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 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 (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.
A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settlor", the party to whom the right is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". A testamentary trust is created by a will and arises after the death of the settlor. An inter vivos trust is created during the settlor's lifetime by a trust instrument. A trust may be revocable or irrevocable; an irrevocable trust can be "broken" (revoked) only by a judicial proceeding.
Trustee 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 for the benefit of another. A trustee can also be a person who is allowed to do certain tasks but not able to gain income. Although in the strictest sense of the term a trustee is the holder of property on behalf of a beneficiary, the more expansive sense encompasses persons who serve, for example, on the board of trustees of an institution that operates for a charity, for the benefit of the general public, or a person in the local government.
A spendthrift trust is a trust that is created for the benefit of a person that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. Creditors of the beneficiary generally cannot reach the funds in the trust, and the funds are not actually under the control of the beneficiary.
An asset-protection trust is any form of trust which provides for funds to be held on a discretionary basis. Such trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce and bankruptcy on the beneficiary. Such trusts are therefore frequently proscribed or limited in their effects by governments and the courts.
An express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties." Property is transferred by a person to a transferee, who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.
A special needs trust, also known in some jurisdictions as a supplemental needs trust, is a specialized trust that allows the disabled beneficiary to enjoy the use of property that is held in the trust for his or her benefit, while at the same time allowing the beneficiary to receive essential needs-based government benefits. A Special Needs Trust is a specific type of irrevocable trust that exists under Common Law. Several Common Law nations have established specific statutes relative to the creation and use of Special Needs Trusts, and where they exist a Special Needs Trust will not be valid unless it comports with the requirements listed in the statute. The applicable Federal statute in the United States is found at Title 42 United States Code Section 1396p(d)(4)(A). Several States have established their own statutes.
The law of Bermuda is based on the common law legal system of England and Wales.
The Hague Convention on the Law Applicable to Trusts and on their Recognition, or Hague Trust Convention is a multilateral treaty developed by the Hague Conference on Private International Law on the Law Applicable to Trusts. It concluded on 1 July 1985, entered into force 1 January 1992, and is as of September 2017 ratified by 14 countries. The Convention uses a harmonised definition of a trust, which is the subject of the convention, and sets Conflict rules for resolving problems in the choice of the applicable law. The key provisions of the Convention are:
Supplemental needs trust is a US-specific term for a type of special needs trust. Supplemental needs trusts are compliant with provisions of US state and federal law and are designed to provide benefits to, and protect the assets of, individuals with physical, psychiatric, or intellectual disabilities, and still allow such persons to be qualified for and receive governmental health care benefits, especially long-term nursing care benefits, under the Medicaid welfare program.
A bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. Assets in a bare trust are held in the name of a trustee, but the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over, or 16 or over. Bare trusts are often used to pass assets to young people - the trustees look after them until the beneficiary is old enough.
An offshore trust is a conventional trust that is formed under the laws of an offshore jurisdiction.
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust. Trust instruments are generally only used in relation to an inter vivos trust; testamentary trusts are usually created under a will.
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 the trust instrument by the settlor. It is sometimes referred to as a family trust in Australia or New Zealand. Where the discretionary trust is a testamentary trust, it is common for the settlor to leave a letter of wishes for the trustees to guide them as to the settlor's wishes in the exercise of their discretion. Letters of wishes are not legally binding documents.
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures. With the exception of charitable trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have ascertainable beneficiaries.
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950), was a case in which the Supreme Court of the United States set forth the constitutional requirements for notice of judicial proceedings to a potential party under the Fourteenth Amendment to the United States Constitution.
United States trust law is the body of law regulating the legal instrument for holding wealth known as a trust.
Australian trust law is the law of trusts as it is applied in Australia. It is derived from, and largely continues to follow English trust law, as modified by state and federal legislation. A number of unique features of Australian trust law arise from interactions with the Australian systems of company law, family law and taxation.
Asset protection is a set of legal techniques and a body of statutory and common law dealing with protecting assets of individuals and business entities from civil money judgments. The goal of asset protection planning is to insulate assets from claims of creditors without perjury or tax evasion.
A personal injury trust is a legal term of art in the modern English law of trusts and is also applicable, where relevant, to Wales, Scotland and Northern Ireland.
Schmidt v Rosewood Trust Ltd[2003] UKPC 26 is a judicial decision concerning the information rights of a beneficiary under a discretionary trust. Although the judgment involved a question as to the law of the Isle of Man, the Privy Council's judgment in Schmidt v Rosewood was adopted into English law by Briggs J in Breakspear v Ackland[2008] EWHC 220 (Ch).
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