Reserved Power Trusts: Firm Ground Vs Cracks And Fissures

Readers will be familiar with the longstanding tension that has fuelled the boom in offshore reserved powers trusts. Trustees, in the traditional view, must be ‘prudent investors’ who always act in the best interests of their beneficiaries, even if that means selling beloved (but non-profitable) family assets against the wishes of the family. This tension has deepened in recent years for at least three main reasons. First, a growth in first-generation entrepreneurial settlors from Asia, the Middle East and Latin America. Second, an ever-growing interest in ESG and unusual asset classes (for example cryptocurrency) that may not meet the conservative requirements of trustees. These first two causes broadly encourage the trend for reserved powers. But third, as some of these trusts go wrong, Courts are interrogating their drafting and sometimes find it deficient. How can trustees and settlors feel confident in the trusts in which they are investing?

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