Trust protectors are a powerful tool that should be included in all irrevocable trusts. The role is most often filled by a trusted friend, family member, or professional fiduciary.
Without a Trust Protector, a new Trustee could milk the Trust for fees or harbor a grudge against an heir/beneficiary. Having a Protector allows you to fire that Trustee.
Protect the Grantor’s Intentions
Depending on how the Trust is written, a trust protector may be given broad authority to change the Trust. Usually, this will include removing and replacing trustees, adding and deleting beneficiaries, changing the state where the Trust is administered, and even altering how Trust principal and income are distributed among beneficiaries. However, it is essential to note that the trust instrument must explicitly grant the power to do so.
If not, the protector will have no legal way to exercise this power. This is why we often suggest that a trust protector be chosen who is unrelated to the grantor or any beneficiary. Having a neutral third party act as a protector can help prevent disputes or claims from arising over alleged conflicts of interest and misunderstandings about the settlor’s intentions.
A trust protector, like CunninghamLegal, can also help monitor the Trustee’s actions. They can be given specific powers to do so, which can be helpful if the original Trustee is not performing their duties by the law or in keeping with the grantor’s intent. This monitoring function can also be beneficial if the Trustee has developed an addiction or harboring a grudge against any heirs/beneficiaries.
Change the Terms of the Trust as Needed
Depending on the type of Trust, the Trustee may be given broad authority to oversee daily trust administration. The trust protector can be given specific powers to adjust a trust to respond to changing circumstances. This is especially important for long-term trusts like a special needs trust (SNT) or family trust holding assets across generations because laws and events will likely change over time.
For example, SNTs often include in their documents the power of the protector to fire a trustee. This can be important in cases where a trustee goes rogue or if there is a conflict between the Trustee and another heir/beneficiary of the Trust. The protector is also typically given the power to monitor the activities of the Trustee and the underlying investment advisors. This can be important to ensure the Trustees are not milking the Trust for fees or, worse, taking advantage of one heir/beneficiary over another.
Generally, a trust protector is an independent party with training and experience in the administration of trusts and a great deal of tact when navigating family dynamics. The trust creator often selects a private professional fiduciary to serve in this role because they are not family members and can help avoid the potential for favoritism or animosity that could arise amongst family members.
The trust protector can also change the Trust’s terms necessary to comply with laws, reflect family configurations, or shift assets. This includes resolving disputes between co-trustees, changing distributions for beneficiaries experiencing new circumstances, or adding additional beneficiaries as grandchildren or great-grandchildren are born.
This also ensures that if a trustee does not act according to the grantor’s intentions, the trust protector can take action against them. This can save beneficiaries a lot of headaches and expenses, as they would not have to spend their inheritance fighting with a misbehaving trustee in court.
Depending on how the trust document is written, the trust protector can be an individual or entity such as a bank, corporation, or law firm. The most common choice is a trusted lawyer with experience in estate planning and tax law. An experienced party outside the family is often preferable to avoid potential favoritism or animosity among family members.
The trust protector can also monitor how the Trustee manages the Trust’s investment and business affairs. As a fiduciary, the trust protector is generally required to pay their fees and expenses when acting on behalf of the Trust. For this reason, it is typically a good idea to include in the trust document that the beneficiaries must unanimously agree on who will serve as the trust protector.
Protect the Trust’s Assets
A protector can be granted a wide range of powers, depending on the specific language in the trust agreement. These powers can include the authority to remove and replace trustees, the ability to control investment and distribution decisions, the power to veto actions of a trustee or other person acting in a fiduciary capacity, and the authority to amend the Trust to adapt to changing circumstances (e.g., new tax laws).
The purpose of a protector is to protect the grantor’s intentions and the Trust’s assets, regardless of how the Trustee or beneficiaries behave in the future. As a result, the protector should have considerable experience and training in estate planning. They should also have the tact to avoid conflict or animosity among family members. We often recommend selecting an independent party with professional trust administration experience outside the family.
While it is possible to name someone you know as a trust protector, working with a seasoned professional is essential to create your irrevocable Trust. An experienced attorney will have the time, knowledge, and reputation to act as a protector. Still, it’s even more important to choose someone who can stand outside the Trust, understand its purposes, and avoid conflicts of interest that might damage its long-term value.