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Succession Planning

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Most people understand the benefits of setting up a trust or foundation—estate planning, succession planning, wealth protection, privacy, and tax minimization. What they don’t understand is how they can continue to control their assets once transferred to their trust or foundation.

Naturally, most people want to maintain as much control as possible. To achieve this, they want to retain the right to revoke, amend, or terminate their trust or foundation. They also want to retain the right to remove and replace the trustee or directors, add and remove beneficiaries, approve every financial transaction, and demand distributions. While maintaining such a high degree of control makes the settlor or founder feel comfortable and secure, it completely defeats the purpose of setting a trust or foundation.

For example, maintaining so much control wipes out any wealth protection offered by the structure. A judge could simply order the settlor or founder to demand a distribution, if the settlor or founder is also a beneficiary, to settle a judgement or debt. If the settlor or founder isn’t a beneficiary, the judge could order them to add themselves as a beneficiary and then demand distribution. Or order them to revoke the trust or foundation altogether so the assets revert back to the settlor of the founder.

It also greatly reduce or eliminate any tax benefits offered by the structure. When setting up a trust or foundation, you generally try and set it up in such a way that, once assets are transferred to it, they are no longer attributable to the settlor or founder for tax purposes. This way the settlor or founder doesn’t have to pay tax on income generated by the structure’s assets (unless they receive a distribution). And, since trusts and foundations are usually setup in tax advantaged jurisdictions, their income is generally subject to minimal or no tax. Maintaining too much control can cause the assets/income of the trust or foundation to be attributed to the settlor or founder for tax purposes and / or cause the entire trust or foundation to be subject to tax in the settlor or founder’s country of tax residence.


To avoid these undesirable consequences, the settlor or founder must let go of some control. That doesn’t mean they have to let go of all control, just some. In my experience, with carefully drafted retained powers and/or protector provisions it is possible to protect the interests of the settlor or founder without jeopardizing the benefits offered by the structure.

Here are a few pointers on how this can be achieved:

  1. Make the trust or foundation irrevocable.
  2. No beneficiary should be able to demand distributions.
  3. Amendment or termination should only be allowed in conjunction with another person. For example, the trustee suggests an amendment and the settlor / founder / protector has the right to approve or reject the proposed amendment.
  4. Don’t vest the ability to add and remove beneficiaries in one person. A well thought out mechanism is needed for this.
  5. The settlor / founder / protector shouldn’t be involved in the day-to-day operations of the structure; e.g. approving every financial transaction.

I understand it’s hard to turn over your hard-earned wealth to a third-party to control. You’re scared they’ll run off with your money—a terrifying thought. The truth is though that this is highly unlikely. There are great reputable trust companies out there and they won’t do anything to jeopardize their reputations. They are highly regulated, insured, and experienced. In fact, they’ll probably do a better job than you managing your trust or foundation because managing trusts and foundations is their business.

The name of the game is influence, not control.

Here’s some info on self-managed vs professionally managed structures if you’re interested.

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