Power Tools For Choice Of Law On Trust Validity

I. Introduction

Issue characterization is more or less fundamental to the choice-of-law process. That makes classification a prominent feature of any systematic presentation of the rules of private international law or conflict of laws. One has only to look, for example, at the Table of Contents of the Restatement (Second) of Conflict of Laws (Restatement of Conflicts), to see how neatly the taxonomic divisions and subdivisions of one very influential exposition of choice-of-law rules map on the analytical categories—civil procedure, evidence, torts, contracts, commercial transactions, property, and so on—that inform a traditional law school curriculum.

To some extent, the selection and order of analytical categories in a treatise like the Restatement of Conflicts will be a matter of expository convenience, like deciding which rules for operations with numbers to assume and which to prove in the presentation of a mathematical treatise. But the use of purely theoretical categories is liable to obscure informative organic affinities between categorically distinct legal concepts or relations. “The creation of characterization categories [for conflicts purposes] is to some extent an artificial process, an attempt to impose order on a market of conflicting legal rules and tending, unless care is taken, to be rigid and blinkered.”

II. The Choice-of-Law Specific Organic Affinity of Trusts and Special Powers of Appointment

We might try, for example, to classify the rules of “conflict of laws in trusts and estates” hierarchically based on their applications to the special jural relations that inhabit the field of trusts and estates law. In that case, choice-of-law rules on the validity of trust-spawned special powers of appointment and the validity of exercises of such powers would be hived off from choice-of-law rules on the validity of express trusts. For though they are symbiotic (a trustee’s discretionary distribution power, for example, is a special power of appointment), trusts and powers are distinct legal relations. The doneesof expressly fiduciary powers of appointment, for example, are often not trustees. And unlike the beneficiaries of a trust in respect of the res, “the objects of [a] power, qua objects, will not be entitled to any share of or interest in the subject-matter of the power” unless and until the power is exercised.

The tendency of powers and trusts to interbreed in the wild, the frequency, that is, with which trusts are created by exercises of trust-spawned fiduciary and nonfiduciary special powers of appointment, would no doubt tend to embarrass a hierarchical presentation. It would be inelegant, for example, if by treating express trusts and powers of appointment as genetic cousins for choice-of-law purposes (rather than parents, children, and siblings), we should end up (1) enshrining the pedestrian proposition that the validity of a power of appointment granted by the terms of a trust is determined by the law that determines the validity of the trust in “black letter” while (2) leaving the corresponding propositions regarding equitable interests and nondispositive fiduciary administrative powers to be inferred.

But whatever the symbiosis of powers and trusts may indicate for the presentation of a scheme of conflicts rules, it has an imperative effect on the content of such a scheme. That is because (as we are about to see) unless a given state is constitutionally laissez-faire about what domestic settlors can do with express trusts, the state is bound to regulate choice of law on the validity of such trusts, and it cannot regulate choice of law on the validity of express trusts without compatibly regulating choice of law on the validity of exercises of trust-spawned special powers of appointment.

III. Necessity

A. Local Law Restrictions on Express Trusts Necessitate Trust-Validity, Choice-of-Law Restrictions on Settlor Autonomy

Every state has to regulate what settlors can do with express trusts: a state that has even one public policy cannot countenance, for example, a purpose trust for the encouragement of domestic behavior in violation of that policy (whatever it is). And the possibility that states will espouse different policies entails a risk of conflicts requiring choice of law. Thus, a state that wants to regulate what domestic settlors can do with express trusts in any particular respect in which another state is, or may be, more relaxed is bound to add settlors’ ability to determine the choice of law on trust validity to the list of things it wants to regulate. Otherwise, the state’s choice-of-law rules are liable to make its local law limitations on express trusts elective.

1. Risk of Policy Evasion

Of course, some of the things settlors can do to determine the law governing trust validity will be unobjectionable from a regulating state’s point of view. Before creating a trust t, for example, the intending settlor of t might resolutely change her dwelling place and “the center of [her] domestic, social, and civil life” from somewhere in Regulating State to a place in Relaxed State, thus making Relaxed State her home. In combination with other facts, such a move will cause Regulating State to acknowledge that as matter of policy, the application of its own local law on a particular issue involving t would be unreasonable given the relationship of t to Relaxed State (or some other state). Unreasonable because in a multi-state system, each state is motivated to determine applicable law, on a given issue, in a given matter, by weighting “policy factors” that will include (what might be termed) “the relative interests of [interested] states in the determination of the particular issue.” The relative interests of states will be based on the distribution of “connecting factors” by virtue of which a given state may be said to be interested. And in a case involving an express trust, the connecting factors will presumably include the domicile of the settlor at the time the trust is created.

So, what Regulating State is bound to add to the list of things it wants to regulate is not settlors’ ability to determine the choice of law on trust validity generally. Rather it is settlors’ ability to direct the choice of law away from Regulating State when Regulating State is the state to which the trust in question has (what might be termed) its “most significant relationship as to the matter at issue” as indicated by the relevant policy factors (PF-Set) given the distribution of connecting factors (CF-Set) among implicated states. In other words, what Regulating State rationally wants to avoid is a situation in which the settlor of a trust t eludes Regulating State’s local-law restrictions on a matter m (whatever it is) by arranging for the law of Relaxed State to govern the validity of t when Regulating State is the state to which t has its most significant relationship as to m based on the relative interests of interested states.

