Protective Trust

Protective trusts are an efficient way of protecting assets, which are intended for a friend or relative whose personal circumstances cannot guarantee the safety of those assets.

Circumstances where a Protective Trust may be useful are where the beneficiary is involved in a speculative or hazardous business, which may result in bankruptcy, is a spendthrift, or is perhaps dependent upon alcohol or drugs, which makes him vulnerable financially.

The creation of a Protective Trust during your lifetime can guarantee that assets are set aside for the benefit of such a relative, giving them a continuing income and without leaving assets vulnerable by passing to them absolutely.

The settlor sets up a Protective Trust, places assets (which can include family heirlooms) into the trust and appoints the beneficiary. The beneficiary has the right to use and enjoy the assets during his or her lifetime and receives an income from any investment assets settled. At all times the assets remain protected in the trust until the trustee exercises his power to release all or part of them.

Should the beneficiary become bankrupt, the beneficiary’s interest can cease under the terms of the trust. When this happens the trust becomes a trust for the benefit of a class of beneficiaries (which can include the original beneficiary’s spouse and children) at the discretion of the trustees. In most circumstances, the original beneficiary’s creditors cannot force the sale of the trust assets to settle his debts.

Where the beneficiary is financially vulnerable he or she made need protecting from less scrupulous acquaintances or from themselves. The trust allows the trustees to keep a close eye on the funds to ensure that they are not advanced to the beneficiary or “invested” inappropriately, whilst ensuring that the ongoing interests of the beneficiary are maintained.