Liechtenstein Trust: Settlor rights and restrictions

The settlor is the founder of the trust. He transfers a portion of his assets to the trustee designated by him in accordance with the conditions specified by him in the trust deed.

Expertise

• Rights of the settlor
• Obligations and restrictions of the settlor
• Economic control over the trust assets
• Advice

Several legal or natural persons can set up a trust together and thus become settlors. Other persons can subsequently contribute assets as trust property and thus become settlors.

The death or bankruptcy of the settlor does not cancel the trust relationship unless otherwise stated in the trust deed.

Rights of the settlor

The settlor issues the terms of the trust in the trust deed and may stipulate the following:

• Provisions (e.g. reservations of cancellation) on the reversion of the trust property to the settlor or its transfer to third parties.
• The dismissal or replacement of the trustee and the beneficiaries.
• The settlor may grant the trustee extensive discretionary powers in determining the beneficiaries or the amount of contributions.
• The settlor may grant the reservation of amendment rights in order to amend or modify the trust deed at a later date.
• The settlor can appoint / designate a protector and provide him with comprehensive control, instruction, approval and veto rights.
• The settlor may designate further bodies of the trust (without power of representation), in particular to designate a beneficiary from among the beneficiaries, to determine the time, amount and conditions of a distribution, to administer the assets, to advise and support the trustee, to monitor the administration of the trust, to safeguard the purpose of the trust, to reserve consents or issue instructions and to safeguard the interests of the trust bodies.
• The settlor can draw up a letter of wishes (declaration of intent without binding effect, but specifying the settlor’s wishes)
• The settlor may specify his statutory rights to information and accounting vis-à-vis the trustee.

Obligations and restrictions of the settlor

• The provisions of the settlor in the trust deed are conclusive and binding for both the settlor and the trustee.
• The settlor may not impose any ongoing rights to issue instructions. Once the trust has been established, he may no longer issue instructions.
• The settlor cannot subsequently amend the trust deed.
• The settlor is obliged to transfer the assets named in the trust deed to the trustee. In principle, he cannot revoke the obligation to transfer assets.
• The settlor is obliged to satisfy the claims of the trustee for reimbursement of expenses and utilisation and for appropriate compensation.
• The settlor may not draw up any provisions that bind the trustee to the trustee’s ongoing instructions.

Economic control over the trust assets

If the settlor retains economic control over the trust assets, the trust is regarded as a REVOCABLE TRUST (transparent trust) with the generally negative tax consequence that the assets in the trust are attributed directly to the settlor.

Advice

What you should avoid as a settlor:

• The settlor should not benefit from capital distributions from the trust assets.
• The settlor should not be favoured in the distribution of income from the trust assets.

Which rights you should not have as a settlor:

• to dismiss the trustee and appoint another,
• to favour new beneficiaries or have them favoured,
• the protector, who in turn has powers similar to those of a trustee,
• to amend the trust deed or have it amended,
• to revoke or liquidate the trust,
• to veto trustee decisions regarding the trust assets.

International advisory note:

Caution: Seek detailed advice on the risks that you may face as a settlor under your national law. The freedoms granted to you as a settlor under Liechtenstein trust law must be reviewed and weighed up in the overall context of the national legislation to which you are subject. The flexibility and liberal organisation of Liechtenstein trust law may only be of limited use in an international context.