2. A First Case in Point

That situation will certainly be possible if the settlor of t is allowed simply to designate, in the terms of t, the state whose law will govern the validity of t. Suppose, for example, that the local law of Regulating State provides a surviving spouse a statutory forced share of a deceased spouse’s “augmented estate,” whereas the local law of Relaxed State exempts assets transferred in trust from forced-share rules. If we also suppose that Relaxed State sanctions self-settled trusts and that Regulating State’s conflicts rules allow settlors to designate state law to govern trust validity, a settlor, S, who is domiciled in Regulating State, might seek to disinherit her spouse by creating an irrevocable trust t, retaining the rights to receive trust income and to direct trust investments, and expressly providing that t’s validity is to be determined under the local law of Relaxed State.

3. The Needful Settlor-Autonomy-Constraining, Choice-of-Law Rule on Trust Validity

Whether states should recognize settlors’ designations of state law to govern trust validity at all is debatable. But states commonly do, subject to limitations, and we shall assume hereafter that Regulating State does likewise. But in that case, to disarm the threat of policy evasion posed by our first case in point, Regulating State will enact or judicially recognize a choice-of-law rule according to which a settlor’s designation of state law to govern the validity of a trust will be respected only if the state designated has (as it might be expressed) “a substantial relation to the trust and . . . the application of [that state’s] 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.” For this purpose, the substantiality of a state’s relation to the trust will be determined by the state’s implication in any of the factors in the CF-Set, and the relative significance of a state’s relationship to the trust as to the matter at issue will be determined under the PF-Set in light of the CF-Set array.

These constraints on settlor autonomy—the substantial-relation requirement and public-policy override (Settlor Autonomy Constraints)—will be associated with a trust-validity default rule for cases in which the settlor either fails to make a designation or makes one that violates one of the Settlor Autonomy Constraints. The policy-override dictates that a congruous default designation will either itself have the same policy-override or will simply supply as the default designation, the description (as it may be expressed) “the state with which, as to the matter at issue, the trust has its most significant relationship.”

We should note that the confluence of the Settlor Autonomy Constraints and the trust-validity default rule just described entails that talk about “the law which determines the validity of [a given] trust” is loose. For a trust is “valid” (if it is) under that confluence (Validity of Trust Rule) “as to [a given] matter at issue.” And we are not to suppose “that all questions of validity will be determined by the same law”: “What state has the most significant relationship with the trust [in question] may depend upon the particular ground of invalidity.” So, under the Validity of Trust Rule, an assertion of the general validity of a given trust or its provisions has to be unpacked in terms of the absences of “particular ground[s] of invalidity.” According to this analytical litotes, the terms of a trust t are valid (if they are) because they are not invalid in respect of the RAP under the law of the state that has the most significant relationship with t as to remoteness of vesting, because they are not invalid in respect of the rule against accumulation of income under the law of the state that has the most significant relationship with t as to accumulations, because they are not invalid in respect of formalities under the law of the state that has the most significant relationship with t as to formalities, and so on.

B. Trust-Validity, Choice-of-Law Restrictions on Settlor Autonomy Require Congruous Choice-of-Law Restrictions on the Validity of Exercises of Trust-Spawned Special Powers

The particular ground of invalidity implicated in our first case in point is S’s trust t’s effect on S’s augmented estate. And we may assume that Regulating State has the most significant relationship with t as to disinheritance of S’s spouse. That means that under the Validity of Trust Rule, Regulating State’s interest in the determination of the effect of t on S’s augmented estate will outweigh that of Relaxed State, S’s designation of Relaxed State in t’s governing law provision notwithstanding. But S has another string to her bow unless Regulating State’s Validity of Trust Rule is supported by a congruous choice-of-law rule on the validity of exercises of trust-spawned special powers of appointment.

1. An Independent Risk of Policy Evasion

To see this, we need only assume temporarily that Regulating State has enacted section 103(2) of the Uniform Powers of Appointment Act (UPAA). UPAA section 103(2) provides that “[u]nless the terms of the instrument creating a power of appointment manifest a contrary intent[,] the exercise . . . of the power . . . is governed by the law of the powerholder’s domicile at the relevant time.” One of the questions to be “governed” by the law governing the exercise of a power of appointment is the validity of whatever dispositive arrangement the exercise purports to effect. Thus, when a trust t₂ is created by the exercise of a special power of appointment granted under the terms of a (different) trust t₁, the state law that governs the validity of the exercise (according to the applicable choice-of-law rule) determines the validity of t₂. What UPAA section 103(2) tells us about such a case is that the state law that governs the validity of the exercise and, therefore, determines the validity of t₂, is the law of the domicile of the donee of the special power, regardless of what state law determines the validity of t₁.

2. Special-Power Elaboration of Our First Case in Point

Since by hypothesis, Regulating State has enacted UPAA section 103(2), all S has to do is grant someone domiciled in Relaxed State—either directly, that is, nominatim, or through the offices of a “trust protector”—a special power of appointment (that is valid as such according to Regulating State’s law) to transfer the assets of t in trust subject to the same administrative and dispositive terms as those of t (omitting, perhaps, the terms pertaining to the special power itself) for the benefit of the same beneficiaries as those of t. In that case, the donee’s exercise of the special power will itself make Regulating State’s augmented-estate regime irrelevant, as far as Regulating State is concerned, to the t-mimic trust that results. And the donee’s exercise will do that without in any way altering S’s dispositive arrangement.

