One of the most common concerns expressed by entrepreneurs and wealthy families when establishing a trust is the fear of losing control over assets they have often spent decades building.
As trustees, we encounter this concern regularly. In fact, I am currently involved in the establishment of a trust for a ultra-high-net-worth family where discussions around the powers of the protector have generated countless hours of review, amendments and negotiations on the trust deed.
At first glance, some may view this as an unnecessary complication. I see it differently.
The settlor is carefully reviewing the proposed structure, challenging provisions, questioning powers and seeking reassurance that the trust will operate as intended. This level of engagement is healthy. It demonstrates that the settlor understands the significance of transferring assets into a trust and is not simply signing documents without understanding their implications.
However, these discussions also highlight one of the fundamental tensions inherent in every trust structure: how much control can be retained without compromising the integrity of the trust itself?
The issue is not whether the settlor should be involved. The issue is whether the settlor’s involvement evolves into control.
A trust is built upon a simple principle. The trustee becomes the legal owner of the assets and must exercise its fiduciary duties independently and in the best interests of the beneficiaries. If the settlor continues to exercise effective control over the assets, the trust may no longer achieve the objectives for which it was created.
To address this concern, many families seek comfort through the appointment of a protector. The protector can provide an additional layer of oversight by approving certain key decisions, appointing or removing trustees, or ensuring that the settlor’s long-term intentions are respected.
The protector therefore serves an important purpose. Properly structured, the role can strengthen governance and increase confidence in the trust arrangement.
The difficulty arises when the powers granted to the protector become so extensive that the trustee’s ability to exercise independent judgment is effectively curtailed.
If every investment decision, every distribution, every administrative action and every strategic decision requires the protector’s approval, an obvious question emerges: who is really managing the trust?
This question is not merely academic. Courts, regulators and tax authorities increasingly examine the substance of arrangements rather than their legal form.
Where a protector effectively controls the trust, several risks may arise. The trustee’s independence may be challenged. The trust’s asset protection features may be weakened. In certain jurisdictions, tax authorities may seek to attribute management and control of the trust to the protector or to the settlor. In extreme cases, the validity or effectiveness of the trust itself may be questioned.
For professional trustees, this creates a delicate balancing act. Our role is not simply to accept every provision requested by a settlor. Equally, our role is not to impose rigid structures that fail to address legitimate family concerns.
Instead, our responsibility is to help families find the appropriate balance between oversight and independence.
Interestingly, the lengthy discussions surrounding the trust currently being established may ultimately strengthen the structure rather than weaken it. Through the process, the family is gaining a deeper understanding of the trustee’s responsibilities, while the trustee is gaining a clearer understanding of the family’s objectives, concerns and expectations.
In many respects, this is how trust is built.
A trust deed alone does not create confidence. Confidence develops through dialogue, transparency and a shared understanding of the respective roles of settlor, trustee and protector.
Ultimately, a trust requires more than legal documentation. It requires trust itself.
The most successful structures are often not those where every possible power is retained, but those where confidence is gradually built between the settlor, the trustee and the protector.
In our experience, the process of discussing, challenging and refining a trust deed can be just as valuable as the final document itself.
What has been your experience?
Have you encountered situations where a settlor struggled to relinquish control, or where the balance between oversight and independence proved difficult to achieve?