Asset Protection

An asset-protection trust is a term which covers a wide spectrum of legal structures. Any form of trust which provides for funds to be held on a discretionary basis falls within the category. Such trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce and bankruptcy on the beneficiary. Such trusts are therefore frequently proscribed or limited in their effects by governments and the courts.
Whether such a trust is a Spendthrift trust on the U.S. model, a Protective trust on the Commonwealth model or another form of discretionary trust, it is more likely to be subject to challenge under the common law doctrine of sham or under specific statutory provisions if any person setting up the trust (or their spouse and their spouse in turn as in a reciprocal trust):
can benefit under its provisions;
is the person under risk financially;
benefits (whether permitted or not) from the trust; or
if the person setting up the trust is at risk financially, if bankruptcy or divorce occurs soon after the establishment of the trust.