This is surely too easy. But on our assumed facts, it works. There is no question of a so-called “fraud on [the] power” here. For the donee will have exercised the t-spawned special power in exactly the way S intended, which excludes the possibility of “an ulterior purpose.” And S’s own conditions on the exercise of the power exclude the possibility of the donee’s impermissibly benefiting an impermissible object. The donor of a power of appointment is free to place extensive, highly detailed conditions on the exercise of a power:

questions as to the kind of power created, its scope, and the duties and obligations (if any) which are attached to it or to its exercise, are generally determined by process of ascertaining what the creator of that power intended . . . . Within the limits and requirements of the law, his intentions tend to predominate and prevail (but he cannot, for example contravene public policy, such as the rule against perpetuities, or ignore requirements of certainty).

And it can hardly be argued that the power in question contravenes public policy when it is Regulating State’s enactment of UPAA section 103(2) that does S’s bidding. By that enactment, Regulating State has said that the law of the domicile of the donee of the t-spawned power should determine the validity of the dispositive arrangement that S has authorized the donee to effect.

A judge might rightly observe that Regulating State’s choice-of-laws rules (on the assumptions of our special-power-elaborated first case in point) are incoherent. But she will not therefore feel free, in applying Regulating State’s law, to disregard or improve the State’s enactment of UPAA section 103(2). “The power to add to, alter or ignore statutory words is an extremely limited one. Generally speaking, it can only be exercised where there has been a demonstrable mistake on the part of the drafter.” Even if the Validity of Trust Rule (with its Settlor Autonomy Constraints) is codified, and that codification predates the State’s enactment of section 103(2), the judge is not likely to say that when a trust is created by the exercise of a trust-spawned special power of appointment, the Validity of Trust Rule is, as far as Regulating State is concerned, the more specific of the two choice-of-law statutes for purposes of the canon generalia specialibus non derogant. For the Validity of Trust Rule expressly says no more about powers of appointment than section 103(2) expressly says about trusts.

And in any case, the legislative history—that is, the Uniform Law Commission (ULC) Comment to UPAA section 103(2)—suggests that the incoherence in question must have been “intentional” because section 103(2) is avowedly meant to be “a departure from [the principle that] the law of the donor’s domicile governs acts both of the donor (such as the creation of the power) and of the powerholder (such as the exercise of the power).” So, our temporary assumption that Regulating State has enacted UPAA section 103(2) yields that, as far as Regulating State is concerned, S’s status as the settlor of t is irrelevant to the choice of law on the validity of the t-mimic trust created by exercise of the t-spawned special power of appointment in our special-power-elaborated first case in point. All that matters for that purpose under section 103(2) is the domicile (which we have set in Relaxed State) of the donee of the t-spawned special power.

3. Rejecting UPAA Section 103(2) en Route to the Needful Validity-of-Exercise Choice-of-Law Rule

It is difficult to imagine why Regulating State would knowingly adopt a choice-of-law rule on the validity of exercises of trust-spawned powers of appointment that could so easily be used to subvert its attempts to regulate the disinheritance of spouses, remoteness of vesting, accumulation of income, the performance of noncharitable purpose trusts, the exculpation of trustees and other trust fiduciaries, the enforceability of spendthrift provisions in self-settled trusts, settlors’ ability to waive notice of trust existence for beneficiaries . . . any regulated activity pertinent to express trusts to which some other state turns, or might turn, a blind eye. By making a mere connecting factor—viz., “the powerholder’s domicile at the relevant time”—determinative of choice of law without an override for a strong public policy of the state with which, as to the matter at issue, the trust has its most significant relationship, UPAA section 103(2) commends the special power of appointment to a determined settlor as a means of throwing off the Settlor Autonomy Constraints in choosing law to govern trust validity.

So, to the extent a state like Regulating State understands its motivation to adhere to the Settlor Autonomy Constraints of the Validity of Trust Rule, it is bound to reject a validity-of-exercise, choice-of-law rule like UPAA section 103(2). To that extent, it will prefer some alternative that vindicates the intuitive ideas (1) that for policy purposes, the donee of the t-spawned special power in our special-power-elaborated first case in point is effectively acting merely as S’s agent and (2) that a settlor ought not to be able to achieve trust objectives that are otherwise prohibited by applicable local law simply by interposing a special power of appointment.

IV. Functionality

A. A First Approximation of the Needful Validity-of-Exercise, Choice-of-Law Rule

On the simple facts of our special-power-elaborated first case in point, the choice-of-law rule described in section 274(a) of the Restatement of Conflicts foots the bill. Section 274(a) provides that when a special power to appoint movables is granted under the terms of a trust, the substantial validity of a dispositive arrangement created by an exercise of the power—that is, the substantial validity of an attempted appointment—is determined “in accordance with the law which determines the validity of the [special-power-spawning] trust.” Under that rule, when a trust t₂ is created by the exercise of a special power of appointment (over movables) granted under the terms of a trust t₁, the validity of t₂ is determined by the law that determines the validity of t₁. And that is true regardless of the designation (if any) of governing law in the t₂ trust instrument.

Now, we know that by “in accordance with the law which determines the validity of the [special-power-spawning] trust,” Restatement of Conflicts section 274(a) means in accordance with the law which determines the validity of the special-power-spawning trust as to the matter at issue. We know that questions concerning the validity of a given trust are individuated by “particular ground[s] of invalidity.” And we know that the particular ground of invalidity implicated in our special-power-elaborated first case in point is the same as that implicated in the unelaborated first case in point, viz., the effect on S’s augmented estate for purposes of Regulating State’s forced share rule. For we know that except perhaps for the terms of trust t that pertain to the t-spawned special power itself, the administrative and dispositive provisions of the t-mimic trust are identical to those of t and are for the benefit of the same beneficiaries.

