Technical article
If I Put My Money in a Trust, Can I Still Decide What It Is Invested in?
The person who creates a trust is called the settlor.
Imagine a retired woman in Texas with US$3 million, as an example. She plans to move it into a trust for her two sons. She has picked her own funds for thirty years. She asks one plain question: can I keep doing that?
Several places say yes, within limits. The person who creates a trust is called the settlor. Here is what the law texts say a settlor may keep.
What a settlor may keep, place by place
| Place | What the settlor may keep | Source |
|---|---|---|
| South Dakota | A veto over distributions, a power to remove and replace the trustee, protector or adviser, and the use of a residence trust. None of these makes the trust revocable. | South Dakota statute 55-16-2 (A) |
| Nevada | Powers to remove and replace the trustee and to direct trust investments, whether or not the settlor is also a co-trustee. The one exception is making distributions to oneself without another person's consent. | Nevada statute 166.040 (A) |
| Wyoming | The right to serve as the trust's investment adviser. Also a veto over distributions and the right to add or remove a trustee, protector or adviser other than the settlor. | W.S. 4-10-510 (A) |
| Alaska | A veto over distributions and a limited power of appointment, without losing creditor protection. | Alaska statutes (A) |
| Jersey | Directing the trustee on buying, keeping and selling; appointing or removing an investment manager or adviser. A trustee who follows such a power is not in breach. | Article 9A (A) |
| Cayman Islands | Eight kinds of power, including binding directions on buying and selling trust investments. | Section 14, via a law-firm summary (C) |
In South Dakota the replacement trustee must not be related or subordinate to the settlor under the federal tax code.
Where US tax draws the line
A place may allow a power. The tax code decides what it costs.
Section 675 of the federal code says that if anyone holds a power to direct or veto investments in a non-fiduciary capacity, without a fiduciary's consent, the settlor is taxed on the trust income. That is the grantor trust rule. It comes with the power.
Sections 2036 and 2038 reach the estate. Property is pulled back into the settlor's estate if the settlor kept the income, or kept the right, alone or with anyone, to decide who enjoys it. It is also pulled back if the settlor held a power to alter, amend, revoke or end the trust "in whatever capacity". Keeping the vote on shares of a controlled corporation, meaning 20 percent or more of the voting power in the three years before death, counts as retained enjoyment under section 2036(b).
A 1995 IRS ruling gives a clear case on the other side. A settlor who can remove the trustee and name a replacement who is not related or subordinate is not treated as keeping the trustee's distribution powers. That power alone does not bring the trust into the estate.
What it means for the woman in Texas
She could name herself investment adviser in Wyoming or Nevada, or keep a veto in South Dakota or Alaska, and the trust would not become revocable under those laws. The federal tax rules would still read the same powers in their own way. Which tax result she lands on depends on the exact wording, and on whether the power is held as a fiduciary.
You could
You could ask a lawyer to show you, in the deed, which of these powers you hold and in what capacity. You could ask what happens to those powers if you lose capacity or die.
Do you want to keep the investing, or do you want to keep the veto? Share what you chose and why. Someone else with a lifetime of picking their own funds may find it useful.
Figures are estimates for planning, based on public data. Date read: October 2026.
Sources
- South Dakota Legislature, South Dakota statute 55-16-2 (A)
- Nevada Legislature, Nevada statute 166.040 (A)
- Wyoming Legislature, W.S. 4-10-510, undated PDF (A)
- Alaska Legislature (A)
- Jersey Law, Trusts (Jersey) Law 1984 Article 9A, 2025 (A)
- Ogier summary of Cayman Trusts Act section 14, via Mondaq, May 2023 (C)
- Cornell Legal Information Institute, 26 U.S.C. 675 and 2036 (A)
- IRS Revenue Ruling 95-58 (B)
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