Trusts And Settlors - Can A Settlor Have Too Much Power?

• Published date: 16 June 2022
• Subject Matter: Corporate/Commercial Law, Wealth Management, Family and Matrimonial, Wealth & Asset Management, Trusts, Wills/ Intestacy/ Estate Planning
• Law Firm: Withers LLP
• Author: Ms Dawn Goodman

The continuing popularity of the trust

The Anglo-Saxon trust, with its origin in medieval knights departing for foreign wars (perhaps never to return) entrusting their assets to a bishop to look after for the benefit of wives and children, remains one of the most commonly used wealth planning tools 800 years or so later.

In spite of unwelcome – and often misguided – publicity associating trusts with tax evasion or concealing assets for nefarious purposes, the trust is alive and popular. Perhaps this is because of the comfort derived from the court – at any rate in a common-law jurisdiction – having a supervisory function which can be called upon to guide trustees, determine issues of difficulty, give comfort on momentous (ie, seriously difficult or contentious) decisions and hold trustees to account. It is more likely due to the trust's ability to be framed to meet an almost infinite variety of circumstances (provided those purposes are not unlawful) and to adapt over the years to the needs of the family or the purpose for which it was intended to provide. As some of England's oldest trusts attest, they can keep up with the times or be changed by the court to enable them to do so, for example to enable modern forms of investment (as in Anker-Petersen v Anker-Petersen¹), shield young adults from the dangers of accessing too much capital too soon (Wyndham v Egremont and others²), be varied to include same-sex relationships and illegitimate and adopted children in the beneficial class (In the Matter of the Representation of the Y Trust and Z Trust³), allow the structure to be fundamentally redesigned when the family is pulling in different directions, or to pass the interest on to a similar charity when the charitable purposes for which the trust was made are no longer practicable.

Whatever the advantages of foundations, family investment companies, family limited partnerships, companies, limited liability partnerships and other modern asset-holding structures, the trust retains its attraction, not least with settlors in regions with little or no common-law heritage such as Russia and the CIS, Central and Latin America, the Gulf and South East Asia. They value the trust's potential to help them provide business succession and assist in protecting them and their families from personal and political pressure. A key element of the trust's attraction in achieving these aims or minimising risk is the division between the legal and beneficial ownership of the...