Article by Reid K. Weisbord
Trust law is highly deferential to settlor intent, however, under the public policy doctrine, any trust or trust provision contrary to public policy is unenforceable. Echoing that doctrine is a conflict of laws rule providing that a settlor’s express choice-of-law designation is enforceable if the trust assets are movable, the designated state has “a substantial relation to the trust,” and “the application of its law does not violate a strong public policy of the state with which, as to the matter at issue, the trust has its most significant relationship.” The conflict-of-laws rule sets aside choice-of-law designations only when they violate a strong public policy, but trust law’s public policy constraints often inform the determination of conflict-of-laws disputes. Such disputes have become increasingly common as state laws have diverged on sharply disputed issues such as the validity of self-settled spendthrift trusts, the eligibility of trust settlors and beneficiaries for public benefits, and the enforceability of trustee exculpation provisions.
A recent wave of trust legislation reveals an especially muscular approach by some legislatures seeking to fortify state public policy under local trust law. In one notable trend, a few states have enacted legislation that seeks to inoculate local trusts from invalidation elsewhere as contrary to the public policy of another state or federal law. In 2021, for instance, a South Dakota statute declared that local domestic asset protection trusts were immune from invalidation under any contrary public policy of another state and that courts were prohibited from enforcing foreign judgments against property held in a local trust unless and until a South Dakota state court ruled on the matter. Elsewhere, however, courts have succeeded in pushing back. In 2018, for example, the Alaska Supreme Court held unconstitutional a state statute that granted Alaska courts exclusive jurisdiction over out-of-state disputes arising from local self-settled asset protection trusts. Likewise, in 2021, a Minnesota appellate court struck down a state statute that denied Medicaid benefits to an irrevocable trust settlor who had fully complied with federal eligibility requirements.
This Article contributes to the conflict-of-laws literature by examining recent developments in trust law’s public policy doctrine. The Article focuses on three major fault lines of policy divergence: (1) the validity of self-settled asset protection trusts; (2) the use of trusts by applicants for government assistance; and (3) the enforceability of trustee exculpation provisions. This Article concludes by discussing implications for state legislatures, courts, trustees, and trust settlors.
About the Author
Rick K. Weisbord. Professor of Law and Judge Norma L. Shapiro Scholar, Rutgers Law School. The author is grateful for constructive comments from David English, David Horton, Ronald Scalise, James Spica, and participants of the ACTEC Symposium on Conflict of Laws in Trusts and Estates hosted by Tulane Law School and the Tulane Law Review.
Citation
97 Tul. L. Rev. 1147