A: There is no limit to the assets which can be settled into trust, ranging from shares in non-listed companies to cars, motor yachts, aircrafts or life-insurance policies.

However, Common law makes reference to the prudent man theory, whereby the Trustee should always invest in the manner a prudent man would.

The implementation of modern portfolio theory has forced trust legislation to evolve so as to now allow for investments in derivatives, structured products, commodities or, by ways of example shares in private companies. Provided the deed is properly drafted, investing in so-called “flawed assets” such as non-performing or high-risk assets is permissible.

It should always be remembered that the trustee is liable to all the beneficiaries, whether alive or not at the time of the settlement, and therefore he must carefully study any new investment proposal, whether originating from the settlor, a beneficiary or a professional investment advisor.

A: Upon settling the assets in trust, the Settlor, or the Settlors, will have to decide whether they intend to leave discretion, if any, to the trustees in administering the trust fund. That choice will lead them to settle a discretionary or fixed-interest trust, whether revocable or irrevocable.

In the discretionary form, it will provide the trustees with enough discretion in carrying out their duties and in exercising their powers to deal with changing family, business or political circumstances during the trust period. The concept is, of course, primarily designed to preserve assets through succeeding generations. The trust is a highly developed concept of English common law and has been adopted by many other jurisdictions because of its flexibility and the planning opportunities this offers. Indeed, as long as the settlor is alive or not incapacitated, he will able to direct the trustees, however upon his demise the trustees would have to execute the contents of the Letter of Wishes.

In the life interest (or fixed interest form), the settlor may typically retain a life interest over the trust fund during his lifetime, and thereafter the heirs may have either a life interest in a share of the fund or the deed may state that the trustees will from that moment use discretion when considering distributions to beneficiaries, however always making reference to the settlor’s letter of wishes whenever doubtful about what the settlor might have wanted.

A: In administering a discretionary trust, the trustees receive guidance from the settlor. This usually takes the form of a letter of wishes addressed to the Trustees. In the letter of wishes, the settlor will spell out his views on how the beneficiaries should benefit in the event of his demise or incapacity. Normally, the settlor will be regarded as the primary beneficiary during his lifetime with the remaining beneficiaries to benefit thereafter.

The settlor would decide how the assets between his wife and children, and whether equal or unequal shares should apply. The spouse’s share, upon her own passing, would typically devolve to the children.

Even children under age could be provided for in a trust as beneficiaries and in accordance with the settlor’s wishes, with living expenses, healthcare needs and educations needs being made available to them, if and when needed.
More control may be afforded to the settlor, through clauses in the deed requiring consent from the settlor whenever the Trustee intends to dispose of the trust fund or invest part of it. This type of “Reserved Powers Trust” is found in Cayman, the Bahamas or Singapore.

In a fixed-interest trust, there is no need for such letter of wishes as the entitlements of each party are clearly defined in the trust deed.

A: Settling a revocable trust ensures the trust can be revoked at any time by the Settlor, should he wish to change his estate plan, reverting to a private bank account by ways of example.

An irrevocable Trust cannot be revoked. However, if the Settlor is a beneficiary, and if the deed permits, he will be able to seek a full distribution of the trust fund in his favor.

A: The choice of trustee is obviously very important, as the trustee is the legal owner of the trust assets, whereas the Settlor may maintain equitable ownership, together with all the other beneficiaries of the trust fund.

In Switzerland, only licensed trustees may assume the role of trustees. This is important for settlors and beneficiaries alike, because by using incorporated, professional, audited, licensed and insured Trustees they have a guarantee against the Trustees becoming insolvent or negligent. Swiss law operates a clear distinction between the assets held a trustees and the trustees’ own commercial assets.

A: It is possible to appoint in the Deed a protector, who would hold a right of veto over any decision by the Trustees. This veto will be exercised whenever the Protector feels the wishes of the settlor have not being followed. Using a trusted friend or family member for that role makes a lot of sense. This function can be tailored to ensure that the Protector’s consent only becomes relevant once the settlor is incapacitated or deceased. A Protector would immediately appoint a successor protector upon his appointment by the settlor, to avoid this function becoming vacant.