Reserved powers
Reserved powers are rights or powers that a settlor keeps or grants to another person under a trust. Trust laws address how those powers relate to a trust's validity, timing and administration.
Meaning of reserved powers
The Hague Trusts Convention says a settlor's reservation of certain rights and powers is not necessarily inconsistent with the existence of a trust. Bermuda, Jersey and Cayman provisions list powers that may be reserved by a settlor or granted to another person in a trust instrument.[1][5]
Those powers can include revoking or changing the trust, appointing trust property, and directing specified trustee decisions. The lists also cover appointing or removing trustees and other office holders, with details differing by jurisdiction.[4][5]
Effect on validity and timing
The statutes in Bermuda, Jersey and Cayman state that the described reservation or grant does not invalidate the trust. Jersey also says it does not delay the trust taking effect, subject to the terms expressed in the trust instrument.[3][4]
Cayman's presumption is that a trust and its powers take immediate effect when property is identified and vested in the trustee, unless the instrument expressly or by necessary implication provides otherwise. The presumption applies even if interests remain contingent or may be defeated by reserved powers, and even if the settlor is a trustee. It does not apply to a person declaring themselves sole trustee of property to which they were beneficially entitled.[4]
Local validity is a separate question from U.S. treatment. A statute that keeps a trust valid despite reserved powers does not decide the U.S. result. A power to revoke, to direct distributions back to the settlor, or to veto trustee decisions can make the trust a grantor trust under sections 671 to 679, in which case the settlor is treated as the owner of the trust's income for U.S. tax purposes.
Trustee duties and related terms
Under Jersey law, when a trustee acts in accordance with the exercise of a reserved or granted power, that act is not a breach of trust. Cayman law likewise says a trustee acting in compliance with, or as a result of a valid exercise of, a listed power is not acting in breach of trust.[3][4]
Jersey separately states that reserving or granting a beneficial interest or listed power does not by itself make the settlor or recipient a trustee. The Hague Convention uses a broader description of a trust, involving assets controlled by a trustee for beneficiaries or a specified purpose, and recognizes that a trustee may also have rights as a beneficiary.[1][3]
Examples of listed powers
Data table for this infographic
| Power or topic | Settlor | Trustee | Protector | Investment adviser | Beneficiary |
|---|---|---|---|---|---|
| Legal and beneficial ownership | Passes legal ownership of the assets to the trustee A | Holds the trust assets for those who benefit A | Not covered | Not covered | Benefits from the trust; separate from legal ownership A |
| Dispositive powers (income and capital) | May reserve a power to appoint income or capital B C | The trustee makes the decisions assigned to it under the trust deed D | A protector may be given power to approve certain trustee actions E | Delaware: May be given authority to direct, consent to or disapprove distribution decisions F | Not covered |
| Investment direction | May reserve power to give directions on purchase, holding or sale of trust property B C | Fiduciary whose investment decisions a Delaware adviser may be given authority to direct, consent to or disapprove F | Not covered | Delaware: May be given authority to direct, consent to or disapprove actual or proposed investment decisions F | Not covered |
| Appointment and removal | May reserve power to appoint, add or remove a trustee, protector or beneficiary B C | Not covered | May be given power to remove and appoint trustees, advisers and other protectors E G | Not covered | Not covered |
| Consent and veto rights | May require trustee powers to be exercisable only with settlor or specified-person consent B C | Guernsey commentary: The trust instrument may require protector consent for certain strategic trustee powers D | Guernsey commentary says that holding consent powers does not by itself make a protector or other consent provider a trustee D | Not covered | Not covered |
| Governing law and forum | May reserve power to change the governing law and forum for administration B | Not covered | Not covered | Not covered | Not covered |
| Reading the matrix | A cell marked Not covered does not mean the role cannot hold the power. The Cayman and Jersey provisions (B, C) say that reserving or granting the powers they list does not invalidate the trust. Guernsey commentary (D) notes that no protector is essential to the validity of a Guernsey trust. Allocation depends on the trust instrument and the governing law. Terms, defined roles and available powers differ by jurisdiction and instrument. | ||||
| Notes and sources | Law-firm items (A, D) are commentary. A Withers on trust basics. B Cayman Trusts Act s. 14. C Jersey Trusts Law Art. 9A. D Ogier and Carey Olsen on Guernsey trusts. E ADGM trusts page and Delaware Code tit. 12 s. 3313(f) (protector powers). F Delaware Code tit. 12 s. 3313(a). G Delaware s. 3313(f)(1). | ||||
Questions and answers
Do reserved powers automatically invalidate a trust?
The Bermuda, Jersey and Cayman provisions state that reserving or granting the powers they describe does not invalidate the trust. The Hague Trusts Convention says reserved rights and powers are not necessarily inconsistent with a trust's existence.[1][5]
Can a trust take effect while interests remain contingent?
Cayman's provision presumes immediate effect when trust property is identified and vested in the trustee, subject to a contrary expression in the instrument. It says the presumption applies even when beneficial interests remain contingent or subject to defeasance through reserved powers.[4]
Does exercising a reserved power affect trustee duties?
Jersey and Cayman state that a trustee acting in accordance with, or in compliance with, a listed power is not acting in breach of trust.
Related terms
- Settlor: A settlor is associated with creating a trust or placing property into it.
- Trust variation: Trust variation means a change to a trust's terms or powers. Jersey, Cayman Islands and Bermuda laws and the Hague Convention address related terms and rules.
- Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
- Trust instrument: The Hague Trusts Convention describes a trust instrument as a document that creates a trust or writing that evidences it.
Related guides and articles
- Reserved Powers in Trust Instruments: Trust instruments may reserve powers to a settlor or grant them to others, while listed statutes address their validity and whether a holder becomes a trustee.
- Protector powers, consent and duties: A trust protector is defined by the powers an instrument grants, including trustee removal and appointment, and by how governing law treats the protector role.
Related pages
Sources and data notes
- HCCH, 1985 Hague Trusts Convention. https://www.hcch.net/en/instruments/conventions/full-text/?cid=59. Retrieved .
- Internal Revenue Service, 26 CFR 301.7701-4. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
- Jersey Legal Information Board, Trusts (Jersey) Law 1984. https://jerseylaw.je/laws/current/l_11_1984. Retrieved .
- Cayman Islands Legislature, Trusts Act (2021 Revision). https://legislation.gov.ky/cms/images/LEGISLATION/PRINCIPAL/1967/1967-0006/1967-0006_2021%20Revision.pdf. Retrieved .
- Legislature of Bermuda, Trusts (Special Provisions) Act 1989. https://bermuda.fm/legislation/1591. Retrieved .
Dates in this block record when each source was read for this page.