The Protective Trust is a form of settlement found in

England and Wales England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is Eng ...

and several Commonwealth countries. It has marked similarities to asset-protection trusts found in several offshore jurisdictions and US

Spendthrift trust A spendthrift trust is a trust that is created for the benefit of a person (often unable to control his/her spending) that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of th ...

s. In such a trust assets are ordinarily held to pay an income to the

beneficiary A beneficiary (also, in trust law, '' cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the person ...

. The beneficiary may also have access to capital of the trust with the

trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...

'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 A discretionary trust, in the trust law of England, Australia, Canada and other common law jurisdictions, is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in t ...

, under which the beneficiary has no right to the income, if anything is done 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 The Trustee Act 1925c 19 is an Act of Parliament of the United Kingdom passed on 9 April 1925, which codified and updated the regulation of trustees' powers and appointment. It accompanied the land reform legislation of the 1920s. It came into eff ...

(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.

See also