Protective trust - this is a script for tutorial questions. the lecturer asks for a lawyer and PDF

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lawyer (l): hello, how may i help you?client(c): what is the suitable trust? l: since laura is a spendthrift who likes to buy designer clothes , it is suggested that mr and mrs lim should set up a protective trust for laura in order to protect the asset f rom being put at risk. we also suggest that ...

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lawyer (l): hello, how may i help you? client(c): what is the suitable trust? l: since laura is a spendthrift who likes to buy designer clothes, it is suggested that mr and mrs lim should set up a protective trust for laura in order to protect the asset from being put at risk. we also suggest that a protective trust is set up for lina too to ensure that the funds is protected and provides for her future educational needs. c: how does protective trust work? l: a protective trust is a special type of trust that enables the settlor to provide protection for an immature or reckless beneficiary by transferring assets to trustees to hold on protective trusts for that beneficiary. in other words, this trust will prevent a beneficiary disposing of all or any of his beneficial interests. however, the terms of the trust are such that the right to income will terminate either on the bankruptcy of the beneficiary or on any attempt by the beneficiary to sell or otherwise dispose of his/her life interest. the beneficiary can’t touch any of the property in the trust; he only owns the payments that have been made c: who will become the trustee and principal beneficiary? in many cases you will be a trustee of your own trust so you clearly remain in complete control.the trustee that you name could be another family member or an independent person or professional body who will then have the power to give the money or assets to the beneficiary in whatever way they consider most appropriate the principal beneficiary is to whom the trust was designated to which in your case is your two daughters lina and laura. c: how do i create protective trust? there are two ways in which you may set up a protective trust. 1. you can set it out expressly in a trust deed which we will draw up for you. 2. or the trust deed you wish to set out can incorporate the statutory provision provided in the section 38 of trustees act 1949. a. What the provision will set out in the trust deed are these things: i. It will first provides for the operation of a protective trust in absence of detailed terms of the trust. ii. It will outline that in the happening of a certain “determining” event ( for example, bankruptcy etc) the first interest in the trust will fail and that’s where the protective trust you set up for either of your children stops. iii. after that event happens and the protective trust is terminated, the second interest will come into place where we call it as “discretionary trust”. iv. Whoever you appointed as the trustee for this trust you wish to set out has the absolute discretion. The trustee is at the discretion to control the amount of income the beneficiary ( that is, either of your daughter ) will receive, but only so much as will satisfy her maintenance needs and nothing more. In this case, your appointed trustee can decide how much either of your daughter will require at a certain point of time.

c: what if i became bankrupt? l: mr and mrs lim, if you were to become bankrupt or about to be bankrupt, you are actually prevented

from making any trust settlement to protect yourself against your own bankruptcy. it is against public policy for you to do so. if any such settlement is done within two years of you ending up bankrupt, the settlement or any trust you set up for yourself is absolutely void against the official assignee/you. however, if your child were the one who becomes bankrupt, the trust may still operate as she does not create it for herself, but you created it on her behalf. however, you may include her bankruptcy as one of the ‘determining event’ to cancel out the protective trust. when that happens, discretionary trust will come into place and your appointed trustee now has the discretion to provide how much income the principal beneficiary ( your child ) will receive. and her creditors are prevented from touching anything from the trust you created for her. l: do you have anymore questions? C: no. l: alright, take you for coming....