Revocable and Irrevocable Trusts: How Jurisdictions and Recognition Differ

A settlor who creates a trust usually wants two things that pull against each other: the ability to steer the assets, and the legal separation that gives the structure its value. Revocable trust jurisdictions and recognition rules answer that tension differently. Some seats accept generous reserved powers; others look closely at whether the trustee is truly in charge. This page sets out how the question is tested, so you can see where your own structure would sit.

What the service covers

The service helps you weigh control kept by the settlor against the protection and tax position of the structure. It is aimed at settlors who hold, or are considering, a revocable trust, at families with an irrevocable trust that feels too rigid, and at advisers who need a second view on how a seat will treat retained powers.

In practice it covers:

• the trade-off between control and separation, explained in plain terms;
• a general review of creditor and succession implications;
• how tax transparency is approached, together with your advisers;
• designing flexibility inside an irrevocable structure;
• protector powers and adaptation clauses.

It does not cover tax filings, litigation, or a legal opinion for a specific court. Because the answer depends on residence, the countries of the beneficiaries, the nature of the assets and the canton, it is general information and not advice. The confidential assessment is where your facts are examined. Fees depend on the structure and are indicated after that assessment.

Revocable and irrevocable: the basic distinction

In a revocable trust the settlor can take the assets back or change the terms. In an irrevocable trust that power is given up, at least in form. Most real structures sit between the two: irrevocable on paper, with reserved powers, a protector, or a letter of wishes that nudges the trustee.

That middle ground is where recognition questions arise. The more the settlor can do alone, the easier it is to argue that the assets never left the settlor's hands.

What the Hague Convention says about reserved powers

The Hague Convention of 1985 on the law applicable to trusts gives the baseline. Under Article 2, a trust involves assets placed under the control of a trustee, held as a separate fund, with title in the trustee's name and a duty to manage and account. The same article states that reserved powers of the settlor, or the trustee also being a beneficiary, are not incompatible with the existence of a trust.

So the Convention does not ban retained control. It asks whether a real trust remains. Article 11 then ties recognition to a minimum: separation of the trust assets from the trustee's personal estate, and the trustee's capacity to sue and be sued in that role. The detail is explained in the Hague Trusts Convention explained.

Two limits matter for retained control:

• Article 13 allows a state to decline recognition where the significant elements of the trust, apart from the chosen law, place of administration and trustee residence, connect mainly with states that do not know the trust.
• Article 15 keeps mandatory rules of the forum, including those on succession rights, protection of creditors and good-faith third parties.

How different legal systems test control

Common-law seats

Common-law seats start from the trust deed and from trust law developed over generations. Many have statutes that list powers the settlor may reserve, such as the power to revoke, to direct investments or to appoint and remove trustees, without undermining validity. The test is usually whether the trustee keeps genuine discretion on the matters that count. Where a settlor treats the trustee as an agent, courts may find a sham, or treat the assets as still belonging to the settlor.

For a comparison of how one such seat differs from Switzerland, see Switzerland vs Jersey for a trust.

Civil-law seats

Civil-law systems have no native trust, so the question is different. The court asks whether the foreign trust is recognized, and then whether local mandatory rules on creditors, marriage and succession override it. A revocable trust is the easiest to disregard here: if the settlor can take the assets back at will, a creditor or an heir will argue that the assets remain part of the settlor's estate. The broader contrast is in common-law seats versus civil-law seats.

Hybrid seats

Hybrid seats combine a civil-law base with trust legislation or a recognition regime. They tend to be more cautious about reserved powers than traditional trust centers but more predictable than a pure civil-law forum. Where Switzerland fits is discussed in Switzerland as a trust seat.

Control versus protection by seat

The chart below is a qualitative reading, not a measurement. It shows the general tension: seats that allow more settlor control tend to give weaker separation arguments when the structure is challenged.

Sham risk when control is retained

A sham finding means a court concludes that the deed does not reflect what the parties actually intended or did. The signals are familiar: the settlor gives instructions the trustee simply follows, distributions track the settlor's personal needs, the trustee has no independent record of decision-making, or the settlor keeps sole power to revoke and to replace the trustee.

The consequences vary by system. The trust may be disregarded, the assets may be attributed back to the settlor, or the reserved powers may be treated as a general power of appointment. None of these outcomes is certain, and none can be ruled out in advance. Related points are covered in protector and reserved powers law by jurisdiction and common mistakes when choosing a seat.

What this means in Switzerland

Switzerland recognizes foreign trusts under the Convention, which entered into force for it on 1 July 2007. The federal chapter on trusts in the private international law statute (LDIP) deals with jurisdiction and publicity, and Articles 284a and 284b of the debt enforcement statute (LP) provide that proceedings concerning trust assets are directed at a trustee as representative of the trust, and that trust assets are set apart in the trustee's bankruptcy.

Tax follows control. The Swiss tax circular on trusts treats a revocable trust as transparent: assets and income stay taxable with the settlor at the settlor's domicile, and a distribution to a beneficiary is a gift. An irrevocable discretionary trust created by a settlor domiciled in Switzerland is treated the same way. If the settlor was domiciled abroad at creation, the assets are attributed neither to the settlor nor to the beneficiary. Which of these applies depends on your facts, and it should be checked with your tax advisers.

How the review works

1. You describe the settlor, beneficiaries, assets and current or planned powers in the confidential assessment.
2. The reserved rights are mapped against the law of the seat and the places where assets and people sit.
3. Options are weighed: tighter control, more separation, or flexibility built into an irrevocable structure through a protector and adaptation clauses.
4. The outcome is a clear picture of trade-offs to take to your counsel. See also questions to ask your counsel on the seat.