Anatomy of a Trust:
Parties, Roles and Governance

Understanding a Trust requires an understanding of how roles, powers and responsibilities are allocated among the various parties involved. This article examines the structure of a Trust by first considering its principal actors, before turning to its key governance mechanisms and the differences that may arise depending on the jurisdiction under which the Trust is established.

The central principle of a Trust: separating ownership, control and beneficial interest

Unlike a company or a foundation, a Trust is not normally a separate legal entity with its own legal personality. It is instead a legal relationship through which one person, the Settlor, transfers certain assets to a Trustee, who holds and manage them for the benefit of one or more Beneficiaries or, in some cases, for a specific purpose.

The fundamental rules governing this arrangement are set out in the Trust Deed, the instrument establishing the Trust. It defines the Trustee’s powers, identifies the Beneficiaries or the relevant classes of Beneficiaries, regulates the administration and distribution of the assets, and determines the law governing the Trust.

The structure may also include a Protector, who is granted specific supervisory or control powers over certain key decisions.

This separation between the person contributing the assets, the person administering them and those ultimately benefiting from them lies at the heart of a Trust.

Understanding a Trust, however, requires going beyond the basic Settlor – Trustee – Beneficiaries framework. It also requires examining how powers are allocated among the various parties, which decisions may be reserved, delegated or made subject to consent, and which law governs the arrangement as a whole. Mandatory rules relating to succession, matrimonial matters, insolvency, taxation or creditor protection may also remain relevant to the parties involved, particularly where the Trust has connections with more than one jurisdiction.

The Settlor: more than simply the person transferring the assets

The Settlor is the person from whom the Trust originates.

The Settlor is generally the person who initially transfers the assets and who, when establishing the Trust, determines together with his or her advisers the fundamental elements of the arrangement:

a) Purpose of the Trust: succession planning, asset protection and continuity, management of family assets, support for Beneficiaries, holding of shareholdings, etc.;

b) Type of Trust: discretionary or fixed interest, revocable or irrevocable;

c) Powers reserved to the Settlor: for example, the appointment or removal of the Trustee, amendment of certain elements of the Trust, or powers relating to specific decisions;

d) The Trustee and the powers granted to it;

e) Beneficiaries: identification of the Beneficiaries or the relevant classes of Beneficiaries;

f) Protector, where provided for: appointment and definition of the Protector’s powers;

g) Distribution rules: who may receive capital or income, when distributions may be made and according to which criteria;

h) Governing law: the law that will govern the Trust;

i) Duration of the Trust and conditions for its termination;

j) Investment management arrangements: who defines the strategy, who may appoint an Asset Manager or Investment Advisor, and what powers may be granted to them;

k) Governance arrangements for specific assets, such as interests in family businesses or strategically important real estate;

l) Tax, succession and cross-border considerations: including the residence of the Settlor and Beneficiaries, the location of the assets and the jurisdictions involved.

It would therefore be reductive to describe the Settlor simply as “the person who transfers the assets”.

These elements are primarily reflected in the Trust Deed and may be supplemented by the Letter of Wishes.

The Trust Deed is the formal document that translates the Settlor’s intentions into the legal architecture of the Trust and sets out its operating framework. It establishes the overall arrangement, the relationships between the parties, the powers assigned to each of them and the fundamental rules governing the administration and ultimate destination of the assets.

The Letter of Wishes, by contrast, usually serves a different purpose. It enables the Settlor to communicate to the Trustee his or her intentions regarding the future administration of the assets, such as the education of descendants, the preservation of specific family assets, indicative criteria for distributions or the broader philosophy according to which the wealth should be managed.

In a discretionary Trust, precisely because the Trustee must retain genuine decision-making authority, the Letter of Wishes is normally intended to provide guidance rather than constitute a set of binding instructions.

Under the more traditional model, the Settlor effectively transfers the assets to the Trustee and gives up the ability to administer them as though he or she remained their owner.

This does not necessarily mean that the Settlor disappears entirely from the arrangement.

Depending on the governing law and the Trust Deed, the Settlor may reserve certain powers. These may include, for example: appointing or removing the Trustee or Protector; amending certain provisions of the Trust; adding or excluding Beneficiaries; approving specific distributions; appointing or removing an Investment Manager; changing the governing law; or revoking the Trust where it was established as revocable.

This leads to an important consideration: retaining certain powers does not necessarily amount to retaining ownership of the assets, but any such arrangement must be structured with considerable care.

