so little democratic resistance? Any explanation must confront the fact that the rise of trusts as super-property has been part of an interrelated, decades-long judicial and legislative shift across nearly all common law jurisdictions following the general collapse of capital controls in the post-Bretton Woods international economic order. Two concepts can help us begin to grapple with this radical, self-obscuring transformation: democratic salience and sociological normalization.
For most citizens, trust law appears to have no perceptible impact on their daily lives. Contrast this low salience with family law, which overtly intervenes in the daily life of most citizens and, as a result, is a recurrent topic in nearly every democratic election. At the same time, trust law is incredibly salient to the most empowered members of society: either the owners or operators of increasingly concentrated capital assets. This inverted saliency stretches across national borders and creates a common interest among those looking to enjoy super-property’s benefits — regardless of whether they live in a common law, much less democratic, country. There are episodic exceptions, such as the democratically popular rise of revocable trusts in California, but these exceptions prove the rule by providing historically specific examples where trust law had unusually high democratic saliency.
This disproportionate democratic saliency then exacerbates regulatory capture through the sociological normalization of super-property among key legal and political decision-makers. Those making decisions about trust law — legislators, judges, and legal professionals — often come from or are embedded within the very demographic that benefits from super-property, making them more receptive to arguments favoring trust law’s transformation. As a result, there is a self-reinforcing cycle where those who benefit from super-property are also those in a position to influence its development — even among those who claim to ardently support progressive politics. This pattern reflects the central LPE insight that users of legal services are not exogenous to the law that governs them but actively shape it, often through transnational reform campaigns promoted by trust services providers. Notably, the Murdoch family probate battle was insulated from public scrutiny by legislation that the family itself had successfully lobbied for years earlier.
If we return to our Nevada and South Dakota examples, these are clear but still understudied processes of regulatory capture that led to the wholesale transformation of these jurisdictions’ trust laws. Given U.S. private law federalism, weak campaign finance laws, and widespread judicial elections, these less populated jurisdictions represent low-cost opportunities for global interests seeking maximal super-property arrangements. As Martin Sybllis discusses in the next post in this series, this reality disrupts uglier colonial imaginations of international lawlessness. By contrast, U.S. states have now taken the lead among jurisdictions offering these services, as they enjoy the U.S. government’s general one-way hypocrisy on international financial disclosure, even if their local benefits remain taken for granted.
What is often less apparent is that these more overt legislative changes have been enabled by a broad judicial permissiveness towards trust law modification by often well-intentioned judges struggling to synchronize equity’s ambitions with the aggressive innovations of modern commerce. Centrally, judges throughout the common law world have had to resort to increasingly tenuous legal formalisms to draw lines between contract and trust law, even when facing the near-total powers of settlors over trust operation and modification. Many judges still seem unable to accept that the commercialization of trust services means that trustees are disciplined by the market for legal services far more than they are the law — or any genuinely other-regarding values. This permissiveness thus incrementally sustained trends in trust law’s modern transformation that later enabled the transnational growth of radical legislative overhauls.
Thus, if we are to understand some of the most important modern legislative changes to trust law, we need to look further back to the mid-20th century for key doctrinal shifts sanctioned by judges looking to advance equitable principles for sympathetic litigants. Perhaps most crucial was enabling trusts to be formed with beneficiaries perpetually subject to revision by trustees — effectively allowing the settlor and trustee to be the only materially meaningful actors involved in trust administration. This practice, along with quasi-legal “letters of wishes,” effectively enabled settlors to control trust assets as if they were still their full owners while enjoying all the special benefits of equitable ownership. Today, settlor control has been formalized in the development of what are known as “trust protectors” who are most often simply settlors directly regulating trustee decisions.
This doctrinal permissiveness has now led to a self-imposed straightjacket: judges find themselves with increasingly little latitude to push back on extreme forms of super-property. Even when exercising contempt powers, judges now face the reality that market discipline gives settlors confidence that trustees will exercise their broad discretions to strategically shift settlors’ formal legal powers and interests surrounding bouts of litigation. Settlors know that even when trustees have no legal obligations to respect their wishes, they can rely on commercial trustees’ desire for future trust business to consistently comply. The consequence is a systemic deadening of state capacity and social mobility as trusts cloak an increasingly consequential array of assets and their owners — as Allison Tait will explore in a later post.
Reviving Social Trust
Understanding the multi-faceted transnational rise in super-property is essential for uncovering how capital moves between national borders and recurrently undermines national or international regulation. Simply through their disproportionate access to sophisticated legal services, concentrated capital owners and operators can now effectively choose which laws they want to be governed by — shopping for the most favorable jurisdiction for a proliferating range of legal obligations while openly denigrating claims of social accountability. Ultimately, trust law has become a key enabling source of degradation for exactly the value that it was supposed to promote: social trust.
Solutions to the super-property conundrum are both easy and hard. Legislatively, rollback of enabling statutes is formally straightforward but faces the continued issue of low democratic salience even after massive public scandals. Judges must be re-empowered to combat actors looking to invert equity’s prioritization of substantive justice over legal formalism, but this will require reversing deference to financial engineering and reviving judicial expectations of social obligation lost in recent decades. Critically, such reforms should aim to reinvigorate, not jettison, trust law as a socially protective legality that has produced genuinely beneficial social innovations, including those that potentially facilitate cooperative housing or workplaces.
Normatively, trust law must re-center the alienation/avoidance proportionality at the heart of its other-regarding motivations, which justifies exchanging social benefits through complete settlor alienation. Trusts should return to their status as relatively exceptional problem-solving legal devices, where any trust arrangement should only be permitted if it could be sustainably practiced by all citizens. If, for example, all citizens held their property in asset protection trusts, our general system of credit, or even legal judgments, would effectively collapse. Felix Chang, for instance, has argued that the exploding popularity of non-probate devices such as revocable trusts poses a systemic “shadow probate” challenge to the existence of probate law in general. And if trust innovations do provide sustainable benefits, then there is a strong case that they should be socially subsidized so that the market for legal services does not lead to their underutilization — a point long made by many trust scholars seeking to promote trust law’s socially protective elements.
Recent geopolitical shifts, though undesirable in many respects, may have created new opportunities for trust law reform. As nations reassert control over capital flows and populaces question the wisdom of unrestricted financial globalization, the sources of democratic vitality and their relationship to modern financial capitalism are at least openly discussed rather than taken for granted. Whatever develops, the rise of super-property represents an ongoing challenge to equity’s continued relevance as a distinctive body of legal principles in modern private law and a significant case of the intertwining of legal change and the fictions of private ordering. For all those who value democratic accountability and the law’s promotion of social welfare, trust law is now an unavoidable area of concern.
