A protective trust is a legal arrangement that allows an individual, referred to as the settlor, to place assets or property under the control of trustees for the benefit of specified beneficiaries. The primary purpose of a protective trust is to protect and preserve assets for the intended beneficiaries, ensuring their long-term financial security. This trust structure is specifically designed to provide safeguards against potential risks, such as bankruptcy, divorce, or undue influence.

Protective trusts can be utilised in various circumstances, depending on the individual's objectives and concerns. Here are a few common scenarios where a protective trust may be advantageous:

1. Asset protection: If you wish to shield your assets from potential creditors, legal claims, or financial risks.

2. Estate planning: Protective trusts are often employed as a key component of estate planning strategies.

3. Wealth preservation: If you want to preserve family wealth across generations while maintaining control over its distribution.

4. Charitable purposes: Protective trusts can also be established to support charitable causes.

Setting up a protective trust involves several key steps. While it is highly recommended to seek professional advice from a solicitor or a trust specialist, here is a general overview of the process:

1. Define your objectives: Determine the purpose and goals of the trust, such as asset protection, estate planning, or charitable giving.

2. Choose trustees: Select trustworthy individuals or professional trustees who will be responsible for managing the trust assets and making distributions to beneficiaries.

3. Identify beneficiaries: Clearly specify who will benefit from the trust and the conditions under which they will receive distributions.

4. Draft the trust deed: Work with a legal professional to draft a comprehensive trust deed that outlines the terms, conditions, and provisions of the trust, ensuring they align with your objectives.

5. Transfer assets: Transfer ownership of the identified assets or property into the trust, adhering to the legal requirements and procedures.

6. Register the trust (if applicable): Depending on the type of trust and the assets involved, you may need to register the trust with relevant authorities, such as the HM Revenue and Customs (HMRC).

While protective trusts offer numerous advantages, it's important to be aware of their limitations. Here are a few considerations:

1. Tax implications: Depending on the nature of the assets and the trust structure, tax implications can arise. Seek advice from a tax professional to understand the potential tax consequences of setting up a protective trust.

2. Irrevocability: Once a protective trust is established, it is generally difficult to modify or revoke. It is crucial to carefully consider the trust provisions to ensure they align with your long-term objectives.

3. Legal and administrative costs: Setting up and maintaining a protective trust involves legal and administrative expenses. Consider the ongoing costs associated with the trust administration and ensure they align with the potential benefits.

4. Trustee discretion: Trustees have a fiduciary duty to act in the best interests of the beneficiaries. However, their discretionary powers may restrict your direct control over the trust assets.