The issue becomes more delicate where powers formally reserved to the Settlor result, in practice, in almost complete control over the Trustee’s conduct. A Trustee that systematically follows every instruction from the Settlor without independently exercising the functions assigned to it risks materially altering the balance of the Trust.

This distinction also matters because an arrangement may be entirely valid under its governing law while producing different tax or wealth-planning consequences depending on the country of residence of the Settlor or the Beneficiaries. A power permitted under a particular governing law does not automatically determine how the Trust will be treated for tax purposes in the countries where the parties involved reside, such as Switzerland, the United Kingdom, Italy or other jurisdictions.

The choice and allocation of powers must therefore be considered in the context of the entire cross-border arrangement, rather than solely by reference to the law under which the Trust is established.

One of the most important considerations concerns the Settlor’s ability to revoke the Trust.

In a revocable Trust, the Settlor retains the power to revoke the Trust in accordance with the terms of the Trust Deed, normally resulting in the return of the assets or their alternative disposition. This power alone already places the Settlor in a position of significant control over the Trust.

In an irrevocable Trust, by contrast, the transfer is intended not to be freely reversible by the Settlor. Irrevocability does not, however, necessarily mean that no residual powers may be retained. A Trust may be irrevocable while still allowing the Settlor to replace the Trustee, give directions in relation to certain investment decisions, or exercise other powers expressly permitted by the governing law and the Trust Deed.

The type of Trust to be established must also be considered.

If we take HMRC, the UK tax authority, as an example, it expressly identifies a number of different types of Trust, including the following as the main categories:

• Bare Trust: the Trustee formally holds the assets, but the Beneficiary has a full and immediate right to both the capital and the income. The Trustee therefore has very limited discretion;

• Interest in Possession Trust: a Beneficiary is entitled to the income generated by the Trust, while the capital may be intended for other persons at a later stage;

• Discretionary Trust: the Trustee decides, within the limits of the Trust Deed, which Beneficiaries receive distributions, when those distributions are made and in what amount;

• Accumulation Trust: income may be retained and reinvested within the Trust rather than distributed immediately;

• Settlor-Interested Trust: the Settlor, spouse or civil partner may benefit directly from the Trust; this characteristic may have specific tax consequences in the United Kingdom;

• Mixed Trust: combines characteristics of more than one type of Trust within the same arrangement;

• Non-Resident Trust: a Trust treated as non-resident in the United Kingdom for tax purposes.

The choice between predetermined rights and discretionary powers directly affects the governance of the Trust, as it determines both the degree of autonomy granted to the Trustee and the extent to which the Beneficiaries’ economic rights are certain or contingent.

A wealth structure intended to span several generations may require sufficient flexibility to adapt to circumstances that the Settlor could not realistically have anticipated when the Trust was established.

The Trustee: legal owner and administrator

If the Settlor gives rise to the Trust, the Trustee represents its operational centre.

The Trustee is normally the person or entity to whom legal ownership of the assets is transferred and who assumes responsibility for administering them in accordance with the Trust Deed and the governing law.

The Trustee generally has broad powers over the assets, but those powers must be exercised for the purposes of the Trust and not as though the Trustee were an unrestricted owner acting solely in its own interest.

The Trustee may formally hold title to bank accounts, securities portfolios, corporate shareholdings, real estate, alternative investments, insurance policies, receivables and other assets capable of being transferred under the applicable law.

Legal ownership enables the Trustee to deal with the assets. The Trust Deed and the applicable law, however, determine the purposes for which those powers may be exercised and the limits within which the Trustee must act.

Functions commonly associated with the Trustee include, by way of example:

• preserving and administering the Trust assets;

• making or authorising investments;

• making distributions;

• exercising voting rights attached to corporate shareholdings;

• appointing managers and advisers;

• monitoring the assets;

• maintaining accounts and records;

• assessing the needs of the Beneficiaries;

• implementing the provisions of the Trust Deed;

• managing potential conflicts between Beneficiaries or between different generations.

The Trustee’s powers are accompanied by responsibilities, commonly referred to as fiduciary duties.

The precise scope of these duties depends on the applicable law, but they generally include principles such as:

• acting in accordance with the terms of the Trust;

• acting in the interests of the Beneficiaries or in furtherance of the relevant purpose;

• avoiding or properly managing conflicts of interest;

• not deriving improper personal benefits from its position;

• preserving and administering the assets with due care;

• treating different classes of Beneficiaries appropriately;

• genuinely exercising the discretion entrusted to the Trustee.

