If you’re familiar with estate planning and trusts, you may have come across the term “trust protector” and wondered about its significance. In essence, a trust protector is an independent third party or institution granted the authority to carry out specific duties related to a trust.
The primary purpose of appointing a trust protector is to ensure that the intentions of the trust creator are upheld. Typically outlined in the trust agreement, the responsibilities and authorities of a trust protector play a crucial role in safeguarding the trust’s integrity.
WHAT DOES A TRUST PROTECTOR DO?
The concept of a trust protector often arises in the context of irrevocable trusts. Unlike revocable trusts, which can be altered at will, irrevocable trusts pose challenges for modifications once established. In situations demanding swift action, such as economic upheavals like the recent COVID-19 pandemic, the trust protector becomes pivotal. While the trustmaker relinquishes control, and trustees may have limited powers, the trust protector retains the ability to take corrective measures to protect trust assets.
The scope of a trust protector’s rights and powers varies, ranging from minimal to expansive, depending on the trustmaker’s decisions during the trust’s establishment. Typically, a trust protector has the authority to remove and replace trustees, mediate disputes among trustees and beneficiaries, and intervene in situations like economic changes or evolving tax laws.
Dynasty trusts, designed to endure for extended periods, often grant trust protectors broader powers, reflecting the anticipation of potential challenges over time. A trust protector may be empowered to:
- Remove and replace a trustee
- Modify trustee powers
- Change the trust’s legal jurisdiction
- Terminate the trust
- Correct errors or clarify language in the trust
- Veto distributions to specific beneficiaries
- Review and approve trustee reports and accountings
While some states allow trust protectors to make these decisions without court approval, others may require judicial consent.
WHO CAN BE A TRUST PROTECTOR?
Under most State laws, a trust protector can be a close relative or a trusted friend, but it is beneficial to choose a Trust Protector with experience handling estates. While it is not recommended in most situations, multiple trust protectors can be appointed, forming a committee to collectively fulfill this role. Importantly, a beneficiary should not serve as a trust protector to avoid potential conflicts of interest. Additionally, a trustee acting cannot simultaneously act as a trust protector under many state laws.
The appointment of a trust protector can be stipulated in the trust agreement, or the agreement may outline the process for such appointments. Spouses, beneficiaries, or even the courts may have the authority to appoint a trust protector if not explicitly named in the trust agreement.
COMPENSATION FOR THE TRUST PROTECTOR
While the duties of a trust protector may seem altruistic, it involves considerable work, and compensation is a customary practice. The trust agreement should specify the method for determining the compensation, ensuring fairness for the trust protector’s efforts.
