Settlor: Definition and Jurisdictional Rules

A settlor is the person who sets up a trust, signs the trust deed and transfers assets to a trustee to be held for beneficiaries or for a stated purpose. The same person may be called a grantor, a trustor or, in civil-law countries, a constituant or Errichter. What a settlor may keep after the transfer, and what the settlor must give up, depends on the trust deed and on the law of the jurisdiction where the trust sits.

This glossary defines the settlor and the terms that decide the settlor's position. Entries are in alphabetical order, and several point to pages that compare how different seats treat the same question. It is general information, not advice: the answer for a given family depends on residence, the countries of the beneficiaries and the nature of the assets.

A

AEOI

Automatic exchange of information between tax authorities, under which financial institutions report account data about non-residents to their home authorities. For a settlor, it means that bank accounts held by a trust may be reported, whatever the seat. The scope depends on how the trust is classified under the reporting rules.

Asset-protection statute

A law, found in some trust seats, that limits the ability of a settlor's creditors to reach assets placed in a trust. Such statutes usually protect only transfers made in good faith and while the settlor was solvent. They offer protection that has limits, and courts outside the seat may not follow them.

B

Beneficiary

A person, or a class of persons, who benefits from the trust assets. A settlor may also be a beneficiary, but this often weakens the separation between settlor and assets and can change the tax and creditor analysis. The deed states whether beneficiaries have fixed entitlements or depend on the trustee's discretion.

C

Capacity

The legal ability of a settlor to create a trust. It covers age and mental capacity, and some seats add rules on undue influence. A trust set up by a settlor who lacked capacity may be challenged, which is one reason for careful documentation at the outset.

CRS

The Common Reporting Standard, the framework behind automatic exchange of financial account information. Under it, a trust may be treated as a financial institution or as a passive entity, and the settlor may be a person who must be reported. The treatment depends on the trust's structure and on the seat.

D

Decanting

Pouring the assets of one trust into another with different terms, where the deed or local law allows it. A settlor who is still alive may be asked to consent, depending on the seat. See also decanting for the mechanism in more detail.

Discretionary trust

A trust in which the trustee decides who among a class of beneficiaries receives distributions, and when. The settlor usually states wishes but does not control the outcome. This feature can support separation of the settlor from the assets, but only if the settlor does not in practice direct the trustee.

E

Express trust

A trust created on purpose by a settlor, usually in writing, as opposed to one that arises by operation of law. The Hague Trusts Convention deals with express trusts, and Swiss recognition under it concerns this kind of trust.

F

FinIA

The Swiss Financial Institutions Act (LEFin, FINIG). Under Article 2, paragraph 1, letter b, trustees are financial institutions, alongside asset managers and other categories. Article 17, paragraph 2 defines a trustee as someone who, on a professional basis, manages a separate pool of assets or disposes of it for a beneficiary or a set purpose, under a trust deed within the meaning of the Hague Convention of 1985. A settlor who chooses a professional trustee in Switzerland therefore deals with a supervised institution.

Firewall legislation

A statute in a trust seat that stops local courts from applying foreign rules, such as forced heirship, to a trust governed by local law. It is one of the main features that distinguish the seats compared on this site. Read firewall legislation for how it works and where it stops.

Fixed interest trust

A trust in which each beneficiary has a defined entitlement stated in the deed. The settlor has less flexibility after the transfer, because the trustee has little discretion to change who receives what.

Flee clause

A deed clause allowing the trust to move to another jurisdiction if the original seat becomes unsafe, for example because of political change. The clause is usually exercised by the trustee or the protector, not the settlor. See flee clause.

Forced heirship

Civil-law rules that reserve part of a deceased person's estate for close family. A settlor from a forced-heirship country may fund a trust in a seat whose law resists such claims, but courts in the settlor's home country may still look at the transfer. The result depends on the countries involved.

G

Governing law

The law that applies to the validity and effects of the trust, usually chosen by the settlor in the deed. It can differ from the place where the trust is administered, which is why governing law and seat are separate questions.

Grantor

The term used in United States law for a settlor. A grantor trust is one where the grantor is treated as the owner for income tax purposes, which matters for a settlor who is a US person.

H

Hague Trusts Convention

The Hague Convention of 1985 on the Law Applicable to Trusts and on their Recognition. It lets states that are parties recognise a trust created under a chosen law, even where their own law does not have trusts. For a settlor, it is the main route by which a trust set up elsewhere can be recognised in Switzerland. See the Hague Trusts Convention explained.

I

Irrevocable trust

A trust that the settlor cannot cancel or take back, at least not alone. The settlor gives up ownership and control in exchange for greater separation between the settlor and the assets. Differences between seats on what counts as irrevocable are discussed in revocable and irrevocable trusts by seat.