A significant pool of assets is rarely managed by the Trustee alone, without the support of specialised professionals.

The Trustee may therefore work with custodian banks, Asset Managers, Investment Advisors, Family Offices, legal and tax advisers, as well as specialists in real estate or private markets.

Where certain functions are delegated, the arrangement should clearly establish who defines the investment objectives, who selects the manager, which party is authorised to give instructions and who is responsible for periodically monitoring the activities of the intermediaries involved.

The Trustee does not necessarily have to be an individual.

In international wealth structures, it is common to appoint a Corporate Trustee or a Private Trust Company – PTC, namely a company established to act as Trustee of one or more Trusts generally connected with a particular family. This may provide a more tailored governance framework and allow the family or its advisers to participate in the decision-making process through the company’s board.

The Protector: an additional layer of oversight

The Protector is probably one of the most interesting and, at the same time, most frequently misunderstood figures within a Trust.

It is not a necessary feature of every Trust. Rather, it is usually introduced to provide an additional layer of oversight over particularly sensitive decisions and should not simply be regarded as “the Settlor’s representative”.

This distinction becomes especially important if the Settlor dies or becomes incapacitated: the Protector must be able to continue acting in accordance with the rationale and objectives of the Trust, without the arrangement depending entirely on a personal relationship with its founder.

The Protector’s role is determined by the Trust Deed and the governing law.

The powers granted to a Protector can vary considerably. Among those most commonly encountered are:

• appointing and removing the Trustee;

• consenting to certain distributions;

• consenting to the sale of assets regarded as strategically important;

• approving amendments to the Trust;

• adding or removing Beneficiaries;

• approving a change of governing law;

• appointing or removing Investment Managers;

• authorising certain extraordinary transactions.

It is important to distinguish between positive powers and consent powers.

In the first case, the Protector may take a particular decision directly, for example by removing and replacing the Trustee.

In the second, the Protector does not make the decision itself but holds a right of consent or veto: the Trustee takes the decision, but cannot proceed without the Protector’s approval.

The Protector and the Trustee do not perform the same function. Indeed, granting excessive powers to the Protector may blur the distinction between their respective roles. If every investment, distribution or administrative decision requires the Protector’s approval, it may become difficult to determine who is effectively managing the Trust.

For this reason, the Protector’s role should generally focus on strategic or potentially irreversible decisions, while leaving the Trustee with sufficient autonomy to administer the Trust.

A Protector can therefore provide an effective checks-and-balances mechanism, but only if the role is clearly defined.

The Settlor’s initial choice of Protector should consequently not be based solely on personal trust, but also on the individual’s ability to understand the arrangement and deal with potentially complex decisions.

A Trust intended to last for several generations should also establish what happens in the event of the Protector’s death, incapacity, resignation or conflict, and who has the authority to appoint a successor.

Beneficiaries: vested rights or mere expectations?

The position of the Beneficiaries can vary considerably depending on the type of Trust.

Beneficiaries are the persons intended to receive the economic benefits of the Trust, but their legal position may differ significantly depending on the arrangement adopted.

It is useful to distinguish between vested rights, contingent rights and mere expectations. A Beneficiary with a vested right has an already defined interest in the income or capital of the Trust; a contingent right becomes effective only upon the occurrence of a particular event; in some Trusts, by contrast, a Beneficiary may have no present entitlement to receive a distribution, but only the possibility of being considered by the Trustee when exercising its discretion.

In a Fixed Interest Trust, for example, economic rights may be predetermined, whereas in a Discretionary Trust it is for the Trustee to decide whether, when and to what extent distributions are made, always within the limits established by the Trust Deed and the governing law.

Beneficiaries may be identified by name or through defined classes. The main categories include current Beneficiaries, who may receive income or capital during the life of the Trust; future or remainder Beneficiaries, who are intended to benefit from the assets at a later stage; Discretionary Beneficiaries, in respect of whom the Trustee retains discretion over distributions; and contingent Beneficiaries, whose rights depend on the occurrence of a specific condition or future event.

In long-term family arrangements, these classes may be defined broadly enough to include, for example, children, descendants or future generations, allowing the Trust to evolve with the family without requiring every individual Beneficiary to be identified from the outset.