Under the rule of Restatement of Conflicts section 274(a), then, the validity of the t-mimic trust (as the intended result of the exercise of the t-spawned special power) as to the matter of its effect on S’s augmented estate would be determined in accordance with the law that determines the validity of trust t as to that matter. We have assumed that under the Settlor Autonomy Constraints of the Validity of Trust Rule, Regulating State’s interest in determining t’s effect on S’s augmented estate would outweigh that of Relaxed State even if S should expressly designate Relaxed State’s law to govern trust validity. So, the law that determines the validity of t as to its effect on S’s augmented estate would be the law of Regulating State. And that would be true regardless of the designation (if any) of governing law in the t-mimic trust instrument. So, the rule of Restatement of Conflicts section 724(a) would prevent S form circumventing the policy override of the Validity of Trust Rule’s Settlor Autonomy Constraints. And we thus have our vindication of the intuitive principle that on the facts of our special-power-elaborated first case in point, S ought not to be able to achieve trust objectives that are otherwise prohibited by the local law of Regulating State simply by interposing a special power of appointment.

B. The Virtue of Analogy to Local Law

1. As Legal Reasoning in General

The rule of section 274(a) can be viewed as vindicating that intuitive principle—that is, that S ought not to be able to achieve trust objectives that are otherwise prohibited by the local law of Regulating State simply by interposing a special power—precisely by enforcing the concomitant intuitive principle we mentioned, that for policy purposes, the donee of the t-spawned special power of appointment in our special-power-elaborated first case in point is merely acting as S’s agent. It can be viewed in that way because the rule of section 274(a) is readily assimilated to evidence in the local law of states generally for the common law “relation back theory” of powers. And that evidence (that is, each instantiation of the theory in a decided case) is plausibly characterized as treating the donor of a special power of appointment as the author of the donee’s exercise.

It is frequently said that the property which passes upon the exercise of a power of appointment is the property of the donor and not the property of the donee of the power. It is said that the instrument by which the power is exercised is to be read back into the instrument which created the power. For this reason it is said that the substantial validity of the exercise of the power is determined by the law which determines the validity of the trust under which the power was created.

This is undoubtedly so where the power is a special power, that is, a power to appoint among a limited class of persons. The appointees take the property from the donor rather than from the donee, even though the donee may select which members of the class shall take and in what proportions. If an appointment is made in trust and the trust fails there is a resulting trust to the estate of the donor and not to the estate of the donee. See Restatement of Trusts (Second), § 427. The permissible period under the rule against perpetuities begins at the time of the creation of the power and not at the time of its exercise. See 4 Restatement of Property § 273, Comment d. The applicable law is that which governs the validity of the trust and not that which would govern a disposition by the donee of his own property.

In fact, the analogy to the resulting-trusts and perpetuities instantiations of the relation back is the only express rationale that the Restatement of Conflicts provides for the rule of section 274(a).

The resulting-trusts instantiation is arguably no more than a reiteration of the legal-taxonomic distinction between special and general powers of appointment in the particular context of a failed appointment in further trust. But the perpetuities instantiation is, indeed, integral to a state’s determination to regulate remoteness of vesting in very much the same way the desiderated validity-of-exercise choice-of-law rule is integral to a state’s determination to limit (by means of the Settlor Autonomy Constraints) settlors’ freedom to designate state law to govern trust validity. And in the perpetuities instantiation too, the risk is policy evasion by means of the interposition of a special power. The risk in the perpetuities instantiation is that the exercise of a special power of appointment will allow the vesting of future interests in assets subject to the power to be postponed for longer than the donor of the power could have arranged without interposing the power.

To prevent that, the perpetuities instantiation of the relation back theory requires that the period during which the exercise of a special power of appointment can postpone the vesting of future interests is measured from the time the power was created. “Where an appointment is made under a special power, the appointment is read back into the instrument creating the power (as if the donee were filling in blanks in the donor’s instrument) and the period of perpetuities is computed from the date the power was created.” Thus, by treating the donor of a special power—rather than the donee—as the transferor of property subject to the power, the relation back theory prevents the donee from setting a must-vest-by date of a remoteness that would have been prohibited to the donor by the RAP. Why should the theory not likewise prevent the donee of a trust-spawned special power from effecting a choice of law on trust validity that would have been prohibited to the settlor-donor of the power by the Settlor Autonomy Constraints?

2. As Reasoning about Jurisdiction-Selecting Choice of Law in Particular

a. Formal Justice

Of course, the rule of Restatement of Conflicts section 274(a) (or any other choice-of-law rule) is not sufficiently commended to Regulating State (or any other state) simply by its pointing to that state’s local law on the facts of our special-power-elaborated first case in point (or any other particular situation). For a state’s motivation to treat like cases alike, a commitment, that is, to formal justice, will require the rule’s application—when applicable—whether it points to the lex fori or away:

[A] court [for example] is seeking a [choice-of-law] rule which, if it already has the pedigree of precedent, may have arisen in a case where the competing domestic laws were, with relation to the facts of the transaction, the reverse of those now before it. Moreover, the court must contemplate the use of its decision in the instant case as a precedent for the decision of some subsequent . . . case which will present still another pattern of local laws.

