Shapeless Trusts and Settlor Title Retention: As Asian Morality Play

The recent Chinese Trust Act has created a stir in trusts scholarship by taking no position on the location of title in the trust assets, not requiring that title to vest in the trustee. The Act thus permits settlors to retain title in the trust assets despite having appointed another as trustee. Leading trust scholars have criticized the Chinese Act’s noncommittal approach, pointing to the difficulties created by settlors continuing to own the trust assets. The present article attempts to evaluate the efficacy of such “shapeless trusts” and “settlor title retention trusts” by examining the career of the Chinese Act’s principal predecessor – the Israeli Trust Act of 1979, which established the world’s first shapeless trust regime. I identify two advantages of such regimes. One is their making trustees’ duties and beneficiaries’ effective remedies applicable in fiduciary situations conventionally analysed as agency, nomineeship or, under civil law systems, mandate. A further advantage is that “settlor title retention trusts” may help introduce the trust mechanism to potential settlors unaccustomed to it, who may be deterred by the prospect of giving away title in their property. Many property owners outside the traditional Anglo-Saxon sphere of trust practice would be very much deterred by such a prospect. Offshore jurisdictions, purportedly adhering to the traditional Anglo-American trust model, have developed “settlor-reserved powers” for much the same purpose. Compared to the offshore approach, the Chinese and Israeli “shapeless trusts” are functionally much closer to traditional active trusts, leaving actual power to administer and dispose of trust assets in the hands of trustees. The shapeless trust can thus be seen as a relatively direct means, involving less smoke, fewer mirrors and less real injury to the separation of enjoyment and control, one of the foundational ideas behind trusts, for making the trust palatable for a wider circle of potential settlors. The article combines the rich black letter discourse characteristic of comparative trusts scholarship with a functionalist, legal realist view of the use practitioners make of the law, as well as of the real-life effects of doctrinal formulations. It adds a probing legal historical treatment of the development, life and impending demise of the Israeli Trust Act of 1979. Parts of the article are based on primary sources declassified especially for this research project and recently-conducted interviews.