Creation of trusts—asset protection trusts
Produced in partnership with Michael O’Sullivan of 5 Stone Buildings
Creation of trusts—asset protection trusts

The following Private Client guidance note Produced in partnership with Michael O’Sullivan of 5 Stone Buildings provides comprehensive and up to date legal information covering:

  • Creation of trusts—asset protection trusts
  • Classic asset protection situations
  • Sham trusts
  • Proceedings under the Insolvency Act 1986
  • Matrimonial proceedings
  • Inheritance (Provision for Family and Dependants) Act 1975
  • Care home fees
  • UK situs assets
  • Proceeds of crime

An asset protection trust is one that is established to safeguard assets from potential threats. The threats may be from third parties such as potential creditors or spouses in a divorce. Alternatively, they may originate from the character of the beneficiary who the trust is designed to benefit. That beneficiary may be financially irresponsible or subject to unhealthy influences or habits such as a drugs.

An asset protection trust will often be discretionary in form but it need not be. The trust may confer an interest in possession on the designated beneficiaries. However, in such a case, it should be made subject to overriding powers of appointment so that the interest in possession can be terminated in the event of a beneficiary becoming bankrupt or subject to some adverse claim from a creditor or a spouse. The trust may be protective in form that is one that follows the pattern in section 33 of the Trustee Act 1925 so that the beneficiary has an interest in possession that is terminable in the event that the beneficiary seeks to assign the interest or commits an act which causes the interest to become forfeited. On the occurrence of such an event, a discretionary trust comes into existence. See Practice Note: Creation of trusts—protective trusts. Bare trusts are not suitable as a beneficiary who is