Protective Trusts in Wills – Protecting a Vulnerable Beneficiary

When making your Will, you may wish to provide someone with an inheritance but feel it would be unwise to give them money or assets directly.  A Protective Trust in your Will might be appropriate. 

 There are various kinds of issues that might be faced by the person you want to include as a beneficiary.  The proposed beneficiary may have an intellectual disability.  They might be unable to manage their own financial affairs for another reason, perhaps lacking the ability to comprehend the difference between one large amount of money and another.  

A family member might have spendthrift tendencies, or have trouble with gambling, or be perhaps vulnerable to the influence of other people in their lives particularly if they received a large inheritance.  You might feel a beneficiary’s misuse of drugs or alcohol could result in an inheritance simply feeding an addiction.  It can be distressing to contemplate all your hard work going to waste after you pass away. 

Often a Will gives a beneficiary their inheritance outright, or only contingent on their reaching a particular age such as 18 or 21.  In that situation, the beneficiary receives the inheritance with no strings attached and can then manage it as they see fit. 

With a Protective Trust, you can still allocate an inheritance to the chosen beneficiary, but it is managed by someone else in order to protect your intended beneficiary.  That other person is appointed “trustee” of that part of your estate, and manages it solely for your chosen beneficiary.  The trustee cannot use that portion of your estate for any other purpose or any other person. 

 So the biggest decision when considering a Protective Trust is who to appoint as trustee.  This can be another family member, a friend, or an independent person.  Their trustworthiness is vital – it’s there in the name, “trustee”.  It is often a good idea to discuss your plans with that person before finalising your Will, because it can be a significant responsibility for them over a long period of time.  That person may not actually want to be involved which you would need to know now rather than it being discovered only you pass away.  A conversation can also be the opportunity for you to discuss how you want the inheritance managed – what particular things you would consider it wise for that part of your estate to be applied towards, such as education, housing, medial expenses, and so on.  

A Protective Trust can be structured to suit the particular needs of your situation.  In some situations the relevant issues may be permanent.  However if you are optimistic that the issues faced may resolve in future – addictions overcome, maturity gained – it could be appropriate to give the trustee discretion to end the trust early. 

As we have seen with the 2026 federal budget announcements, the taxation of trusts can change over time.  So, it is often prudent to obtain accounting or financial advice if you are considering a Protective Trust. 

 If you are considering including a Protective Trust in your Will, it is important to get advice tailored to your circumstances. Contact Adam Osborn and TGB Lawyers’ Wills and Estates team to discuss how best to protect your wishes and provide for your loved ones.