Technical article
How Much Control Can I Keep Before a Court Calls the Trust Mine?
In one US case the court found the settlor had no legal ability to control any material aspect of the trust.
Imagine a business owner with a trust abroad, as an example, who owes a large judgment. He is also the protector. If the trustee will not do what he asks, he can name a new trustee. A court in his home country asks him to bring the money back. He answers that the trustee is out of his reach.
What does the court say to that? The cases below show what happened in several real situations. They come from one US firm that sells offshore planning, so they are a tier C summary of the cases.
Where courts found the settlor still held the pen
| Case | What the settlor kept | Result |
|---|---|---|
| Federal Trade Commission case against a media firm, 9th Circuit, 1999 | Settlors were co-trustees and protectors, and could appoint trustees | Contempt stood. They were held from June to December 1998. Against a judgment of US$26,618,823, the trustee turned over US$1.2 million in a 2002 settlement. |
| 11th Circuit, 2002 | Power to remove and replace the trustee of his Jersey trust | Held about six years, from about 2000 to 2006. Trust made two months before a US$20.4 million award. The court said self-created impossibility is no defense. |
| US bankruptcy court, 2011 | Led a one-man committee that controlled the protector, who controlled the trustee | Two Belize trusts voided as to creditors. The first payment was about a penny on the dollar. |
| Illinois court, a hospital as creditor, 2012 | Named himself protector with absolute power | Cook Islands trust void as to creditors on a US$1.5 million pledge. |
| English High Court, 2017 | Protector, beneficiary and holder of a veto | Treated as the real owner of New Zealand trust assets. A creditor bank won. |
In each of these, a judge asked a plain question. Could the settlor make the trustee do it? Where the answer was yes, the court treated the power as the settlor's own.
Where courts found no control
In one US case the court found the settlor had no legal ability to control any material aspect of the trust. Contempt orders from 2017 were vacated by the Second Circuit in June 2019. The judgment was US$13,400,627.60 and about US$103,000 was later distributed. In a 2015 securities regulator case, the settlor had no power to appoint or control his wife's Gibraltar trust, and requests to treat it as his own and bring it home were refused.
Jersey and the word sham
Jersey sets a high bar for calling a trust a sham. In Re Esteem Settlement (2003), the court found no sham, and the Jersey Court of Appeal says the person alleging sham must prove dishonesty. Jersey and England require both settlor and trustee to share an intention to mislead. In a 1991 Jersey case, though, the court declared a trust a sham where the trustee followed the settlor's instructions instead of the deed, because the trustee did not exercise independent control.
The Privy Council in 2011 let receivers be appointed over a settlor's power to revoke two Cayman trusts, treating the power as the settlor's property. A Jersey law-firm note says it is unclear whether Jersey would follow that.
The pattern
The settlors who kept the power to replace a trustee or sat as protector lost in court. The settlors with no real power were not jailed. One US firm that sells these trusts advises that a settlor acting as protector hold only negative powers, such as a veto. It says affirmative powers over investments or distributions strengthen a creditor's argument. A 37-decision list from the same firm finds that offshore trusts often failed to stop courts reaching the settlor, yet several creditors recovered little.
You could
You could ask the lawyer what each reserved power would look like to a judge. You could ask who is protector and whether you could remove them.
If you have held a role in a family trust, where did you feel the line sat? Share it here. Someone may be trying to draw it now.
Figures are estimates for planning, based on public data. Date read: October 2026.
Sources
- Alper Law offshore trust case library, protector article and impossibility defense page, 2025, covering the decisions in the table and the two cases with no finding of control (C)
- Collas Crill article on sham trusts (B)
- Mondaq article on sham trusts, 2024 (B)
- Bedell Cristin briefing on attacks on Jersey trusts, 2025 (B)
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