Bermuda Trusts And Asset Protection - How Much Control Will Tip The Balance?

On occasion, when settlors instruct us to draft trust deeds governed by Bermuda law they may seek to retain extensive powers. It is then for us to advise on how retaining powers may impact on the asset protection qualities of the trust.

In summary, in most jurisdictions, trust assets will be more vulnerable to attack from a settlor's creditors in the following scenarios:

1. A settlor's retention of dispositive powers (particularly positive powers e.g. powers to direct the trustee in contrast to a power to veto a trustee's proposal) generally renders a trust more vulnerable to attack by creditors. Retaining powers to revoke the trust and/or a general power of appointment (i.e. to direct distribution of trust assets to anyone including the settlor) render trust assets particularly vulnerable as a settlor's creditors may seek to compel the exercise of those powers to access trust property to discharge the debt owed to them. A key case on this point is TMSF v Merrill