Depending on the governing law and the type of Trust, Beneficiaries may also have information rights, enforcement powers or other means of protection in relation to the Trustee. Their position is therefore relevant not only from an economic perspective, but also to the overall balance of the Trust’s governance and the allocation of powers among the various parties involved.

Governing law: why jurisdiction changes the way a Trust operates

Choosing the governing law does not simply mean choosing the country in which a Trust is “registered”.

It is the law that governs the Trust and determines or influences essential aspects of its operation and legal framework.

For this reason, two Trusts with identical Beneficiaries and assets may have substantially different governance arrangements if they are governed by different laws.

Certain jurisdictions have particularly distinctive characteristics.

Among the most commonly used governing laws are:

a) England & Wales

English law represents one of the historical foundations of the modern Trust.

Unlike some other jurisdictions, there is no single code that comprehensively governs the operation of Trusts: the system has developed through equity, case law and various legislative measures.

One of the most relevant pieces of legislation is the previously mentioned Trustee Act 2000, which regulates aspects of Trustee activity in England & Wales, particularly in relation to duties of care, investment powers and the delegation of certain functions.

The long development of English case law has also produced a particularly sophisticated body of principles concerning fiduciary duties, the exercise of discretion and the relationship between Trustees and Beneficiaries.

In general terms, the English model is characterised by a long judicial tradition, with a system that is less codified than many other jurisdictions but supported by a highly developed body of case law.

b) Jersey

Jersey has a specific statutory framework under the Trusts (Jersey) Law 1984, which has subsequently been developed and updated over time to regulate increasingly complex fiduciary arrangements.

One of its most notable features is the express regulation of reserved powers.

The law allows the Settlor to retain a significant range of powers without this automatically invalidating the Trust.

This enables a highly tailored governance framework to be created: the assets are entrusted to the Trustee, while the Settlor may retain certain mechanisms allowing continued involvement in decisions regarded as strategically important. The distinctive feature is therefore not merely the existence of reserved powers — which are also found in other jurisdictions — but their breadth and the fact that they are expressly regulated.

Another important feature is that, unless otherwise provided in the Trust Deed, a Jersey Trust may continue for an unlimited period. The arrangement can therefore be designed to accompany family wealth across multiple generations without the governing law necessarily imposing a predetermined expiry date.

Jersey also allows Trusts to be established for one or more non-charitable purposes, without requiring them to be structured exclusively around individually identifiable Beneficiaries. In such cases, an Enforcer, separate from the Trustee, must be appointed to ensure that the stated purposes of the Trust are effectively pursued.

Another significant feature concerns the so-called firewall provisions. Jersey law contains rules specifying which matters relating to a Jersey Trust must be determined under Jersey law even where a foreign legal system would confer different rights, for example in relation to family or succession matters.

This does not mean that a Jersey Trust can automatically disregard the laws of the countries in which the Settlor or Beneficiaries reside. Rather, it means that its governing law contains its own rules for determining the validity and administration of the Trust, which must then be coordinated with the other legal systems involved.

Taken together, these features provide a high degree of flexibility in designing the governance framework while preserving the central role and responsibilities of the Trustee.

c) Cayman Islands

Cayman Islands trust law is in many respects similar to that of Jersey, but the feature that most clearly distinguishes it from other jurisdictions is the STAR – Special Trusts Alternative Regime.

A STAR Trust may be established for the benefit of particular persons, for the pursuit of specific purposes, or by combining both objectives. This flexibility makes it particularly suitable for complex wealth arrangements in which the Trust is not limited to making distributions to Beneficiaries, but may also pursue longer-term objectives, such as holding corporate shareholdings or preserving specific family assets over time.

The most distinctive feature, however, concerns enforcement. In a STAR Trust, the right to enforce the Trust does not automatically belong to the Beneficiaries. Instead, it is granted to one or more Enforcers, who are responsible for ensuring that the Trustee and the Trust operate in accordance with the stated purposes.

This creates a further separation between three different elements: those who benefit economically from the Trust, those responsible for administering it, and those who have the legal authority to enforce its terms.

It is precisely this separation that makes the STAR regime particularly interesting from a governance perspective and distinguishes it more clearly from jurisdictions such as the United Kingdom or Jersey, where the Enforcer’s role is limited to Trusts established for a specific purpose.

d) British Virgin Islands

The British Virgin Islands offer a particularly distinctive solution where the Trust assets include corporate shareholdings.

