The Rule of Law

 

Today I’m going to take a break from writing tips to climb on my soapbox. I have an apparently self-loathing lawyer friend who likes to complain that we lawyers are carbuncles on the face of humanity I like to point out to him that one of the founding principles of America is that we “are a government of laws and not of men.” That is, we are all governed by the rule of law. It is the rule of law that has made America the richest nation on earth and the last remaining superpower. Lawyers have always played a significant role in American society. It is nothing new. America has grown in wealth because of this and not in spite of this.

 

We have laws that create stable capital markets. Intellectual property law protects innovators and creators allowing them to profit from their creations. Businesses, credit card companies, and banks can all extend credit because of the rule of law. Minority shareholders can invest knowing that their rights are protected. Foreign investors can buy real property, bonds, and shares secure in the knowledge that some arbitrary and capricious decree will not deprive them of their property. Americans can buy homes and other property knowing that their property rights are protected by the rule of law. In short, it is the rule of law that makes the American economy function.

 

I was reminded of this while reading Thomas L. Friedman’s book “The World Is Flat: A Brief History of the Twenty-first Century.” He has a section where he talks about the sclerotic regulatory and legal systems of other countries where a bankruptcy can take ten years or a routine collection matter can take “27 procedures” and “more than 550 days.” Small business owners cannot get credit because of inefficient courts and poor mechanisms for enforcing debts. The adoption of efficient regulatory and legal systems is one of the major differences between emerging economic powers like China and India and the also rans like Egypt, sub-Saharan Africa, and Latin America.

 

Mexico is located on the same continent as the U.S. and has relatively abundant resources, including oil. Yet, according to Mr. Freidman, Mexico imports statues of the Virgin of Guadalupe from China. Mexico has a large supply of cheap labor and yet it languishes in poverty while China races ahead. A Mexican citizen can buy a condominium anywhere in America and know that his investment is respected and protected, but an American cannot do the same in Mexico. China’s economic reforms have created enough comfort for foreign citizens to invest there and do business with China. This is one of the key differences between the countries. These differences are due in part to the rule of law.

 

Is there room for reform? Sure. Things can always be made better. Procedures, especially for smaller matters, could be streamlined. Could we use fewer lawyers and more engineers? Absolutely. But the next time you sit in your own home and bash lawyers, remember that it is a well established system of laws that allowed you to borrow the purchase price of your home, record the deed, and protect it against all others.

 

 

Copyright Notice: All Rights Reserved Harry Thomas Hackney, P.A. 2007

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What Is A Revocable Living Trust?

A revocable living trust or intver vivos trust is a written document created by one or more persons called settlors or grantors. (For simplicity, we will use just the term “trust” instead of revocable living trust throughout the rest of this post.) The trust instrument names a trustee or trustees who have the power to control whatever property is placed in the trust subject to the settlor’s instructions. The trust property is used for the benefit of one or more beneficiaries. In fact, the trustee has a fiduciary obligation to follow the settlor’s instructions, to prudently manage the property of the trust, and to act in the best interests of the beneficiaries. With a living trust, the settlor is usually the trustee and is also a beneficiary during his or her lifetime. Thus, the settlor retains complete control over his or her property while living and competent.

One of the advantages of a revocable living trust is that a successor trustee takes over the trustee duties when the settlor dies or becomes incapacitated. This feature can help to avoid probate and reduce the likelihood of a guardianship.

In a nutshell, a living trust is an artificial legal entity created by a settor or grantor that provides instructions for the management of the settlor’s property during his or her life and the final management and distribution of the property after death. A trust has advantages if you become disabled because the successor trustee can manage the property for you and you can leave detailed enforceable instructions. A trust avoids a guardian of the property in the trust. A properly funded living trust avoids probate but not estate taxes. A properly set up living trust with certain provisions may avoid estate taxes. Living trusts also do nothing to avoid claims of creditors for the person who creates the trust. That person’s heirs may, however, enjoy some creditor protection if the property remains in trust and the trust has spendthrift features.

You may need a living trust if you are concerned about becoming disabled, if you wish to avoid probate, or if your estate is taxable.

Copyright Notice:  All Rights Reserved Harry Thomas Hackney, P.A. 2007