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Asset securitization, multi-generational asset management over time, and allocation of an asset’s
exposure to creditor reach: Just a few of the myriad functions that the classic trust can perform
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The Anglo-American trust has convenient non-commercial and commercial applications
that are difficult to replicate via the laws of agency and contract, operating either in tandem or
alone.
The trust’s most convenient non-commercial application is the effective bestowal on
persons not yet conceived, e.g., settlor’s currently non-existent issue, of enforceable equitable
property rights, to include the imposition of enforceable conditions on enjoyment over time. To
jerry-rig an agency-contract hybrid into an enforceable relationship between a fiduciary-
equivalent and someone yet to be conceived (or otherwise currently unascertainable) would seem
a heavy lift. Death terminates the classic agency. The standard third-party-beneficiary contract
would need some serious ad hoc retro-fitting, assuming functional approximation of the Anglo-
American trust is even achievable when it comes to multi-generational asset management over
time.
The Anglo-American trust relationship has convenient commercial applications, as well,
such as securitization of illiquid property rights and the securing of property rights.
As to securitization, think transfer of an illiquid parcel of real estate to trustee of a
nominee trust in exchange for fully vested, non-spendthrifted shares of beneficial/equitable
interest. Via the trust the economic interest is now readily divisible and transferable. Or instead
of real estate think transfer of portfolio of stocks/bonds to trustee in exchange for vested shares
of beneficial/equitable interests in “the fund.” The economic interest in “the fund” is now readily
divisible and transferable. No wonder most mutual funds on this side of Atlantic are trusts.
As to the securing function, the trust is tailor-made to protect one’s property rights from
the reach of someone else’s creditors. Take the defined benefit plan sponsored by a corporation
for the benefit of its employees. Associated with plan is a trust to hold and administer
corporation’s contributions to plan. Here the trust performs not a securitization function but a
securing function. The fund, comprised of employer’s contributions and internal earnings, is
segregated from the general assets of the company and thus insulated from the reach of the
company’s creditors in the event of the company’s insolvency, assuming fraudulent-conveyance
doctrine is not implicated. “Particularly, trust law allows the parties to the trust to partition off a
discrete set of assets for separate treatment in relationships formed with creditors.” Hansmann
& Mattei, The Functions of Trust Law: A Comparative Legal and Economic Analysis, 73
N.Y.U.L. Rev. 434 (1998). As to how the trust is employed to secure property interests of
beneficiaries of qualified employee benefit plans, to include a brief mention of ERISA’s federal
spendthrift preemption feature, see §9.5.1 of Loring and Rounds: A Trustee’s Handbook (2023),
which section is reproduced in the appendix below. The Handbook is available for purchase at
