Perhaps the major disadvantage of a Trust is its perceived irrevocability and the loss of control over assets that are put into Trust.
A Trust can be revocable, but this is likely to have negative tax consequences and a loss of the strong asset protection afforded by an irrevocable Trust. Many potential clients are reluctant to transfer their assets to the Trust through a perceived loss of control. Other potential clients request to be granted powers that would render the Trust useless in an attempt to retain control over the assets.
However, what is not common knowledge is that it is possible for a Settlor to retain a varying degree of control. Let’s take a closer look at some of these:
Letter of Wishes
It is common for a Settlor to grant a Letter of Wishes when establishing a Trust. This is simply a document provided to the Trustees in writing, which explains how the Settlor would have administered the assets if he still retained ownership. It can be as basic or as complex as may be required.
The Trustees will refer to this when dealing with any Trust assets. The Letter is not binding on the Trustees, as they must maintain absolute discretion. However, in practice, the Trustees will follow this as closely as possible and would avoid deviation unless necessary to protect the Trust assets for the Beneficiaries.
Protector
Depending upon the operative law of the Trust, it is possible to appoint a Protector to the trust.
A Protector can exercise a certain degree of control over the Trust assets. It may be a trusted friend, or family member, or even a family lawyer. It is also possible to appoint a professional company to provide Protector services. Shallon CSP can provide this service to Trusts where we do not act as Trustee.
It would be unnecessary for a Protector to receive any powers other than to veto decisions or actions of the Trustees where such decisions may not comply with the purposes of the Trust or the intentions of the Settlor. It would be counter-productive for a Protector to possess powers that could direct the Trustees.
Multi-Tier Structure
A structure containing a Trust with an underlying company provides flexibility.
The underlying company may hold assets, may actively invest in markets, or maybe fully operational as a business.
The Settlor could act as Director of the underlying company and exercise day to day operational control, whilst avoiding any negative impact on the integrity of the Trust. Although, the company could still be subject to taxation and this should be discussed further.
Joint Trustees
It is possible to appoint ‘Joint Trustees’, but there are significant disadvantages to consider.
Joint Trustees would require to make joint decisions. Agreement of both Trustees would be required on all matters. The first Trustee could be a Professional Trustee like Shallon CSP, whilst the second could be the Settlor. However, such an appointment may have unwanted tax consequences where the Settlor is resident in a high tax jurisdiction. It would also be possible to appoint two separate Professional Trustees. However, this may become expensive and cumbersome.
Private Trust Company
A Private Trust Company (PTC) is a company that has been established for the sole purpose of acting as a Trustee to a single Trust (or family of Trusts).
Family members are able to sit as Directors of the PTC and therefore participate in any decisions which require to be taken without being seen to exercise control. Directors which are familiar with the business can make the decisions and if a change of direction is desired, this can be achieved simply by changing the board of the PTC. The Settlor could hold 100% of the shares in the PTC.
Shallon CSP can sit as a Director on a PTC to ensure the Trust is administered correctly, that it complies with relevant legislation and to provide credibility.
With careful planning, it is possible to overcome the perceived shortcomings of a Trust and to legally retain a level of control over the underlying assets within a Trust without compromising its integrity. Trusts do not have to be scary with the proper advice in place.
Paul Hogarty, Solicitor
ShallonCSP
