The Limitations of an Economic Agency Cost Theory of Trust Law

Should the donor\u27s specific interests or potentially conflicting theoretical economic principles control the creation and administration of trusts? In a highly influential article advancing an agency cost framework for trust law, Harvard Law Professor Robert Sitkoff suggests retooling trust law to focus on wealth maximization and to minimize costs stemming from an assumed misalignment of the interests between deemed principals and agents within the trust setting. An agency cost theory of trust law, however, reduces the complex, highly idiosyncratic, and emotionally charged nature of trust law into a simple business relationship. Given the special nature of trust law and practice-where interests remain difficult to quantify, interpersonal preferences remain incommensurable, and normative principles trump other preferences-slavish attention to economic analysis resembles the youthful mistake of forcing square pegs into round holes. This Article demonstrates that applying a rigid agency cost analysis to trust law not only produces a positively inaccurate account of modern trusts but also a normatively incoherent philosophy to guide the evolution of trust law. Quite frankly, trust law is not damaged, let alone so broken that it needs to be infused with a new overarching jurisprudential principle. Therefore, this Article urges a return to first principles of trusts that focus on the processes for achieving the settlor\u27s goals and a methodology for fostering integrity in the trustee\u27s stewardship of trust property. For centuries, trust law existed as a vehicle for transferring wealth coupled with some preference regarding the conditions for distribution. While estate planning undoubtedly will become even more sophisticated in the decades to come, the complexity of the questions posed does not require ignoring relatively simple solutions. Ultimately, trusts should be viewed as a means to fulfill donative freedom