Trusts On Divorce - How Relevant Are Settlors' Powers And Wishes?

For many settlors the benefits a trust can provide are attractive. However, giving up control of assets to trustees (albeit trustees the settlor has selected) may be a concern. Significant time and expertise is often devoted to selecting a jurisdiction in which the settlor may retain maximum control over settled assets without invalidating the trust.

Conscious of this issue, and its importance in attracting international trust business, Bermuda has moved to more clearly define its position on settlor reserved powers with the introduction of the Trusts (Special Provisions) Amendment Act 2014.

Until last year, the Bermuda law on reserved powers was set out in section 2(3) of the Trusts (Special Provisions) Act 1989, which stated 'The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.'

The Act extends the wording of section 2(3) also to cover powers granted by the settlor and (without prejudice to the generality of section 2(3)) expressly sets out a wide range of powers which a settlor can reserve or grant without invalidating the trust, including:

(in the case of a reservation to the settlor or other donor of trust property) a power to revoke the trust in whole or in part; a power to vary or amend the terms of a trust instrument or any of the trusts, purposes or powers arising thereunder in whole or in part; a power to decide on or give directions to advance, appoint, pay, apply distribute or transfer the trust property; a power to act as, or give directions as to the appointment or removal of directors or officers of companies owned by the trust, or to direct the trustees how to exercise voting rights with respect to the shares of such companies; a power to give directions in connection with investments or the exercise of any powers or rights arising from such trust property; a power to appoint, add, remove or replace any trustee, protector, enforcer or other office holder or advisor; a power to add, remove or exclude an beneficiary, class of beneficiaries or purpose; a power to change the governing law and the forum for administration of the trust; and a power to restrict the exercise of any powers, discretions or functions of a trustee by requiring that they shall only be exercisable with the consent, or at the direction, of a person or the persons specified in the trust instrument. The very wide...