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Protective trust |
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| Wills, trusts and estates |
| Part of the common law series |
| Wills |
| Wills (legal history) Joint wills and mutual wills Will contract · Codicil Holographic will · Oral will |
| Sections Attestation clause Residuary clause Incorporation by reference |
| Contest Testamentary capacity Undue influence Insane delusion · Fraud |
| Property disposition Lapse and anti-lapse Ademption · Abatement Elective share Pretermitted heir |
| Trusts |
| Express · Constructive Resulting |
| Common types Bare · Discretionary Accumulation and Maintenance Interest in possession Charitable · Purpose · Incentive |
| Other types Protective · Spendthrift Life insurance · Remainder Life interest Reversionary interest Honorary · Asset-protection |
| Governing doctrines Pour-over will Cy-près doctrine |
| Estate administration |
| Intestacy · Testator · Probate Power of appointment Simultaneous death · Slayer rule Disclaimer of interest · Inheritance tax |
| Related topics |
| Totten trust |
| Other common law areas |
| Contract · Tort · Property Criminal law · Evidence |
The Protective Trust is a form of settlement found in England and Wales and several Commonwealth countries. It has marked similarities to asset-protection trusts found in several offshore jurisdictions and US Spendthrift trusts.
In such a trust assets are ordinarily held to pay an income to the beneficiary. The beneficiary may also have access to capital of the trust with the trustee's permission. The right to receive income from a trust would ordinarily be an asset in the hands of the beneficiary and could be sold, thwarting the intention of the donor to spread the gift over the recipient's lifetime. Additionally on a bankruptcy the right to the income would be sold by the beneficiary's trustee in bankruptcy.
To give protection to beneficiaries, a protective trust automatically converts into a discretionary trust, under which the beneficiary has no right to the income, if he or she does anything which breaches a condition specified in the document creating the trust.
The establishment of this discretionary trust is ordinarily exempt from the charge to UK inheritance tax on the establishment of discretionary trusts.
Such protective trusts have a longstanding history. To reduce the verbose definitions that had previously to be recited in the establishing documents of a protective trust, in England and Wales s33 of the Trustee Act 1925 (and equivalent legislation in other jurisdictions) provides that this protection will arise in any trust described as a "protective trust" in its trust deed.
Protective trusts are subject to challenge under creditor protection legislation as are any other forms of asset-protection. However many jurisdictions do not permit a trust to be broken where a debtor who remains a discretionary beneficiary only under a trust and cannot access the fund without the exercise of the trustees' discretion in his favour.
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