In her recent article, Professor Rhonda Wasserman argues that class action settlements that distribute funds cy pres raise a very serious risk of prejudice to absent class members. The problem, she asserts, is the temptation for class counsel to sell out the interests of absent class members in exchange for a discounted settlement for the defendant and a generous fee for class counsel. To illustrate her concern, she cites the $9.5 million settlement in Lane v. Facebook, Inc. that directed approximately $6.5 million to a nascent charity that was controlled—at least partially—by the defendant, $3 million to class counsel and nothing to the three million absent class members. Professor Wasserman argues that courts cannot have a laissez faire attitude toward protecting absent class members and she proposes a number of procedural reforms to ensure that cy pres distributions are only used when absolutely necessary. While her proposals are likely to provoke increased judicial scrutiny of cy pres distributions, the article stops short of addressing the principal question: when, if ever, is a settlement that distributes funds cy pres “fair, reasonable and adequate” to the absent class members?
President Obama’s 2012 and 2013 budget proposals contained similar provisions to tax perpetual trusts ninety years after their creation at the maximum Generation-Skipping Tax rate of 55 percent—a move consistent with arguments by law professors and the American Law Institute. These proposals went little noticed except by investment publications, which advised individuals to create perpetual trusts before they could be taxed. Despite the support of the legal academy, the president’s proposal stands little chance of success. Nor should it come as a surprise that a tax proposal with little chance of success was proposed at the beginning of an election cycle—instead, as this Note explains, it should be expected.
Perpetual trusts, facilitated by the 1986 enactment of the Generation-Skipping Tax Exemption (“GST Exemption”) and the subsequent repeal of the rule against perpetuities (“RAP”) in most states, allow individuals to place money into trusts where it grows free of intergenerational transfer taxes forever. Prior to the 1986 tax reform, individuals could use successive life estates in trust to transfer money to their grandchildren without triggering the estate tax. To close this loophole, Congress enacted the Generation-Skipping Tax (“GST”) in 1986 to tax transfers to individuals more than one generation removed, and the GST Exemption to soften the taxpayer burden.