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Special type of trust / Specimen of
Discretionary Trust
A method of protecting family property
against the consequences of the family
falling into debt.
General rule : any property owned by a
debtor can be taken to satisfy his creditors
– may include property vested in the
trustee
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How does it work?
This trust will prevent a beneficiary
disposing of all or any of his beneficial
interests.
It consists of a determinable life interest
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Advantages
Upon bankruptcy or alienation of interest
that interest simply ceased to exist and
cannot be claimed by creditors or the
trustees in bankruptcy.
The property remains in the hands of the
trustees who can distribute the income as
they see fit in the circumstances.
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For eg : if the reason for the
determination is actual indebtness of the
former life tenant,- pointless to make
payments to him as creditors will seized it.
In order to maintain the lifestyle of the
family, the trustee will instead make
payment to the wife or anyone who supply
his needs – trustee can apply the ‘use and
benefit’ of the former life tenant without
placing money directly into his hands.
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How to create PT
Settlor may set it out expressly in the
trust deed
OR
The trust deed may incorporate the
Statutory Provision –Trustees Act 1949-s.
38
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What kind of words.
- No specific rule.
- As long the reference to the provision is
clear.
- Ex : Re Platt [1950] CLY 4386-”for a
protective life interest.
- Re Wittke [ 1944] Ch 166- ‘a gift upon
protective trust for the benefit of my
sister’
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Two limitations
1) It is not possible to settle property upon
oneself upon such trust
- it is usually created by the parents of the
principal beneficiary on his behalf
Re Burroughs Fowler [1916]2 Ch 251
Issue: Can he protect himself?
It is against public policy?
He cannot protect himself from his own
bankruptcy
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2) The life interest must be made
determinable upon the relevant event.
so defined that it ends naturally upon the
happening of the event.
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2) The life interest must be made
determinable upon the relevant event.
so defined that it ends naturally upon the
happening of the event.
