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John H. Langbein^
In the culture of Anglo-American law, we think of the trust as a branch of the law of gratuitous transfers. That is where we teach trusts in the law school curriculum,1 that is where we locate trusts in the statute books,2 and that is where American lawyers typically encounter the trust in their practice. The trust originated at the end of the Middle Ages as a means of transferring wealth within the family,3 and the trust remains our characteristic device for organizing intergenerational wealth transmission when the transferor has substantial assets or complex family affairs. In the succinct formulation of Bernard Rudden, Anglo-American lawyers regard the trust as "essentially a gift, projected on the plane of time and so subjected to a management regime."4 The Restatement (Second) of Trusts, the most authoritative exposition of American trust law, exemplifies our tradition of thinking about the trust exclusively as a branch of the law of gratuitous transfers. Austin W. Scott, the reporter, excluded commercial trusts from the Restatement on the ground that "many of the rules" of trust law are inapplicable in commercial settings.5 Scott offered no support for that claim,6 which is mistaken. The familiar standards of trust fiduciary law protect trust beneficiaries of all sorts, regardless of whether the trust implements a gift or a business deal (unless, of course, the terms of the transaction expressly contraindicate). Indeed, one of the great attractions of the trust for the transaction planner who is designing a business deal is the convenience of being able to absorb these standards into the ground rules for the deal, merely by invoking the trust label.
Scott carried his disdain for commercial trusts into his treatise, refusing to speak of them.7 George G. Bogert, the other leading American treatise writer on trusts, was more tolerant; his book supplies introductory (although now quite antiquated) coverage of some types of commercial trust.8
My theme in this Essay is that the American legal intellectual tradition, which characterizes the trust as a branch of the law of gratuitous transfers, is at odds with the reality of American trust practice. In truth, most of the wealth that is held in trust in the United States is placed there incident to business deals, and...