We are seeing trusts growing increasingly popular in non-traditional regions such as Asia and Latin America, where clients may take some getting used to the idea. Discussing trusts with clients can be daunting-a trust is not a set legal entity and is endlessly bespoke.

The most common but also most misunderstood type of trust is the “bare trust”, aka nomineeship. These are usually very short documents, simply requiring the trustee to act on the instructions of the beneficial owner. Because they are often headed “Declaration of Trust”, clients and their advisers can believe they have all the benefits of a substantive trust, but they do not. Because the trustee has no substantive powers or discretions, they often do not avoid probate on the death of the beneficial owners, and are usually see-through with no asset protection. We find that even many lawyers can be unaware of these issues, so it is good to check the document if in doubt.

Substantive (non-bare) trusts-if drafted and run responsibly-will however have all the advantages associated with trusts. They can be categorised in the following ways and are in most cases “mix and match”, so one can have a VISTA purpose trust for example.

• Which governing law to use? A popular choice are the British Virgin Islands (“BVI”) and Cayman Islands. Both British Overseas Territories, they both have thriving trusts industries with lawyers and judges from central London practice. They use mainstream common law and allow interaction with their other famous entities-BVI companies, Cayman funds-minimising the need for two sets of lawyers on every transaction. Both allow non-resident trustees to act as trustee (subject to some constraints) although if a resident trustee is needed, both are also tax-neutral.

• Should the trust be for beneficiaries or purposes or both? Most trusts are for the benefit of the settlor’s family and perhaps their favourite charities. However, trusts can be purely for purposes (rather than for persons). Some trust jurisdictions such as England allow only charitable purposes but others such as BVI and Cayman allow non charitable purposes, for example to hold the shares of a private trust company or orphan vehicle. A trust settled under Cayman STAR legislation allows a mix of beneficiaries and purposes which are often drafted in the form of a family business plan.

• Should the trustee have discretion over distributions? Traditionally, many trusts had fixed interests, for example, “The income to my wife for her lifetime”. Nowadays, however, the typical new trust will allow full discretion to the trustee, meaning that, for example, no divorcing spouse can argue the beneficiary has a right to assets. A non-binding letter written by the settlor can give the client reassurance that the trustee will in usual circumstances follow their wishes.

• Should the trustee have discretion over the investment of the trust fund? Traditionally, “Yes”, but in these days of corporate trustees maybe “No”, particularly where the trust holds a treasured, but unprofitable family business, or an unusual asset which a conservative trustee might otherwise feel obliged to sell. Most trust regimes allow some form of bespoke reservation of investment powers back to the settlor but only one, the BVI VISTA trust, has put it in statute. When the trustee is also given discretion over distributions, such trusts do not remove asset protection and are therefore very popular.

• Should the trust take effect in lifetime or after death? It comes as a surprise to some clients that trusts can be declared in Wills (essentially a very long Will). Although these obviously require probate to be settled first, they are the ultimate solution for a settlor who wishes to maintain full control in his lifetime, but who does not want his empire split up by his children after his death.

Another element in all of this is the Protector, a bespoke role available in many offshore trust jurisdictions. They can be the client’s relative or advisor. They act as a check on the trustee. Their roles range from a single ability to, say, appoint a successor trustees, to wide ranging powers or consents over distributions. Although a client will always prefer giving powers to their protector friend instead of an unknown corporate trustee, courts are wary of over-powerful protectors so one should always ask “does the Protector really need this power?“