Settlors, particularly Asian settlors, are often reluctant to relinquish control over their assets. After all, it has taken their whole life’s efforts to build their business empire. While they may find reserved power trusts useful in helping them make a leap of faith, there is a multitude of issues arising from such trusts, such as: what are the legitimate reasons for settlor reserved powers, if any; how far would reserved powers render a trust sham or illusory; and in what circumstances are they unable to protect settlors from the claims of their creditors and estranged spouses.
The present chapter seeks to examine these issues critically, and argue that while there are good reasons for having settlor reserved powers trusts, care must be taken to seize the beast by its horns and transform it into a veritable tool for wealth planning. To do so, it will first, examine the settlors’ reasons for reserving powers to himself or a protector; second, consider the legal risks as to validity of the trusts; and third, examine situations in which even if the trust is not declared invalid, it may become ineffective in achieving asset protection for the settlor.