Rule
Reserve the minimum
You can tolerate
Fatal
Trustee appointment power
Held by settlor
Acceptable
Investment direction
Via underlying company
Audit test
What sequence allows?
Not just direct effect
What a reserved power is
An authority you hold back once the assets have been moved into the trust. As a rule of thumb: keep only the bare minimum you can live with. Every power you retain is one more lever of control, and every lever is something a court can point to when deciding whether you are truly unable to obey a repatriation order. The International Trusts Act sets out no closed list; in practice the boundary is drawn by how courts have ruled on particular powers that settlors kept.
Powers fatal in practice
The settlor holding the authority to dismiss and appoint the trustee. Lawrence v Goldberg failed in part on this point. In the hands of a truly independent protector, the situation changes.
Serving as co-trustee. FTC v Affordable Media failed because the Andersons served as co-trustees. Being a co-trustee is a route to control, not a check on it.
Serving as your own protector. Both the veto and the removal authority need to rest with a genuinely independent party.
Bank signatory on trust accounts. Direct access to the account is, in the eyes of the courts, control in practice.
Powers usually acceptable
Steering investments by way of an underlying company. The settlor serves as manager, operating inside boundaries the trustee defines, and the trustee keeps the power to dismiss the manager. This is the conventional arrangement.
The power to add beneficiaries. Broadening the class of possible beneficiaries is not the same as channelling assets back to the settlor.
The authority to relocate the trust's principal place of administration. Relocating the trust is not the same act as clawing the assets back.
The audit question
Before you hold onto any power, put this question to it: what chain of steps could this power eventually make possible? Look past the immediate effect to the whole sequence of intermediate moves. Lawrence held a power to appoint a trustee who in turn could reverse his excluded-person status and let him benefit. That is two steps, and the court traced them. Trace the entire sequence for each power you reserve. If it lands on assets within your reach, the power is not safe.
See the impossibility defence and the trust deed.
(Review & sourcing)
Written by
Connor Steens
BBus, business development
Reviewed by
John Evans
20+ years, offshore structuring
Last updated
General information
Sourced from
ITA 1984 and case law
Reported federal decisions
01International Trusts Act 1984 — consolidated text.
02s.13B factsheet — limitation periods and the burden of proof.
(COMMON QUESTIONS)
Common questions on reserved powers, answered
A power the settlor keeps once assets have passed to the trust, set aside expressly in the deed.
Hold back no more than you can tolerate. Every power you retain hands a court another argument to use against you.
Because it builds a chain that leads back to the assets. Lawrence v Goldberg came undone on precisely this.
You should not. It sat at the heart of the contempt ruling in FTC v Affordable Media.
Directing investments via an underlying LLC, the authority to add beneficiaries, and sometimes the power to move the principal place of administration.
What chain of steps could this power ultimately enable? Trace the whole sequence, not merely its immediate effect.
Yes. When a genuinely independent protector holds it, you gain a way to swap out trustees without carrying the exposure of holding that power yourself.
Yes. Courts read direct access to the account as control in practice.
(MORE ON THE SETUP)
Further reading and source material on the Setup
References
In-depth reference pages on the Setup.
1 min
Cook Islands Trust Beneficiary Class
Who can benefit, why their discretionary interest is not attachable property, and the drafting choices that preserve flexibility.
1 min
Cook Islands Trust Letter Of Wishes
Non-binding guidance to the trustee. Why it must not be binding, what it should say, and how often to update it.
1 min
Cook Islands Trust Registration
What gets filed, what remains private, and why registration triggers the protective provisions rather than deed execution.
1 min
Funding A Cook Islands Trust
Which assets move easily, which need separate work, why staging is faster, and the timing question that decides whether it holds.
1 min
Reserved Powers In A Cook Islands Trust
What you can keep without undermining the structure, what you should not, and the audit question every power must pass.
1 min
The Cook Islands Trust Deed
What must be in the deed, the five provisions that matter under pressure, and what cannot be included.
1 min
The Cook Islands Trust Duress Clause
Authorises the trustee to refuse a repatriation order. What it protects and what it cannot, explained through Anderson.
1 min
The Cook Islands Trust Jones Clause
Names a known creditor and authorises payment. The counterintuitive tool that weakens the fraudulent intent argument.
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