Trusts and settlors - can a settlor have too much power?

When creating new trust structures, it’s important that settlors do not retain so much power that they make themselves and their trust vulnerable. This is becoming an increasingly common issue, alongside advising trustees and settlors of existing, vulnerable structures what can be done to reduce this risk.

Considering the balance of power over a trust and power splitting or sharing with other, independent power holders has rarely been more important given developments in recent cases decided by the Privy Council. In particular, the development of the concept of a trust being ‘illusory’ or the examination of all the powers retained by the settlor (in whatever capacity) to see whether he or she could bring the assets back into their ownership by using some of all of those powers, could undo what the settlor set out to achieve when creating the trust.

With the growing appreciation of the impact of these decisions and the anticipated wealth shift to the next generation(s) (a point at which such structures often come under pressure), there is an urgent need to review existing structures to see if they might be vulnerable on this account and to take advice on what can be done to restructure them.

You can find out more about settlor control or what can be done to mitigate against this risk in this article, originally published by the International Family Offices Journal, or for further information, please contact Dawn Goodman.