July 15, 2008
Trusts for Pets--Supplemental Comment--Posner
Professor Robert Sitkoff of Harvard Law School, an expert on trusts and estates, points out two errors in my post and also suggests a further point about trust governance. He writes that the uniform act is styled the "Uniform Trust Code," not "Act," and that section 408(c) authorizes the court--not the trustee, as stated in the second to last paragraph of the post--to reduce a bequest for the care of an animal. Limiting the power to reduce the gift to the court is critical especially when the trustee is the remainder beneficiary, as it is easier to reallocate a bequest to oneself than to undertake the distasteful act of killing the animal.
But notice the governance problem posed by a trust for a pet animal. Normally a trust must be for the benefit of an ascertainable beneficiary. This rule, which the English call the "beneficiary principle," ensures that there is someone with an economic incentive to police the trustee's conduct. Contrast the world of charitable trusts, where the absence of such a person leaves supervision (such as it is) in the hands of the distracted (at best) state attorneys general. For a pet trust, the UTC addresses the enforcement problem by authorizing the donor or the court to name an enforcer. In functional terms, therefore, the Code treats dogs and other pet animals as if they were children. Both children and pets are permissible beneficiaries, but both require an alternate enforcement mechanism (albeit one that creates another agency relationship) because neither can bring suit themselves.
Posted by Richard Posner at 04:28 PM | Comments (5) | TrackBack (0)
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Are minority shareholders all that different from children and pets in this regard? It's frustrating to see how solving one problem inevitably leads to another -- the potential for collusion between enforcement agent and trustee in the case of the pets.
But isn't the tradeoff between transparency (or, equivalently, privacy) and fraud when there is a healthy market for enforcement agents?
Posted by Michael F. Martin at July 15, 2008 05:12 PM | direct link
Michael: The status of minority shareholders in today's lash-up would be a good topic for discussion.
With so many shares held in mutual funds and public retirement accounts, often run by the same caste of Yale or Wharton frat brothers it seems that much worse than the CEO's and a few upper management/interlocking board members siphoning off much of gleanings be there profits or losses, would have to happened before shareholders would rally to clean things up. Mostly, I suppose the only, very limited "clout" they'd have is that of selling and buying into another similar operation or mutual fund.
Since the corporate entity (which Andrew Jackson feared and opposed) exists under legislation written by the representatives of our citizenry it may be high time for that social contract to be reviewed (and before someone says "The'll just go offshore") and some decisions made as to what sort of corporations are allowed tariff free access to America's huge market.
I'm recalling that the fine company and products of Volvo was built with an company policy that no one would make more than ten times what was earned by the least. Quite a contrast from the "Big Two" where the CEO gets millions while either company could be bought for less than break-up of assets value and Toyota's CEO seems to answer his alarm clock for about 1/10th what Ford's CEO requires.
Posted by Jack at July 15, 2008 07:22 PM | direct link
Often I've wondered what they study at Harvard Law School, and a part of that has been answered - pet trusts & estates.
Posted by Thomason at July 16, 2008 09:51 AM | direct link
Posted by cnaizheng at July 17, 2008 02:33 AM | direct link
Since the corporate entity (which Andrew Jackson feared and opposed) exists under legislation written by the representatives of our citizenry it may be high time for that social contract to be reviewed (and before someone says "The'll just go offshore") and some decisions made as to what sort of corporations are allowed tariff free access to America's huge market. Nice Post.
Posted by Nick Smith at July 21, 2008 10:31 PM | direct link
