Trusts involve a lot of just that, trust. Once settled, the settlor has limited, if any, real control. This is difficult for many settlors to deal with due to misunderstandings and misinformation regarding how trusts work.
By way of illustration – the earliest trusts, called a use, can be dated back to medieval England. At that time considerable restrictions and taxes applied to the owners of freehold land and amongst other things it was not possible to bequeath land by will. The somewhat ingenious solution was to transfer land to a “feeoffee to uses” (essentially a trustee) on that person’s undertaking to hold the land as directed by the “feeoffor” (the settlor).
The path and development of the trust has been sure, but not without controversy and colour. One of the difficulties has been the separation of beneficial and legal ownership that are the cornerstone of the trust.
This dichotomy reflects the fact that the settlor’s property is held for the benefit of beneficiaries – who may or may not be the settlor. The trustee owners are the legal face of the trust, but not necessarily able to benefit. Various flourishes have developed over time to give settlors greater peace of mind – for example the evolution of the protector.
The question remains – can a settlor retain control of a trust property that is subject to an otherwise valid trust? This thorny question may be addressed in the nearer rather than further future as Sir Owen Glenn challenges the trustees of a trust based in the Caribbean tax haven of St Kitts & Nevis onto which Sir Owen Glenn appears to have made settlements.
The New Zealand Herald reports that:
“Court documents associated with the lawsuit in the US show Sir Owen believed he would retain “de facto” control of the trust’s assets, so he could spend the money as he saw fit. However, that did not happen.
So he is suing the [the trustees] for the equivalent of the US$350m in the trust, and in papers filed as part of the court action, he also alleges they took millions of dollars in trustees’ fees they were not entitled to.”
The question this writer looks forward to exploring is the basis for the retention of “de facto control”, which is the antithesis of trustee control and the trust concept. Where settlors retain control of trust assets the first question must be – is there a trust?