A Debtor’s property is in principle available for the satisfaction of his creditors, and if he becomes bankrupt, it will pass to Spendthrift Trust, his trustee in bankruptcy; but is it possible, by making use of a protective trust, to obtain a measure of protection against such an event.
In the development of protective trusts or spendthrift trusts the courts have been torn between two conflicting pressures. On the one hand, nobody should have the power of defeating his creditors by put ting his property beyond their grasp; on the other, a settlor should be able to create a trust, in any form, so long as it is not unlawful; and there is much to be said for allowing some means of protecting a person’s dependants from the ill-effects of his extravagance. In Belize there is provision in the laws that provides that a Spendthrift Trust is not unlawful. Section 12 (4) of the Belize Trusts Act states “Any rule of law or public policy which prevents a settlor from establishing a protective or spendthrift trust of which he is a beneficiary is hereby abolished.”
The technique of protective trusts involves the giving of a determinable life interest with a gift over upon the happening of a certain event.
The modern practice is to provide for a gift over to trustees to hold on discretionary trust in favour of a class which includes the life tenant and members of his family “this is known as the spendthrift trust”. A spendthrift trust is justified on the ground that the settlor, in creating the trust, should be allowed to create such equitable interests as he wishes. Spendthrift or protective trusts specifically protect against the reach of creditors. The interest of the beneficiary cannot be assigned to him, or reached by his creditors.
Under section 12 (1) of the Belize Trusts Act 1992 the terms of the trust may make the interest of a beneficiary:
- Subject to termination,
- Subject to a restriction or alienation of or dealing in that interest; or
- Subject to determination or termination in the event of the beneficiary becoming insolvent or any of his property becoming liable to seizure; for the benefit of his creditors.