The reference Fixed Trust and Discretionary Trust actually refers to the beneficial entitlement of the beneficiaries. A Fixed Trust is one in which the amount or proportions to be distributed to the Beneficiaries have been determined. The beneficial interest of each Beneficiary has been clearly defined.
A Discretionary Trust on the other hand is a Trust in which the amount or proportions to the Beneficiary(ies) are not fixed but left to the discretion of the Trustee, although he may be guided by the Settlor through a Letter of Wishes.
Since Discretionary Trust is subject to the discretion of the Trustee in terms of distribution, abuse is possible especially if the Trustee is an individual but such will be difficult or not possible in the case of a licensed and professionally-run Trustee company where the corporate governance and internal controls are strong and the Protector serves as a watchdog with some advisory or other powers over the Trustee.
Anybody who has reached legal maturity and is of sound mind whom the Settlor trusts can be a Protector. The appointment of a Protector is optional but it is highly encouraged.
A Protector is the person appointed by the Settlor to oversee and give consent to certain actions of the Trustee or to perform certain functions stated in the Trustee Deed. The Protector acts like a watch-dog in the restraint of the Trustee’s powers and to safeguard against a Trustee who may become incompetent, uninterested or who abuses its powers.
Whatever interest or whatever property a Trustee holds on trust does not belong to him but for the benefit of the Beneficiaries because the assets/property are held under trust accounts that are separate from the assets of the Trust Company. Therefore, in the event of a Trustee’s bankruptcy, the Trust property will not be vested in the Director General of Insolvency but instead a new successor Trustee would be appointed as Trustee to continue with the Trust.
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