PROTECTIVE TRUSTS

The income of property may be settled on such terms as to restrict its availability to creditors of the beneficiary in the following ways:

(a) Determinable interests:
In this case the interest of the beneficiary ceases on alienation or bankruptcy. Note that a person cannot settle property on himself until bankruptcy since this would defeat the claims of his creditors.

(b) Discretionary trusts:
In this case the trustees have a complete discretion whether to pay the income to the beneficiary or not.

(c) Protective trusts
If income is settled on "protective trusts", this operates to give –

• A life interest for the principal beneficiary determinable on alienation or bankruptcy; and thereafter;
• A discretionary trust for the trustees to apply the income for the benefit of the principal beneficiary, his spouse and issue, or, if there is no spouse or issue then for the benefit of the principal beneficiary and those who would be entitled to the trust property or the income thereof were he dead.