The Virgin Islands Special Trust Act – VISTA introduced a specific form of Trust designed to hold shares in a BVI Business Company.

Under a traditional Trust model, a Trustee holding a corporate shareholding must still take account of its fiduciary duties in relation to the value of that investment and may find itself in a position where intervention in the management of the company becomes necessary.

VISTA, by contrast, can, where the relevant conditions are met, create a clearer separation between the Trustee’s legal ownership of the shares and the management of the underlying business, limiting the Trustee’s obligation to intervene in the company’s administration.

This can make the arrangement particularly relevant where a family wishes to transfer ownership of a business into a Trust while leaving its day-to-day management in the hands of the directors or designated family members.

And what about Switzerland?

Switzerland occupies a different position.

It does not currently have a Trust governed by its own substantive domestic law. The project to introduce a Swiss Trust was not pursued and the corresponding parliamentary motion was definitively removed from the agenda in February 2024.

This does not, however, mean that Trusts are foreign to the Swiss legal system.

With the entry into force, on 1 July 2007, of the Hague Convention on the Law Applicable to Trusts and on their Recognition, Switzerland established a legal framework for recognising Trusts constituted under foreign laws.

A Trust may therefore, for example, be governed by Jersey or English law, have a professional Trustee operating from Switzerland and involve Settlors or Beneficiaries resident in Switzerland or in other countries.

Trustees carrying out their activities professionally in Switzerland are subject to FINMA authorisation and must comply with the organisational, financial and supervisory requirements established under the Financial Institutions Act.

It is therefore essential to distinguish between the governing law of the Trust, the location of the Trustee, the location of the assets and the tax residence of the parties involved. These elements do not necessarily have to coincide.

A Trust could, for example, be governed by Jersey law, have a professional Trustee established in Switzerland and have Beneficiaries resident in several different countries.

It is precisely this possibility that makes international coordination one of the central elements of Trust planning.

The jurisdiction should not be chosen in isolation

The choice should be made by considering a number of questions, including, by way of example but without limitation:

• Which assets will be transferred?

• Where are they located?

• Where do the Settlor and Beneficiaries reside?

• How much control is intended to be retained?

• How much discretion should the Trustee have?

• Is a Protector necessary?

• Will the Trust hold a family business?

• How long is the Trust intended to last?

• Which legal systems could become relevant in the event of succession, divorce, insolvency or a change of residence?

• ...

The governing law is therefore one component of the overall architecture, not a stand-alone solution.

A Trust intended to manage family wealth for many years cannot be viewed simply as a snapshot taken at the time of its creation: the Settlor may die or change residence; the Beneficiaries may move to other jurisdictions; the Trustee may be replaced; a Protector may resign; a family company may be sold; the financial assets may move from a single bank to multiple managers...

The arrangement must therefore be sufficiently robust to preserve its original objectives while remaining flexible enough to adapt to circumstances that may change significantly over time.

For this reason, the quality of a Trust does not depend solely on the instrument through which it is established or on the jurisdiction selected, but also on the balance between the Settlor, Trustee, Protector and Beneficiaries, the allocation of their respective powers, the applicable law and the ability to coordinate, over time, banks, Asset Managers, legal and tax professionals and the other parties involved in managing the wealth.
In complex arrangements, independent wealth coordination can help keep the family’s objectives, the Trust framework and the activities of the different counterparties aligned over time.

A Trust therefore becomes more than a vehicle for holding assets. It becomes a genuine wealth governance architecture: a framework through which ownership, control, responsibility and beneficial interest can be organised to accompany wealth across different generations, jurisdictions and stages of family life.

Sources:

• Hague Conference on Private International Law (HCCH) — Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition;

• HM Revenue & Customs (HMRC) — Trusts and taxes: Overview;

• HM Revenue & Customs (HMRC) — Trusts and taxes: Types of trust;

• UK Legislation — Trustee Act 2000;

• Jersey Law — Trusts (Jersey) Law 1984;

• Cayman Islands Government — Trusts Act (2021 Revision);

• British Virgin Islands Financial Services Commission — Virgin Islands Special Trusts Act (Revised 2020);

• Swiss Federal Office of Justice (FOJ) — Trust;

• Swiss Federal Office of Justice (FOJ) — Introduction of a Swiss Trust / Introduzione di un trust svizzero;

• Swiss Financial Market Supervisory Authority (FINMA) — Trustees.