At the heart of any trust lies the settlor - the individual who takes the pivotal step of establishing this private legal arrangement. As settlors are the one entrusting their hard-earned assets or property to trustees for safekeeping and administration. This transfer of ownership is a weighty decision, and many settlors are understandably hesitant. You may still desire a meaningful degree of oversight and the ability to adapt the trust structure as your circumstances evolve.

Understanding the Scope of Influence in Trust Arrangements

Revocation and Modification

The settlor’s ability to revoke or modify the trust is a key influence they can retain over the trust arrangement. The power of revocation allows the settlor to terminate the trust entirely at any time and reclaim full ownership and control over the trust assets. The settlor may also retain the power to modify the terms of the trust, such as changing the designated beneficiaries or altering the distribution arrangements. The settlor is able to shape the trust in accordance with their wishes and intentions, even after the initial establishment of the trust.

Trustee Appointment and Removal

The settlor may have the power to directly appoint the trustee who will be responsible for administering the trust. This allows the settlor to select who they trust and believe will manage the trust assets in accordance with their wishes.

Beyond the initial appointment, the settlor may also have the power to replace or remove trustees over the lifetime of the trust. This gives the settlor an ongoing check on the performance of the trustee and ability to make changes if the settlor is dissatisfied with the trustee’s decision-making or conduct. Although the trustee holds a pivotal role in making decisions in the trust arrangement, the settlor can ensure the trustee manage the trust in line with the settlor’s intentions.

Investment Power

The settlor may retain an influence over how the trust assets are actually managed and invested. Hong Kong law allows settlors to reserve investment powers without invalidating a Hong Kong trust. The settlor can maintain a high degree of control over the investment strategy and decision-making. It ensures the trust’s investments align with the settlor’s risk tolerance, return objectives, and overall financial priorities. Although the trustee still maintains final decision-making rights, the settlor’s ability to shape the investment approach provides an additional layer of influence and control over the trust’s operations.

Letter of Wishes

In trust arrangement, the settlor can use letter of wishes to maintain the settlor’s influence. The settlor can set out both detailed long-term objectives for the trust, as well as more immediate instructions or considerations that arise from time to time. Although the trustee must still exercise their own independent discretion in administering the trust in a manner that they believe is the best interests of the beneficiaries, the trustee must balance the settlor’s preferences against their fiduciary obligations. This document provides the settlor with a formal channel to communicate their specific preferences, priorities, and guidance to the trustee, maintaining the settlor’s active voice to be heard in the trust’s ongoing operations.

The Rationale Behind the Limitations on Settlor Control in Trusts

Protecting Beneficiary Interests

One of the primary reasons for limiting settlor control is to protect the interests of the beneficiaries. The settlor may have their own personal interests or biases that could conflict with the best interests of the beneficiaries. It may also create opportunities for abuse, self-dealing, or even fraud for the settlor. The settlor may be tempted to use the trust assets for their own benefit rather than adhering to the intended purposes of the trust. By placing restrictions on the settlor's ability to exercise control over the trust, the law helps ensure that the trustee acts independently and in the best interests of the beneficiaries.

Promoting Stability and Predictability of Trust

Trust law aims to promote the long-term stability and predictability of trust arrangements. Full settlor control could lead to a loss of privacy and asset protection, as the trust assets would be essentially indistinguishable from the settlor's personal property. This could expose the trust to the settlor's creditors or other personal liabilities, contrary to the purpose of the trust arrangement.

Ensuring Trustee Independence

Trusts are designed to provide independent oversight and management of the trust assets. If the settlor retains too much control, it can undermine the trustee's ability to make impartial decisions and fulfill their fiduciary duties. Excessive settlor control can hinder the trustee's ability to effectively manage the trust, especially if the settlor becomes incapacitated, potentially leading to complications and delays in administering the trust as intended.

Unparalleled Oversight: Maximizing Your Control with UTGL while Your Assets are Protected

The most important consideration for every settlor is finding the right partner who can help to retain the greatest degree of influence over the trust. Striking the optimal balance between delegating certain controls and maintaining the authority the settlor seeks is a delicate challenge, requiring expert guidance and a deep understanding of settlor’s specific goals.

Discretionary Trust

When it comes to establishing a trust, there are several different trust types to consider, and the level of control retained by the settlor can vary significantly depending on the structure chosen. At UTGL, we recognize that maintaining the appropriate degree of influence is of paramount importance to our clients, so we often provide a discretionary trust.

A discretionary trust allows for a level of flexibility. The trustee holds a fiduciary duty to act in the best interests of the beneficiaries. While the trustee has the final decision-making authority, we work closely with settlors to ensure their intentions and preferences are thoroughly documented and incorporated into the trust's administration. For example, UTGL incorporates a letter of wishes that outlines the settlor’s specific intentions and preferences to guide us. Our tailored approach ensures the settlor maintain the control the need to feel secure, while still providing the prudent governance essential for preserving the wealth over the long term. This approach enables us to balance the need for client control with the practical considerations of trust management and the protection of the settlor's wishes.

One-Stop Portal - UTGL's FinTech Trust Platform

While the trust laws place certain limitations on the extent of a settlor's control over a trust, UTGL has developed a comprehensive one-stop portal that allows settlors to maximize their influence and authority. Through UTGL’s Portal, settlors can freely amend and manage key aspects of the trust on their own. The portal provides a user-friendly, streamlined interface for settlors to make daily-use adjustments, such as injecting additional assets, making global bill payments, or even managing our Asia's first Asset Link credit card to the trust.

This empowers settlors to maintain a high degree of hands-on control and flexibility in administering their trust, while still operating within the legal framework. Settlors can input their instructions and preferences directly into the system, and then check on the status of those instructions to ensure we have diligently followed up. This active settlor monitoring role enables a level of involvement that goes beyond the typical limitations, giving our clients a true sense of autonomy over their trust arrangements.

By thoroughly understanding your unique objectives, risk tolerance, and desired level of involvement, we collaborate to design a trust framework that empowers you with the oversight you require. We invite you to schedule a complimentary consultation with our skilled team, where we will thoroughly assess your specific needs and provide a detailed evaluation of trust plans that can be customized to maximize your control and influence. This collaborative process will ensure we develop a tailor-made solution that aligns perfectly with your distinct financial goals and concerns.