But as we have already noted, Regulating State’s rational policy is that when a choice of law on trust validity is in question, the State’s own substantive law should apply imperatively only when Regulating State is the state to which the trust in question has its most significant relationship as to the matter at issue. And it is on that basis that the rule of Restatement of Conflicts section 274(a) is commended to Regulating State (or any other state) on the facts of our special-power-elaborated first case in point. The rule of Restatement of Conflicts section 274(a) locates the rule of decision on the validity of the t-mimic trust (as the intended result of the exercise of the t-spawned special power) by pointing to the state whose law determines the validity of t, and the Validity of Trust Rule—either by its default designation or the policy override of the Settlor Autonomy Constraints—points to Regulating State to provide the rule of decision on the validity of t because Regulating State is the state to which t has its most significant relationship as to the effect of t on S’s augmented estate.

b. Substantive Justice

Thus, Restatement of Conflicts section 274(a) and its confluence with the Validity of Trust Rule are entirely consistent with Regulating State’s commitment to formal justice. But formal justice, “[t]reating similar cases similarly[,] is not a sufficient guarantee of substantive justice.” And as the preceding discussion emphasizes, the operative effect of section 274(a)’s conjunction with the Validity of Trust Rule is jurisdiction selection: the conjunction points directly, not to a rule of decision (on the validity of an exercise of a trust-spawned special power of appointment), but to a state, “a territorial unit having a distinct general body of law,” regardless of the content of any of rules comprised by that body of law.

When a case arises in which a foreign law is offered in evidence or in which the applicability of the law of the forum is denied, a court faithful to the conventional approach will turn in search of a conflict of laws rule to determine the jurisdiction whose law should govern the question at issue. The conflicts rule indicates in which jurisdiction the appropriate law may be found. Assuming the law offered to be from that jurisdiction, the court will then proceed with the case, employing that law as a rule of decision. Not until its admission for that purpose does the content of that law become material.

And that raises a profoundly simple question: How can a litigant who but for the “foreign element” in her case would be entitled to demand justice according to the local law of the forum, be relegated by the forum to a rule of decision selected without regard to the rule’s content and, therefore, without regard to its effect upon the litigant’s claim? “The court is [after all,] not idly choosing a law; it is determining a controversy. How can it choose wisely without considering how that choice will affect that controversy?” This is a question of substantive justice. And the prospect of Justice’s being blind to substance is philosophically unsettling; for it seems to invite the criticism that

instead of declaring an overriding public policy, [a jurisdiction-selecting, choice-of-law rule] proclaims the state’s indifference to the result of the litigation. Let there be a domestic case of [for example] tort or contract, and the law of the state points to the result which alone can advance the social and economic policy embodied in that law. Let a conventionally suitable foreign factor be injected and the state immediately loses interest.

But that criticism is avoided (or blunted) to the extent that a jurisdiction-selecting, choice-of-law rule can be derived by analogy to local law. It is therefore significant that the rule of Restatement of Conflicts section 274(a) can be derived or explained by the ordinary method of common law argument and justification, viz., analogy and distinction, from local law evidence for a “general theoretical proposition[] of the common law,” viz., the relation back theory. To that extent, the forum discerns in its own local law, by the ordinary method of common law elaboration, a reason to look away for a rule of decision and to do so without regard to the content of the desiderated rule. The forum’s reaction to the hypothesized litigant’s case is not a knee-jerk at its “foreign element” but a standard evaluation of its substance. Hence in a conflicts scheme whose choice-of-law rules are generally jurisdiction-selecting, a choice-of-law rule that can be derived or supported by analogical reasoning from the local law of the forum is charmed. And the rule of Restatement of Conflicts section 274(a) has that charm.

C. The Vice of Rough Analogy (and Herein of Interpretation)

But charming as the rule of Restatement of Conflicts section 274(a) is in theory, it is liable to be awkward in practice; for the rule’s being derivable by analogy from local law—the very feature that gives it its charm in theory—threatens to make heavy weather of cases that, unlike our special-power-elaborated first case in point, involve a succession of successively generated trust-spawned special powers.

1. A Second Case in Point

Let us suppose that by a transfer of assets that she owned outright (or over which she held, at the time, a presently exercisable general power of appointment), a settlor, S, settled an irrevocable inter vivos trust, t₁. T₁’s “governing law” provision (concerning validity as well as construction and administration) designated the law of State A. And t₁’s dispositive terms granted a beneficiary, D₁, who was domiciled in (different) State B, a special power, p₁, to appoint the trust assets (which were movables). The dispositive arrangement effected by D₁’s exercise of p₁ was a trust, t₂, whose governing law provision (including validity) designated the law of State B and under whose terms a beneficiary, D₂, who was domiciled in (yet different) State C, was granted a special power, p₂, over the trust assets (still movables). The dispositive arrangement effected by D₂’s exercise of p₂ was a trust, t₃, whose governing law provision (including validity) designated the law of State C and under whose terms a beneficiary, D₃, who was domiciled in (possibly different) State D, was granted a special power, p₃, over the trust assets (still movables) . . . . And the dispositive arrangement effected by D_n-1’s exercise of p_n-1 is a trust, t_n, whose governing law provision (including validity) designates the law of State N (which is different from State A but not necessarily different from every state in the series State B, State C, State D . . . State N-1).

