1 : 11 - Other Protection Solutions

Question 1

What is an Asset Protection Trust?

Answer 1

This 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

Question 2

Who are the beneficiaries of a trust?

Answer 2

They’re the beneficial owners of equitable interests in the trust assets, but they do not hold legal title to the assets.

Question 3

What is a spendthrift clause?

Answer 3

Most asset protection trusts contain a spendthrift clause preventing a trust beneficiary from alienating their expected interest in favour of a creditor.

Question 4

The spendthrift clause has what 3 general exceptions to the protection afforded?

Answer 4

• self-settled trusts – this is where the settlor of the trust is also a beneficiary of the trust
• when a debtor is the sole beneficiary and the sole trustee of the trust
• where a court orders the trustee to satisfy a beneficiary’s support obligation to a former spouse or minor child.

Question 5

What are Unit-linked products?

Answer 5

These products invest the savings part of the premiums of the policyholder transparently in investment vehicles, mostly internal or external funds, and let the policyholder participate fully in the investment returns of these funds – the upside as well as the downside.

Question 6

How can investment guarantees be built into Unit-linked products?

Answer 6

By using variable annuities

Question 7

What is the advantage of variable annuities?

Answer 7

They combine the advantages of traditional life insurance products (long-term investment guarantees) with the advantages of unit-linked products.

Question 8

What are the drawbacks of variable annuities?

2

Answer 8

• The policyholder has to pay a premium for the additional investment guarantee.
• The shareholder has to manage the substantial risks generated by such products