Trust Law’s Material Purpose Doctrine, the Traditional Protector of Settlor-Intent is Under Attack: The TEDRA Factor

Charles E. Rounds, Jr.
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In recent years, reformers of trust law have been hard at work defanging the plain meaning rule, primarily by liberalizing the doctrines of reformation and deviation. The rule is discussed generally in §8.15.6 of Loring and Rounds: A Trustee’s Handbook, the doctrines generally in §8.15.22. We also have the decanting statutes and decanting court decisions, which are covered in §3.5.3.2(a) of the handbook. That having said, the reformers have generally been quick to caution that these liberalizations are intended to buttress settlor-intent, not subvert it. At minimum, lip service is being paid to settlor-intent. There is one notable exception: Professor Langbein’s “intent-defeating” (his words) benefit-the-beneficiaries rule, which has been incorporated into the Uniform Trust Code. This is a topic that is taken up in §6.1.2 of the handbook. This radical intent-defeating policy reform embedded in the UTC has met with considerable push-back. Both the Massachusetts and the New Hampshire legislatures, for example, have said “no thanks.” Even some denizens of the ivory tower have declined to fall in line. See generally §6.1.2 of the handbook.

Now, while all this has been going on, in the State of Washington the material purpose doctrine, the traditional doctrinal protector of settlor-intent, may well have been effectively defanged by an obscure piece of legislation, namely the Trust and Estate Dispute Resolution Act or TEDRA. See Chap. 11.96A.220 RCW. The legislation in part provides that a trust may be reformed non-judicially by agreement of the trustee and beneficiaries without regard to the trust’s material purposes, at least that is what its drafters intended. The agreement is final and binding on all parties. Idaho is, so far at least, the only other TEDRA state. These developments, isolated though they may be, have national implications. Here is why: There have already been decantings from other states into trusts sited in the State of Washington to facilitate subversion of their material purposes. Assuming this practice takes on a head of steam, which is likely, the trust instrument scrivener should consider advising his/her settlor-client that the material purpose doctrine may well be TEDRA-vulnerable, unless effective countermeasures can be taken at the drafting stage to defang TEDRA, or forestall a decanting to a TEDRA state. In theory, a decanting from a non-TEDRA state to a TEDRA state in order to subvert a trust’s material purposes would be subject to equitable reversal by the courts of the non-TEDRA state. As a practical matter, however, the pursuit by a beneficiary (presumably someone who had not been a party to the TEDRA agreement) of such an equitable multi-jurisdictional action would not be a realistic option, absent special facts, if only because of the numerous and substantial personal expenditures of time and treasure that likely would be required to maintain the action. The material purpose doctrine is covered generally in §8.15.7 of Loring and Rounds: A Trustee’s Handbook. The section is reproduced in its entirety below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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