The problem, let us say, is that t_n is an “accumulation trust,” and a beneficiary of t_n, B, has petitioned a court in State N for an order striking the lengthy accumulation period prescribed by the trust’s terms on the ground that the period violates the common law rule against accumulation of income. By the time of D_n-1’s exercise of p_n-1 to create t_n, States N, N-1, and all of the other states in the series State B, State C, State D . . . had abrogated the common law rule against accumulation of income, though that rule remains in full vigor in State A. The only factors of the CF-Set adverting to State A are the historical facts that S executed the t₁ trust instrument in State A and designated State A in the t₁ trust instrument’s governing law provision. It turns out (we shall suppose) that in making that designation, S, who was then domiciled in a state that had already abrogated the common law rule against accumulation of income, had acceded to the request of a commercial trustee organized under the laws of State A that she include in the t₁ instrument certain “boilerplate” designating that state’s law to govern validity. And the corporate trustee that made that request is no longer involved in the administration of any of the trusts in the series t₁, t₂, t₃ . . . t_n, only the last of which still exists.

2. A Naïve Reading

To the extent State N’s superior courts adhere to the rule of section 274(a) and treat the Restatement of Conflicts as authority for doing so, the judge hearing B’s petition in our second case in point might focus initially on the law that determines the validity of trust t_n-1. According to the black letter of section 274(a), the substantial validity of t_n (as the intended result of the exercise of the t_n-1-spawned special power p_n-1) is determined “in accordance with the law which determines the validity of the [special-power-spawning] trust.” And according to the Comments, that is true regardless of D_n-1’s designation of State N in t_n’s governing law provision. Well, the p_n-1-spawning trust is presumably t_n-1.

Again, we know that by “in accordance with the law which determines the validity of [t_n-1],” section 274(a) means in accordance with the law which determines the validity of t_n-1 as to the “particular ground of invalidity” at issue. And the particular ground of invalidity at issue in our second case in point is the rule against accumulation of income. So, the question posed under section 274(a) by B’s petition might initially seem to be whether D_n-2’s designation of State N-1 in t_n-1’s governing law provision violates a strong public policy of the state with which, as to accumulation of income, t_n-1 has its most significant relationship. If it does not violate such a policy, that designation will be respected (according to the Validity of Trust Rule). And in that case, the question might seem (according to section 274(a)) to be just whether t_n’s accumulation period is permitted under the law of State N-1—which we know to have abrogated the rule against accumulations.

We know that State A has not abrogated that rule but we also know that the only factors of the CF-Set adverting to State A are the historical facts that S executed the t₁ trust instrument in State A and designated State A in the t₁ instrument’s governing law provision. It may be doubted, therefore, whether State A is the state with which trust t_n-1 has its most significant relationship as to any matter. And all of the other states implicated in the CF-Set have abrogated the rule against accumulations. So, the judge hearing B’s petition will have to conclude that D_n-2’s designation of State N-1 in t_n-1’s governing law provision does not violate a strong public policy of the state (whichever it is) with which, as to accumulation of income, t_n-1 has its most significant relationship. On this simple reading of section 274(a), that conclusion would make State N-1’s abrogation of the rule against accumulations determinative.

3. Transitivity

But B will insist that the simple reading of section 274(a) is contrary to analogy. She will emphasize that (as we have seen) the Restatement of Conflicts’ express rationale for the rule of section 274(a) is just the analogy to the resulting-trusts and perpetuities instantiations of the relation back theory. For in both of those instantiations, the relation back is transitive over successively generated special powers of appointment. As with the resulting-trusts instantiation itself, the transitivity of the relation back in that instantiation is arguably no more than a reiteration of the legal-taxonomic distinction between special and general powers of appointment in the context of a failed appointment in further trust. But the transitivity of the relation back over special powers for perpetuities purposes is nontrivial:

If [a] trust or other donative disposition was created by the exercise of a nongeneral or testamentary power that was created by the exercise of a nongeneral or a testamentary power, the relation-back doctrine is applied twice and the donor of the first power is the transferor of the trust or other donative disposition created by the second donee’s exercise of his or her power.

That means that no matter how large the number n in the hypothesized series of special powers p₁, p₂, p₃ . . . p_n-1 is, we know that p_n-1 is deemed to have been “created,” for perpetuities purposes, on the date that p₁ was created because according to the relation back theory, p_n-1 was created when p_n-2 was created, and p_n-2 was created when p_n-3 was created, and p_n-3 was created when p_n-4 was created, and so on back to the creation of p_n-x = p₁.

If special powers relate back (B’s argument continues) for choice-of-law purposes because they relate back in the resulting-trusts and perpetuities instantiations, and the relation back of special powers is transitive in those instantiations, then presumably the relation back is transitive for choice-of-law purposes. And since the rule of section 274(a) takes precedence in determining the substantial validity of trust t_n (as the intended result of D_n-1’s exercise of p_n-1) over D_n-1’s privilege as the settlor of t_n to designate governing law, it likewise takes precedence over the like privilege of D_n-2 as the settlor of t_n-1, that of D_n-3 as the settlor of t_n-2, that of D_n-4 as the settlor of t_n-3, and so on.

So (B will conclude), no matter how large the number n is, the validity of t_n (as the intended result of D_n-1’s exercise of the t_n-1-spawnded special power p_n-1) is determined, according to the rule of section 274(a), by the law that determines the validity of t₁. For the validity of t_n (as such) is determined by the law that determines the validity of t_n-1, the validity of t_n-1 (as the intended result of D_n-2’s exercise of the t_n-2-spawnded special power p_n-2) is determined by the law that determines the validity of t_n-2, the validity of t_n-2 (as the intended result of D_n-3’s exercise of the t_n-3-spawnded special power p_n-3) is determined by the law that determines the validity of t_n-3, and so on back to the law that determines the validity of t_n-x = t₁. On B’s reading of section 274(a), the question posed by B’s petition is whether S’s designation of State A in trust t₁’s governing law provision violates a strong public policy of the state with which, as to accumulation of income, t₁ has its most significant relationship. If it does not violate such a policy, that designation will be respected (according to the Validity of Trust Rule). And in that case, the question (according to section 274(a)) is just whether t_n’s accumulation period is permitted under the law of State A—and we know that State A still enforces the common law rule against accumulations.

