This article was originally published in December 2019 for the Trusts & Trustees Journal (Vol 25, No 10, pp 1025-1032), under the title ‘To reserve or not to reserve? That is the question – Part I’.
Are you a settlor looking to retain an element of control over your trust? Perhaps you have a list of issues you would like to be decided by you, a friend or trusted adviser rather than by your overseas corporate trustee? Are you a trustee looking after a settlor-directed trust and wondering whether you are adequately protected? Or do you expect the settlor to try and control trust assets, and therefore consider that a clear framework as to who decides what from the outset may be beneficial to everyone?
Several overseas jurisdictions have introduced laws to enable a settlor to keep back certain powers or to give them to trusted friends and advisers so that not all power is concentrated in the trustee. These laws provide increased legal certainty for reserved powers or settlor-directed trusts adding a layer of comfort for everyone involved as to what is and what is not possible without invalidating the trust. Caution or restraint may, however, be appropriate given that the use of such provisions has not been widely tested in the courts. There also remains a general appreciation in the profession that the greater the powers retained, the greater the risk of invalidity.
For a snapshot on rules in the BVI, the Bahamas, Bermuda, the Cayman Islands, Guernsey or Jersey and comment on Hong Kong and Singapore read the full article or contact Dawn Goodman or Phineas Hirsch.
In Part II, we consider what can possibly go wrong with the settlor/grantor and his appointees in charge.