L

Letter of wishes

A non-binding document in which the settlor tells the trustee how the settlor would like discretion to be used. Its legal weight differs from seat to seat, and a letter that is too directive can undermine the idea that the trustee acts independently. See letters of wishes across seats.

O

Offshore seat

A trust seat that is outside the settlor's home country and typically has its own specialised trust legislation. The term is descriptive, not a legal category, and it is sometimes confused with questions of transparency or tax compliance, which are separate matters.

P

Perpetuity period

The maximum time a trust may last under the law of the seat. Some seats impose a limit, others have removed or extended it. A settlor planning for several generations should check this point before choosing the seat.

Proper law

The law that governs a trust, in the vocabulary of English-influenced systems. It determines, among other things, what powers the settlor may reserve. See proper law of a trust.

Protector

A person appointed to oversee the trustee, often with powers to remove and replace the trustee or to veto certain decisions. A settlor is sometimes the first protector, but this can be a risk if it gives the settlor too much control. Rules on protectors differ widely, as described in protector and reserved powers law by jurisdiction.

Purpose trust

A trust created to achieve a purpose, such as holding shares or supporting a cause, rather than to benefit named people. Not every seat accepts them, and those that do often require an enforcer in place of beneficiaries.

R

Reserved powers

Powers that a settlor keeps in the trust deed, such as power to appoint the trustee, to approve investments or to revoke the trust. Statutes in some seats list the powers a settlor may reserve without the trust being invalid. Too many reserved powers can lead a court, a tax authority or a creditor to treat the trust as the settlor's own property.

Revocable trust

A trust that the settlor can end or amend, so that assets come back to the settlor. It offers flexibility but limited separation from the settlor, and for many purposes the assets are still treated as the settlor's. The consequences differ by country and by purpose.

S

Seat

The jurisdiction where a trust is administered and, in practice, whose courts and regulator are most closely connected with it. The seat can be different from the governing law and from the settlor's residence.

Settlor

The person who creates the trust and transfers assets to it. A settlor may be an individual or, in some cases, a company. Once the trust is validly set up, the trustee holds the legal title, and the settlor's remaining rights are only those the deed and the law of the seat allow.

Sham trust

A trust that exists on paper but where the settlor in practice keeps full control and the trustee simply follows instructions. Courts in many jurisdictions disregard sham trusts, which can expose the assets to creditors and tax claims. Keeping a clear line between the settlor's wishes and the trustee's decisions is the main safeguard.

Situs

The place where an asset is located for legal purposes. It matters because mandatory local rules on land, for example, can override the governing law of the trust. See situs of trust assets.

Spendthrift clause

A clause that prevents a beneficiary from assigning an interest in the trust and shields it from the beneficiary's creditors. It is common in United States trusts and is recognised to different degrees elsewhere.

STAR trust

A trust form under the law of the Cayman Islands that allows purposes and beneficiaries to be combined, with an enforcer. It is mentioned here as an example of a seat adapting trust law to settlors' needs.

T

Trust deed

The written instrument by which the settlor creates the trust and sets its terms: the assets, the trustee, the beneficiaries or purposes and the powers. Most disputes about a settlor's position start from the wording of the deed.

Trustee

The person or company that holds legal title to the trust assets and manages them for the beneficiaries or the purpose. Under Article 19, paragraph 2 of FinIA, the trustee manages the separate assets, maintains their value and uses them in line with their purpose. A trustee based in Switzerland must be a sole proprietorship, a commercial company or a cooperative, entered in the commercial register (Article 18). Management must include at least two qualified people (Article 20), and the minimum capital is CHF 100,000, paid in cash, with suitable guarantees or professional liability insurance (Article 22). Trustees are supervised by FINMA together with a supervisory organisation (Article 61).

V

VISTA trust

A form of trust, developed in the British Virgin Islands, that lets the trustee hold company shares without a duty to intervene in the business. It is used by business owners who want shares held in trust while the board runs the company. See VISTA trust.

W

Winding up

The ending of a trust, whether at the end of its term, when the purpose is achieved or by decision of the trustee or a court. Whether a settlor can trigger it depends on the deed and the seat.

A jurisdictional example

Example: a family established in Lausanne considers a trust in Jersey. The father, as settlor, wants to be able to remove the trustee. In Jersey, such a power may be reserved in the deed without making the trust a sham, provided the trustee remains the real decision-maker. In Switzerland, the same trust would be recognised under the Hague Convention, but a Swiss court would also look at the family's links to Switzerland and at any claims of heirs. The same wording can therefore have different effects, which is why the choice of seat matters. For a comparison, see Switzerland versus Jersey.

How a settlor's position changes