4. Afterlife of Special-Power-Spawning Trusts as to Particular Matters at Issue

Of course, B’s argument does not change the CF-Set array: trust t₁ no longer exists, and what is left of it, that is, the fund that was once held by t₁’s trustee(s) is now the res of t_n, having changed fiduciary hands and “vestments,” perhaps many times (in the series t₁, t₂, t₃ . . . t_n). Thus, the sense in which t₁ can be said to have a significant relationship as to accumulation of income to any state is strained. But S’s designation of the law of State A to govern the validity of t₁ cannot possibly have violated a strong public policy as to accumulation of income of any of the states represented in the CF-Set; for all of the represented states other than State A permit accumulations, and that is presumably, not because any of them wishes actively to promote accumulation of income, but rather for lack of a strong public policy going the other way. Indeed, the Restatement of Conflicts assumes such a lack:

If the provision is valid under the local law of the state designated by the testator or under the local law of the place of administration, it will be held to be valid if it does not contravene a strong policy of the state of the testator's domicil. No such strong policy is involved in rules against perpetuities or rules against accumulations or rules as to indefiniteness of beneficiaries.

The latter statement—that no strong policy is involved in RAPs, rules against accumulations, or rules as to indefiniteness of beneficiaries—is no longer credible (assuming it was credible when the Restatement of Conflicts was drafted) with regard to a state that wants to enforce any of the rules mentioned. But the many states that have thrown off such rules have not done so because they wish to discourage the vesting of transferred future interests within the testing period of the common law RAP, or regular distributions of trust income, or the creation of trusts for the benefit of definite or definitely ascertainable beneficiaries. A state’s abrogation of a rule against remoteness of vesting, accumulation of income, or noncharitable purpose trusts represents a recognition, not of strong public policy, but of the absence of such a policy.

So, the long road on which the judge hearing B’s petition was set by B’s reading of section 274(a) ends in the conclusion that S’s designation of State A in t₁’s governing law provision does not violate a strong public policy of the state (whichever it is) with which, as to accumulation of income, t₁ has (in whatever sense it can be said to have) its most significant relationship. It follows that State A’s adherence to the rule against accumulations is determinative (on the question of the validity of t_n and its initial accumulation period).

5. Embarrassment

By hypothesis, State N’s superior courts treat the Restatement of Conflicts as authority for adherence to the rule of section 274(a). The judge hearing B’s petition is therefore bound to weigh in B’s favor that B’s reading of section 274(a) utilizes the analogy on which, according to the Restatement of Conflicts, section 274(a) is based, whereas the naïve reading (to which B’s is a reaction) ignores that analogy. But the judge is also bound to consider that on B’s reading, section 274(a) picks out the law of a state with which, as to accumulation of income, what is left of trust t₁—viz., the fund that was once held by t₁’s trustee(s) and is now the res of t_n—has one of the least significant relationships among the states implicated in the CF-Set array.

The judge will consider, for example, that apart from the relation-back story about the terms of t_n-1 being “read back into the instrument[s] creating” t_n-2, t_n-3, t_n-4 . . . t_n-x = t₁, “the state where the [t_n-1] trust instrument was executed and delivered” was presumably either State N-2 or State N-1, neither of which (we know) is State A. Likewise, “the state where the trust assets were . . . located” is unlikely to have been State A. Again, apart from the relation-back story about S’s being the donor of p_n-2, p_n-3, p_n-4 . . . p_n-x = p₁ and, therefore, the settlor, for perpetuities purposes, of t_n-2, t_n-3, t_n-4 . . . t_n-x = t₁, the settlor of t_n-1, for state law purposes, was undoubtedly D_n-2, and “the state of the domicil of the settlor,” therefore, State N-2, which (we know) is not State A. We also know that “the state of the domicil of the beneficiaries” is not State A.

The result is that on B’s reading, section 274(a)’s choice of law is suboptimal from the point of view of the PF-Set. That is because on B’s reading, section 274(a) points to State A, and State A is not the state with which, as to accumulation of income, what is left of trust t₁, viz., the fund that was once held by t₁’s trustee(s) and is now the res of t_n, has its most significant relationship. But a state’s rational policy is that the state’s own substantive law on trust validity should apply imperatively only when the state is the state to which the trust in question has its most significant relationship as to the matter at issue. Thus, on B’s reading, section 274(a) points uniquely to State A in circumstances in which, from State A’s point of view, State A is the wrong choice of law.

V. A Better Analogy to the Perpetuities Instantiation of the Relation Back Theory

Happily, our hypothetical judge (or the legislator to whom she describes her perplexity) can resist the conclusion that what causes the rule of Restatement of Conflicts section 274(a) to go wrong on B’s reading is the analogy to the perpetuities instantiation (with its implicit commitment to the transitivity of the relation back theory). Happily because the judge (or her legislative counterpart) will be loath to depreciate section 274(a)’s signal credential qua jurisdiction-selecting, choice-of-law rule of being derivable or explicable by analogy to evidence in the local law of the forum for a general theoretical proposition of the common law. In fact, B’s own strategy of taking the analogy to the perpetuities instantiation of the relation back theory seriously can be used to impugn B’s reading of Restatement of Conflicts section 274(a) (Brute Transitivity Reading). For in its own way, that reading too is contrary to the relevant analogy.

