Paul L. Caron

Tuesday, June 22, 2021

Inequality Of Wealth Ownership And The Problem Of Perpetuities Repeal

Kent D. Schenkel (New England), Inequality of Wealth Ownership and the Problem of Perpetuities Repeal: A Review of Eric Kades, of Piketty and Perpetuities: Dynastic Wealth in the Twenty-First Century (and Beyond), 60 B.C. L. Rev. 145 (2019):

Thanks in part to the French economist Thomas Piketty, it is no longer a secret that wealth ownership globally, and in the United States perhaps most strikingly, is highly skewed, with a very small number of persons owning the vast majority of capital. The findings set out by Piketty in his enormously popular book, Capital in the Twenty-First Century, are of particular interest. In his blockbuster tome, Piketty pointed out that when the rate of return to capital exceeds the rate of economic growth, capital becomes dominant. Further predicting that rates of growth are very likely to be less than returns to capital going forward, Piketty concluded that inheritance, not work, will largely determine who gets what in the future. In light of Piketty’s findings and predictions, can we afford to be sanguine about jurisdictions eliminating their Rules Against Perpetuities?

Eric Kades, in his article entitled Of Piketty and Perpetuities: Dynastic Wealth in the Twenty-First Century (and Beyond), answers this question with a resounding “no.” Rather, writes Kades, “we should mourn the RAP’s death.”

But Kades does not blindly subscribe to all the traditional objections to perpetuities, such as fears that donors will create inalienable property interests that will in turn lead to economic inefficiency. In fact, Kades is persuaded that, as many commentators have argued, the pervasive resort to donative trusts allays alienability concerns—trustees buy and sell trust assets to maximize the value of the trust. Kades also resists the objection to perpetuities that bases itself on the principal of fairness. The widely-offered fairness argument maintains that a donor’s desire for dead hand control should be balanced against the desire of present owners of property to be free of restrictions imposed by prior owners. Citing claims that this “balancing rationale” has no empirical or utilitarian basis, as well as the argument that many trusts do not harmfully restrict investment or distribution, Kades concludes that these “traditional arguments for forbidding perpetuities have little current force.”

We are long past the point of reasoned disagreement on the question of whether wealth ownership is evenly distributed. The increasing concentration of wealth in the few threatens our democratic institutions, which rely on the consensus of the many. And there can be little serious question that wealth, once acquired, is entrenched across generations through laws governing trusts and estates. While these laws are now largely enacted by state legislatures, most of them were born as proposals generated by the trusts and estates bar and legal academy. We have an opportunity and an obligation to propose laws that strengthen, rather than weaken, our democratic institutions. In his paper on perpetual trusts, Professor Kades has embraced that opportunity and obligation. Perhaps others will do so as well.

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