Protective Trust

What is a protective trust?

A protective trust is a trust drafted so that one beneficiary's entitlement is guarded against the things most likely to erode it: debts, bankruptcy, seizure by creditors, or the beneficiary's own difficulty in managing money. Rather than handing the assets over outright, the trustee keeps them within the trust and releases benefits on the terms the deed lays down.

If you are asking what is protective trust law in Mauritius, the starting point is section 18 of the Trusts Act 2001. It recognises the "protective or spendthrift" trust and allows a beneficiary's interest to be made subject to termination, to a restraint on alienation, or to suspension where the beneficiary becomes insolvent or where the beneficiary's property is seized. In plain terms, the deed can say that if a specified risk materialises, the beneficiary's interest changes shape instead of passing to the people chasing the beneficiary.

The idea is simple, but the drafting is not. A protective trust is only as strong as its wording, its trustee and the facts around it. A general overview of the statute is on the page about the Trusts Act.

How a protective trust works

The mechanism has three parts: the interest, the trigger and the consequence.

• The interest. The beneficiary is given a right to income, capital or both, often at the trustee's discretion.
• The trigger. The deed names the event that activates protection. Section 18 refers to the beneficiary's insolvency or the seizure of the beneficiary's property. A deed may add other risks, provided they are lawful and clearly described.
• The consequence. The interest may end, be restricted so that it cannot be sold or pledged, or be suspended. The trustee then decides, within the powers in the deed, how the benefit continues for the beneficiary's welfare.

The settlor sets the rules, the trustee applies them, and the beneficiary receives what the deed allows. Because the beneficiary does not own the underlying assets outright, a creditor generally has nothing to take hold of beyond whatever the beneficiary has actually received. How far that holds in a given case depends on the deed and on the facts, which is why trusts and creditors deserves its own reading.

Protective trust beneficiary: who is it for?

A protective trust beneficiary is typically someone whose share needs a buffer. The usual profiles include:

• a family member with a history of debt or financial difficulty;
• a beneficiary exposed to business or professional liability;
• a young adult who may not yet manage a large inheritance prudently;
• a person whose capacity is limited, where a dedicated arrangement such as a trust for a child with disabilities may fit better;
• a beneficiary whose spouse or partner could become a claimant if the relationship ends.

For heirs who cannot manage money, the closely related spendthrift trust works on the same statutory footing. The two labels overlap heavily: section 18 itself uses both words together.

What the beneficiary can expect

The beneficiary's position is deliberately narrower than that of an outright owner. In most protective trusts the beneficiary:

• cannot demand capital on request;
• cannot sell, mortgage or assign the interest to a third party where the deed restricts it;
• receives distributions only as the trustee decides or as the deed prescribes;
• keeps the usual rights to information and to hold the trustee to account, explained on the page about trust beneficiaries.

The trade-off is real. The protection that guards the share also limits the beneficiary's freedom to use it. Many families accept that for the sake of the beneficiary's long-term security, but it should be a conscious choice and not a surprise.

Discretionary or fixed: which structure carries the protection?

Protective features can be added to different kinds of trust. A fixed entitlement is easier for a creditor to identify, so protective wording matters more there. A discretionary structure gives the trustee the choice of whether, when and how much to pay, which in itself leaves the beneficiary with less that can be reached. The page on the discretionary trust sets out that model.

Neither column is automatically better. The choice depends on how much certainty the family wants to give the beneficiary and how much judgement it wants to leave with the trustee.

Choosing the right approach

This is a way to organise the thinking, not a recommendation. The right answer turns on the family's assets, where the beneficiary lives and the legal systems involved.

The role of the trustee and the protector

The trustee carries the protective mechanism in practice. Under section 28 of the Trusts Act 2001, a trust may have no more than four trustees, with at least one qualified trustee at all times. A qualified trustee is a FSC-licensed corporate service provider (Management Licence) or another Mauritius-resident person authorised by the FSC to act as a trustee. The trustee's duties toward the family, including even-handedness and prudent management, are described on the page about trustee duties.

A protector is optional but can add a second pair of eyes. Under section 24, the protector can be an adult, including the settlor, or a legal entity, and can advise the trustee. Unless the deed says otherwise, the protector may remove and appoint trustees, change the governing law, move the place of administration and withhold consent to certain acts, without becoming a trustee. The page on the trust protector covers these powers.

Two points of caution apply:

1. The settlor may also be a trustee, beneficiary, protector or enforcer under section 8, but cannot be the sole beneficiary of the trust. A structure that leaves the settlor in effective control of everything invites scrutiny.
2. A trust that only looks protective, while the settlor keeps the substance of ownership, risks being treated as a sham. The page on sham trusts explains when a court sets an arrangement aside.

Transparency, records and confidentiality

Protection does not mean invisibility. A trustee must keep up-to-date accounts and records, and an alphabetical register of the names and last known addresses of each beneficiary and settlor (section 38(3)). Accounting records must be kept for at least 5 years after the operations they relate to are completed.

On the regulatory side, the FSC must keep a register of domestic trusts and of foreign trusts that have at least one qualified trustee (section 26A of the Financial Services Act 2007). It records, among other items, the identity and addresses of beneficiaries, trustees, settlors, protectors and enforcers, together with the trust deed and its amendments. Under the anti-money-laundering framework (FIAMLA 2002), the beneficial owner of a trust-type arrangement includes the settlor, the trustee, any protector, each beneficiary (or the class of beneficiaries) and anyone else with ultimate effective control.

Within that framework, the trustee keeps information about the trust confidential. Under section 33 of the Trusts Act 2001, as rewritten in 2019, a court orders disclosure only on the application of an investigating authority, and only where the information is required in good faith for an investigation or proceedings relating to financial crime.

Tax in outline

The tax treatment depends on the trust's residence status and the beneficiary's circumstances, so this section gives only the general frame. Under the Income Tax Act 1995 (consolidated up to the Finance Act 2026), a trust is taxable on its taxable income at the Part IV rate of the First Schedule, which is 15%. Under section 46(4), a distribution to a beneficiary is deemed to be a dividend in the beneficiary's hands. A protective clause does not by itself change that treatment. The detailed rules are on the page about how trusts are taxed in Mauritius, and the answer for any individual should come from a qualified tax adviser.

Limits of a protective trust

A protective clause is a tool, not a guarantee. Several limits are worth knowing before you rely on one:

• Timing. A transfer made to defeat an existing creditor can be challenged. Protection works best when it is put in place before a problem is foreseeable.
• What has already been paid out. Once a distribution reaches the beneficiary, it is the beneficiary's own property and may be reachable.
• Drafting. Vague triggers or inconsistent clauses can leave gaps. The structure of the deed is covered on the page about what a trust deed contains.
• Forced heirship. A protective trust does not by itself answer the rights of reserved heirs; see forced heirship and trusts.
• Foreign elements. Under section 60, a foreign trust is governed by its own terms and law but is not enforceable in Mauritius where that would amount to an offence, offend public policy or apply directly to immovable property in Mauritius.

Questions to settle before drafting

• Which beneficiary needs protection, and from which specific risks?
• Should the interest be fixed or left to the trustee's discretion?
• What event triggers the restriction, suspension or termination?
• Who will act as trustee, and does the deed include a qualified trustee?
• Is a protector wanted, and with which powers?
• Is a letter of wishes needed to guide the trustee's judgement?
• Has an adviser reviewed the family's tax and succession position?

If you want a qualified firm to look at your own situation, you can send a request through the contact form.