A. Disanalogies

1. Chiasmus

One disanalogy concerns the perpetuities instantiation’s remotest date by which nonvested future interests created by a given exercise of a special power must vest, if at all, to be valid under the law of a state that has a RAP. In a case like our second case in point, the Brute Transitivity Reading analogizes the perpetuities instantiation’s must-vest-by date, not to the Settlor Autonomy Constraints, but to a particular, historical, attempted choice of law, viz., the designation made by the settlor of the first trust in the series t₁, t₂, t₃ . . . t_n-1. That seems an arbitrary feature in the choice-of-law instantiation given that as far as the perpetuities instantiation is concerned, the donee of a special (or testamentary general) power of appointment can postpone vesting to the very limit of the applicable perpetuities period—measured from the date of the creation rather than the exercise of the power—regardless of when future interests would vest according to the donor’s provision (if any) for takers in default. In the perpetuities instantiation, the donee of the power is limited by what the donor could have done in the way of postponing vesting not by what (if anything) the donor actually did in that vein.

In other words, the Brute Transitivity Reading crosses over the pairwise contrasts (1) between (a) the remotest date for vesting under an applicable RAP, on the one hand, and (b), for example, a particular specification of measuring lives, on the other, and (2) between (a) the Settlor Autonomy Constraints, on the one hand, and (b) a particular designation of state law to govern trust validity, on the other. A closer analogy between the choice-of-law and perpetuities instantiations of the relation back theory would take the Settlor Autonomy Constraints to be the choice-of-law counterpart of the perpetuities instantiation’s remotest date for vesting under an applicable RAP. That could make a difference whenever the Settlor Autonomy Constraints leave the settlor of a special-power-spawning trust two or more alternatives from which to choose in designating state law to govern the trust’s validity as to a particular matter at issue. That is a situation we have illustrated by supposing that in designating the law of State A to govern the validity of t₁, S had merely acceded to the request of a commercial trustee organized under the laws of State A that she include in the t₁ instrument certain “boilerplate” designating that state’s law to govern validity.

2. Missing “Blank”

Of course, to focus on the particular, historical designation of governing law made by the settlor of the first trust in a series like our t₁, t₂, t₃ . . . t_n-1 is to ignore all of the other designations made by the donees in the corresponding series D₁, D₂, D₃ . . . D_n-2. That seems odd in light of what we have just observed: that what the donee of a special power actually does in the way of postponing vesting is carefully examined in the perpetuities instantiation. But it also seems odd given that apart from the preemptive force of section 274(a), the Restatement of Conflicts assumes that subject to constraints, the settlor of a trust can designate state law to govern trust validity. And, again, apart from the relation-back story that the settlor of the first trust in a series like our t₁, t₂, t₃ . . . t_n-1 is the settlor of each succeeding trust in the series, the settlors of the respective trusts t₂, t₃, t₄ . . . t_n-1, for state law purposes, were undoubtedly the donees D₁, D₂, D₃ . . . D_n-2, respectively. If, for example, the donee D₂ made provision in the terms of the t₃ trust for takers in default of the exercise of p₃ and (contrary to the facts of our second case in point) D₃ simply failed to exercise p₃, it would not be S’s but D₂’s provision for takers in default that would control the disposition of the unappointed property subject to p₃.

We have assumed that, in each case, the exercise of the special power held by the donees D₁, D₂, D₃ . . . D_n-1 was within the scope of the power. That means that when S, settled t₁, for example, she authorized D₁ not only to “designate recipients of beneficial ownership interests” but also to create a further power of appointment, p₂, and to name trustees (that is, to create t₂). And if S did not expressly grant these additional powers, then because she did not expressly rule them out, the law inferred them. But if granting a power of appointment presumptively entails granting a power to create a trust, and the power to create a trust presumptively entails a power to designate the state law governing the validity of that trust, why should granting a power of appointment not presumptively entail granting a power to designate state law governing trust validity? Put another way: If the donor of a power of appointment is to be viewed as leaving blanks where she herself would otherwise have indicated the transferee(s) of property, whether the property would be transferred in trust, and, if so, what law would govern the validity of that trust, why should she be viewed as leaving blanks suitable only for naming transferees and indicating whether the transfer is to be in trust?

Thus, we can imagine for choice-of-law purposes, the settlor of a special-power-spawning trust t₁ as leaving a further, metaphorical “blank” by filling in which the donee of the t₁-spawned power can designate state law to govern trust validity (if she exercises the special power in further trust). Analogy to the perpetuities instantiation will recommend that the donee should be limited in her choice of law on trust validity to designations that the settlor of t₁ could have made under the Settlor Autonomy Constraints if she (the settlor of t₁), instead of leaving “blanks,” had decided to “fill in the blanks” herself so as to create t₂ under the terms of t₁. But with that limitation, allowing the donee of a trust-spawned special power that can properly be exercised in further trust to designate state law to govern the validity of a trust created by exercise of the power will yield a closer choice-of-law analogy to the perpetuities instantiation. It will also better reflect the general assumption that the power to create an express trust presumptively entails a power to designate state law to govern trust validity.